Gawenis v. Arkansas Oil & Gas Commission

2015 Ark. 238, 464 S.W.3d 453, 183 Oil & Gas Rep. 303, 2015 Ark. LEXIS 390
CourtSupreme Court of Arkansas
DecidedMay 28, 2015
DocketCV-14-648
StatusPublished
Cited by5 cases

This text of 2015 Ark. 238 (Gawenis v. Arkansas Oil & Gas Commission) is published on Counsel Stack Legal Research, covering Supreme Court of Arkansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Gawenis v. Arkansas Oil & Gas Commission, 2015 Ark. 238, 464 S.W.3d 453, 183 Oil & Gas Rep. 303, 2015 Ark. LEXIS 390 (Ark. 2015).

Opinions

JIM HANNAH, Chief Justice

| t Appellant Richard G. Gawenis appeals from an order of the Van Burén County Circuit Court affirming an order of appel-lee Arkansas Oil and Gas Commission to integrate-Gawenis’s unleased mineral interests into a drilling unit. For reversal, Gawenis contends that the Commission’s forced integration of his mineral interests is an unconstitutional taking of his property and that the Commission’s order deprived him of his constitutional right to a jury trial to determine just compensation for his property. This., appeal requires interpretation of the Arkansas Constitution; therefore, our jurisdiction is pursuant to Arkansas Supreme Court Rule 1-2(a)(1) (2014). We affirm the circuit court’s order.

Gawenis is the owner of the oil, gas, and other minerals beneath a .69 acre tract in Van Burén County, Arkansas, that is situated within the Ozark Highlands Unit (“OHU”). Formed by the United States of America Bureau of Land Management, the OHU is believed to be prospective for natural-gas exploration and development, from the Fayetteville Shale | ¡formation. The OHU is composed mostly of mineral interests owned by the .United States of America, but it also contains some privately owned mineral interests, such as the .69 acre mineral tract owned by'Gawenis.

On May 22, 2012, the Commission held a public hearing to receive evidence related to SEECO’s application seeking to create a 5,154-acre oil-and-gas drilling unit in the OHU and to integrate all unleased and uncommitted mineral interests within the unit. On June 4, 2012, the Commission established the unit and integrated all of the unleased and uncommitted mineral interests within the unit,, except for the un-leased mineral interests of Gawenis.

On June 26, 2012, the Commission held a hearing to receive evidence related to SEECO’s request to integrate Gawenis’s unleased mineral interests into the drilling unit. Gawenis testified at the hearing, stating that he believed that the forced-integration procedures of the Commission amounted to a taking of his property, that the risk-factor percentage was inappropriate, that his rights and his land belonged to him, and that he had not been afforded a jury trial to determine just compensation for his mineral interests. In a July 12, 2012 order, the Commission approved SEECO’s application and integrated Gaw-enis’s unleased mineral interests into the drilling unit.

Gawenis sought review of the Commission’s decision in the circuit court pursuant to the Arkansas Administrative Procedure Act, Arkansas Code Annotated sections 25-15-201. to -219. At a hearing before the circuit court, Gawenis argued that the Commission’s forced-integration procedures amounted to a taking of his property and that he was | .¡entitled to have a jury determine compensation. On March 31, 2014, the circuit court entered an order affirming the Commission’s decision and finding, inter alia, that the forced-integration procedures are constitutional and that the terms provided under the Commission’s order were fair and reasonable consideration for an oil-and-gas lease. Gawenis appeals.

A brief review of the history of relevant oil-and-gas law is helpful to an understanding of Gawenis’s arguments. In early twentieth-century Arkansas,- the “rule of capture” governed the production and use of oil and gas. This court defined the rule of capture in a 1912 case as follows:

Petroleum, gas, and oil are substances of a peculiar character..'.. They belong to the owner of-land, and are part of it so long as they are part of it or in it or subject to his control; but when they escape and go into other land or pome under another’s control, the title of the former owner is gone. If an adjoining owner drills his own land and taps a deposit of oil or gas extending under his neighbor’s field, so that it comes into his well, it becomes his property.

Osborne v. Ark. Terr. Oil & Gas Co., 103 Ark. 175, 180, 146 S.W. 122, 124 (1912) (quoting Brown v. Spilman, 155 U.S. 665, 669-70, 15 S.Ct. 245, 39 L.Ed. 304 (1895)). Under the rule of capture, a landowner had an unrestricted right to drill for oil and gas on his or her land, and if oil and gas were found, the landowner would not be liable to adjacent landowners whose lands were also drained. Each landowner was encouraged to produce as much oil and gas from the reservoir as possible, even though “[t]he resultant ‘race’ to the depletion of the reservoir wasted oil and gas reserves, as well as economic resources, and jeopardized property rights.” Phillip E. Norvell, Prelude to the Future of Shale Gas Development: Well Spacing and Integrating for the Fayetteville Shale in Arkansas, 49 Washburn L.J. 457, 459 14 (Winter 2010).

In 1939, the General Assembly enacted the Arkansas Conservation Act. See 'Act of Feb. 20, 1939, No. 105, 1939 Ark. Acts 219.1 The Act modified the rule of capture and established the Arkansas Oil and Gas Commission to regulate the development and production of oil and gas in the state.2

To prevent waste and to avoid the risks arising from the drilling of an excessive number of welis, the Commission has statutory , authority to establish drilling units, designate the number of wells that may be drilled and produced, and regulate the spacing among wells within a unit. See Ark.Code Ann. § 15-72-302(b). The Commission also has the authority Rto integrate production in drilling units. See id. § 15-72-303. Owners3 of tracts or interests within an established drilling unit may voluntarily pool, combine, and integrate their tracts or interests for the development, or operation of that drilling unit. See id. § 15-72~303(a). But if the owners fail or refuse voluntarily to integrate their interests, the Commission .shall, upon the application of any owner or operator,4 integrate all tracts and interests in the drilling unit for the development or operation of the drilling unit and the sharing of production, from the drilling, unit. Id. § 15-72-3.03(b). “Forced integration” or “compulsory pooling,” as it is known in other jurisdictions, “is the remedy that permits development of the drilling unit in the event that the mineral-interest owners cannot agree to pool voluntarily.” Norvell, supra, at 463.

Integration orders are made after notice and a hearing and “upon terms and conditions Which are just and reasonable and which will afford the owner of each tract or interest in the drilling unit the opportunity to recover or receive his or her just and equitable share of the oil and gas in th!é pool without unnecessary expense.” Ark.Code Ann. § 15-72-304(a). When, as in this case, there is no well drilled in the unit, the integration order (1) authorizes the 'drilling, equipping, and operation of a well on the drilling unit, (2) provides who shall | (¡drill, complete, and operate the well, (3) prescribes the time and manner in which all owners in the drilling unit who may desire to pay their share of the costs of such operations and participate therein may elect'to do so, and (4) provides that an owner who does not affirmatively elect to participate in the risk and cost of the operations shall transfer his or her rights in the drilling unit and the production from the unit well to the participants for reasonable consideration and on reasonable terms. See id. § 15-72-304(b)(l)-(4).

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
2015 Ark. 238, 464 S.W.3d 453, 183 Oil & Gas Rep. 303, 2015 Ark. LEXIS 390, Counsel Stack Legal Research, https://law.counselstack.com/opinion/gawenis-v-arkansas-oil-gas-commission-ark-2015.