Railroad Comm. of Texas v. Lone Star Gas Co.

587 S.W.2d 110, 22 Tex. Sup. Ct. J. 497, 64 Oil & Gas Rep. 542, 1979 Tex. LEXIS 304
CourtTexas Supreme Court
DecidedJuly 18, 1979
DocketNo. B-8126
StatusPublished
Cited by1 cases

This text of 587 S.W.2d 110 (Railroad Comm. of Texas v. Lone Star Gas Co.) is published on Counsel Stack Legal Research, covering Texas Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Railroad Comm. of Texas v. Lone Star Gas Co., 587 S.W.2d 110, 22 Tex. Sup. Ct. J. 497, 64 Oil & Gas Rep. 542, 1979 Tex. LEXIS 304 (Tex. 1979).

Opinion

DENTON, Justice.

The question presented in this direct appeal is whether the applicable field rules allow a producer to recover his undisputed share of gas from a tract which has not been depleted of native gas entitlements, by use of an existing well bore located on another tract which has been depleted of all native gas entitlements.

E. Herbert Gatlin, one of the appellants here, applied to the Railroad Commission, the other appellant here, for an order authorizing the use of an existing well bore to produce a specific quantity of gas from the Bacon Lime Reservoir located in Henderson County. The Commission granted Gatlin’s application. Lone Star Gas Company, ap-pellee here, appealed this order to the district court of Travis County. The trial court set aside the Commission’s order and enjoined its enforcement. Since we agree with the Commission’s order granting Gat-lin’s application, we reverse the judgment of the trial court and remand the cause to that court with instructions to render judgment in accordance with this opinion.

A clear understanding of the legal issues involved in this appeal requires a brief summary of the unusual factual background of this controversy. In 1956, the Railroad Commission approved the Tri-Cities (Bacon Lime) field as a gas storage reservoir to be operated by Lone Star. Lone Star acquired storage rights to tracts overlying what it thought to be the entire Bacon Lime Reservoir and began operating the storage unit. Several years later, Lone Star discovered that the reservoir extended beyond the area of the gas storage unit and that J. W. Murchison had completed a well into the reservoir from a tract located outside the storage unit.

After an unsuccessful protest to the Railroad Commission, Lone Star filed suit against Murchison alleging a conversion of Lone Star’s gas. The trial court sustained a special exception to the petition on the ground that it failed to state a cause of action. The court of civil appeals reversed the judgment of the trial court and remanded the cause for trial. The court of civil appeals held that natural gas becomes personal property when produced and title is not lost when the gas is injected into an underground reservoir for storage purposes. Lone Star Gas Co. v. Murchison, 353 S.W.2d 870 (Tex.Civ.App.—Dallas, 1962, writ ref’d n. r. e.); see Humble Oil and Refining Co. v. West, 508 S.W.2d 812 (Tex.1974).

After the Murchison decision, Lone Star applied to the Railroad Commission for an amendment to the rules governing the Bacon Lime reservoir in order to protect the [112]*112interests of all mineral owners. Lone Star proposed that no operator be allowed to produce more than the recoverable native gas originally in place under each tract of land. It also proposed 640 acre proration units with no acreage in a unit more than 6000 feet from the well bore. Lone Star urged this amendment in order to prevent physical waste, prevent the unlawful taking of stored gas and protect correlative rights in the field. As a result of Lone Star’s application, the Railroad Commission adopted a new rule for the Tri-Cities (Bacon Lime) field in 1964. This new rule, Rule 8, provides in pertinent part:

RULE 8: (a) No well completed in the Tri-Cities Bacon Lime Gas Storage Reservoir shall be permitted to produce any quantity of gas in excess of the amount of recoverable native gas originally in place in the Bacon Lime Formation underlying the acreage assigned to such well; provided, however, that not more than six hundred forty (640) continuous and contiguous productive acres shall be assigned to any well completed in the Bacon Lime Gas Storage Reservoir. No acreage assigned to a well shall be more than six thousand feet (6,000') from such well and certified plats showing acreage assigned to each well shall be filed with the Commission, and if the acreage assigned to any well has been pooled, the operator shall furnish the Commission with such proof as it may require as evidence that interests in the assigned acreage have been pooled.
(c) For the purpose of this rule, acreage assigned to each well shall be deemed to be underlain at original conditions with an amount of gas which would fill the total Bacon-Lime Reservoir under such acreage assigned to the well with native gas at original conditions. It is also provided that the Bacon Lime Gas Storage Reservoir is hereby defined to be any area which is in communication with any well presently classified in the Bacon Lime Storage Unit.

To implement Rule 8, the Commission held productive acreage hearings to determine the native gas entitlements for each of the tracts lying outside Lone Star’s storage unit. The Commission determined that Tract 7, the tract in controversy here, had 45 productive acres containing 219 acre feet of reservoir. The Commission also adopted a recovery factor of 1,111 MCF per acre-foot, resulting in an entitlement of 243,309 MCF of native gas for Tract 7.

In 1967, the Commission approved a 399.-92 acre unit around Murchison’s Holloway No. 1 well, which produced until December, 1976. At that time, the Commission ordered the well shut in because it had produced all the native gas permitted under the entitlements determined by the Commission in the 1964 hearing.

W. R. Kinabrew, owner of Tract 7, then purchased Murchison’s Holloway No. 1 well and the remaining mineral interests in the field previously assigned to the unit surrounding the well. Gatlin, as operator for Kinabrew, proposed the creation of a new 119-acre unit which included Tract 7 and two other tracts previously assigned to the Holloway No. 1 well. One of the other tracts is the tract on which the Holloway No. 1 well bore is located. The third tract, the middle tract, lies between and adjoins Tract 7 and the Holloway No. 1 tract. Although Tract 7 is connected to the Holloway No. 1 tract by the middle tract in the proposed unit, Tract 7 does not touch on any part of the Holloway No. 1 tract. All parties of Tract 7 are within 6,000 feet of the Holloway No. 1 well bore.

In 1977, the Railroad Commission approved the proposed 119 acre unit and authorized Gatlin to use the Holloway No. 1 well bore to produce 243,309 MCF of native gas attributable to Tract 7. The Commission adopted the following Findings of Fact and Conclusions of Law made by the examiners:

FINDINGS OF FACT
1. That the former Murchison No. 1 Holloway Unit containing 399.92 acres [113]*113was ordered shut in after producing all recoverable gas beneath such unit.
2. That all of the E. Herbert Gatlin No.

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587 S.W.2d 110, 22 Tex. Sup. Ct. J. 497, 64 Oil & Gas Rep. 542, 1979 Tex. LEXIS 304, Counsel Stack Legal Research, https://law.counselstack.com/opinion/railroad-comm-of-texas-v-lone-star-gas-co-tex-1979.