Railroad Commission v. Sample

405 S.W.2d 338, 25 Oil & Gas Rep. 85, 9 Tex. Sup. Ct. J. 472, 1966 Tex. LEXIS 341
CourtTexas Supreme Court
DecidedJune 15, 1966
DocketA-10958
StatusPublished
Cited by20 cases

This text of 405 S.W.2d 338 (Railroad Commission v. Sample) 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 Commission v. Sample, 405 S.W.2d 338, 25 Oil & Gas Rep. 85, 9 Tex. Sup. Ct. J. 472, 1966 Tex. LEXIS 341 (Tex. 1966).

Opinions

WALKER, Justice.

After notice and hearing the Railroad Commission of Texas issued its Special Order No. 6-52,584 dated May 24, 1965, requiring Clark Sample, Jr., as operator of the Caddie Fisher Lease in the East Texas Field, to make up out of future allowables 58,061 barrels of oil found by the Commission to have been overproduced from wells on the lease. This suit was brought against the Commission by Sample and other owners of the working interest in the lease to set aside the order and enjoin its enforcement. A number of operators in the East Texas Field intervened and aligned themselves with the Commission. The trial court rendered summary judgment declaring the order void and permanently enjoining - its enforcement, whereupon the Commission and the intervenors prosecuted a direct appeal to this Court as authorized by Article 1738a.1

Appellees have not controverted the facts set out in the answer, to their motion for summary judgment and the affidavits attached to the answer. All of such facts must be accepted as true, therefore, for the purpose of this appeal. Nineteen wells were located on the Caddie Fisher Lease when appellees began operating the same on or about January 1, 1961. These wells are designated as Nos. 1 to 10, 12 to 16, and 18 to 21, inclusive. At the time appellees acquired the lease, it was producing an average of 380 barrels per day. It had been producing that amount of oil daily since 1952. Shortly after ap-pellees began operating the lease, the pro-[340]*340duction therefrom increased to approximately 1,000 barrels per day. This increase was due, in part, to the fact that Sample filed test reports for Wells Nos. 6, 8, 9, 15, 16, 18, 19, 20 and 2.1, hereinafter referred to as the old marginal wells, and on the basis of such reports these nine wells were reclassified from top allowable to high marginal wells. As a result the allowables of such wells more than trippled and the aggregate production therefrom increased from some 49 barrels per day to about 150 barrels per day. After tests were made by the Commission in October, 1962, the nine wells were returned to a prorated status with an aggregate daily allowable of approximately 49 barrels. Appellees have not been ordered to make up for any oil produced by virtue of the increased allowables assigned to the nine old ^marginal wells during the time they were classified as such.

The increase in production from the lease shortly after it was acquired by appellees is not attributable entirely to the increased allowables assigned to the nine old marginal wells. Appellees also drilled and completed eight new wells, which are designated as Nos. 11-A, 17-A, and 22 to 27, inclusive. These new wells were tested by Sample, who reported them to the Commission as high marginal wells with a capacity of from 10.40 to 15.79 barrels each per day. Appellees also tested old Well No. 10, and reported it to the Commission as a high marginal well with a capacity of 17.92 barrels per day. The allowables of the eight new wells and Well No. 10, hereinafter referred to as the nine dummy wells, were accordingly set by the Commission at correspondingly high marginal levels, aggregating approximately 125 barrels per day.

A test run by Commission personnel in October, 1962, disclosed that the aggregate potential of the eight new wells was 9.53 barrels per day, and that the potential of Well No. 10 was zero. Another test made eight months later showed that the total capacity of the nine dummy wells was 14.40 barrels per day. Experts concluded from all the available data that the combined capabilities of the nine dummy wells had never exceeded 16 barrels per day since January, 1961. Despite the fact that nine of the wells were incapable of producing their schedule allowables, appellees had produced from the Caddie Fisher Lease oil in an amount substantially equal to the allowables assigned to all of the wells. It thus appeared that the capable wells on the lease had produced the allowables assigned to them and most of the allowables assigned to the dummy wells. This was in violation of Statewide Rule 52, which provides inter alia as follows:

“(A) The daily allowable production of any lease or property shall not include production based upon the daily potential production of any .well entitled to a share in the allowable production of the field or area in which such well is located unless such well is actually on production, and such lease or property shall share in the total allowable production of the field or area, only to the extent of such well’s actual ability to produce from day to day regardless of the rated potential production thereof according to the Commission schedules.”

When the facts set out above were brought to the Commission’s attention, it ordered a hearing at which Sample and other interested parties appeared. Special Order No. 6-52,584 was issued about eighteen months later. Appellees have attacked this order upon three grounds, contending: (1) that they were denied procedural due process in the hearing before the Commission; (2) that the order is an attempt to impose a penalty for filing false reports because the lease was not overproduced according to the Commission’s allowable schedules and findings; and (3) that the Commission has no authority to require an operator to make up overproduction. The relevant provisions of the [341]*341notice of hearing and order are quoted in the margin.2

Appellees say that they were denied procedural due process in that the Com[342]*342mission made its finding of guilt prior to the hearing and required them to assume the burden of proving their innocence. In support of this contention they point [343]*343to the notice of hearing with its recital that “it was determined that a volume in excess of 100,000 barrels of oil should be considered overproduction.” The notice also states that a hearing would be held “to give an opportunity to Clark Sample, Jr., to appear and show cause why he should not be required to make up the above-described overproduction or any part thereof.” Appellees argue that the notice in this form plus the fact that they were called upon to present their evidence first at the hearing show that the Commission had prejudged the case. They made no objection to the procedure followed at the hearing, and did not claim that they were being denied due process until after the evidence was closed.

The use of the so-called show cause notice is a familiar practice in many types of court proceedings and administrative hearings. See Rules 308-A and 692, Texas Rules of Civil Procedure; Article 21.21, Section 6, and Article 21.07, Section 4, V.A.T.S. Insurance Code; Article 666-7, V.A.P.C. This type of notice is also frequently issued in temporary injunction, temporary alimony, child support, and other proceedings where its use is not specified by either statute or rule.- In all of these situations it is generally recognized that the form of the notice has nothing to do with the burden of persuasion at the hearing. The mere fact that a show cause notice was used in this instance does not, in our opinion, tend to establish that the Commission placed the burden of proof upon appellees.

The other recital quoted above and the fact that appellees were called upon by the Hearing Examiner to introduce their evidence first may be somewhat more persuasive, but these circumstances are not conclusive. The recital probably had reference to a preliminary determination by employees of the Commission, and there

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Railroad Commission v. Sample
405 S.W.2d 338 (Texas Supreme Court, 1966)

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Bluebook (online)
405 S.W.2d 338, 25 Oil & Gas Rep. 85, 9 Tex. Sup. Ct. J. 472, 1966 Tex. LEXIS 341, Counsel Stack Legal Research, https://law.counselstack.com/opinion/railroad-commission-v-sample-tex-1966.