Samson Resources Co. v. Corporation Commission

1992 OK CIV APP 62, 831 P.2d 663, 63 O.B.A.J. 1956, 119 Oil & Gas Rep. 520, 1992 Okla. Civ. App. LEXIS 37, 1992 WL 146675
Court of Civil Appeals of Oklahoma·Decided May 26, 1992·No. No. 77402·Published

Opinion

MEMORANDUM OPINION

GARRETT, Presiding Judge.

Appellant Samson Resources Company (Samson) appeals Order 355458 (the Order) of Appellee, Oklahoma Corporation Commission (the Commission), entered March 20, 1991. The Order adopted Rule 8-2(H) (the Rule), regarding horizontal well units. The Rule provides:

No Order of the Commission authorizing a Horizontal Well Unit which includes any existing well or portion of any drilling and spacing unit producing from the same common source of supply will become effective until fifty percent (50%) of the ownership having a right to drill in each of such well and/or drilling and spacing unit consents in writing to the Horizontal Well Unit by filing such written consent with the Secretary of the [664] Commission in each such cause. The written consent to the Order shall not be a waiver of, nor commitment of, any rights of such owners in either the existing production or the proposed Horizontal Well Unit.

Samson contends the Rule is unconstitutional, in that it constitutes an impermissible exercise of the police power, fails to follow the legislative charge to the Commission to maximize production and protect correlative rights pursuant to 52 O.S.Supp. 1969 § 86.1 et seq., and authorizes private parties to make decisions which are exclusively within the jurisdiction of the Commission.

The Commission contends that the Rule was promulgated pursuant to its statutory authority under 52 O.S.Supp.1990 § 87.1(f). It provides:

(f) Notwithstanding any provision of this section to the contrary, the Corporation Commission shall have jurisdiction upon the filing of a proper application therefor, and upon notice given as provided in subsection (a) above, to establish spacing rules for horizontally drilled oil wells whereby horizontally drilled oil wells may have well spacing units established of up to six hundred forty (640) acres plus tolerances and variances as allowed for gas wells pursuant to subsection C of this section. For purposes of this subsection a ‘horizontally drilled oil well’ shall mean an oil well drilled, completed or recompleted in a manner in which the horizontal component of the completion interval in the geological formation exceeds the vertical component thereof and which horizontal component extends a minimum of one hundred fifty (150) feet in the formation. The Corporation Commission shall promulgate rules necessary for the proper administration of this subsection. (Emphasis added).

An amicus curiae brief was filed in this appeal by the Oklahoma Independent Petroleum Association (OIPA). It takes the position of the Commission, i.e., that the promulgation and adoption of the Rule was not outside the scope of the Commission’s authority under 52 O.S.Supp.1990 § 87.1(f), and that the Rule does not constitute an impermissible delegation of Legislative authority.

The section entitled “Summary of the Proposals and Comments”, part 4.0 of the Order, provides in pertinent part:

Proposal No. 5 would amend OCCRP Rule 8-2 to establish criteria for the establishment and duration of a drilling and spacing unit established for a horizontal well.
Comments on Proposal No. 5 focused on paragraph (H). The issue was working interests onwers’consent (sic) to form a horizontal well unit over existing producing spacing units. The initially proposed Rule 8-2(H) required 50% of the working interest to consent to the filing of application.
At the start of the rulemaking, Samson Resources Company (Samson) filed written comments objecting to this provision. It suggested deletion of a consent requirement. In its opinion, a ‘no consent provision’ would correspond with existing spacing concepts.
Samson’s arguments met with substantial and well reasoned opposition from other oil and gas companies. Samson’s opponents argued the following: The Legislature gave the Commission a broad grant by virtue of use of the ‘notwithstanding’ in 52 O.S. Section 87.1(f). Such usage reflects a legislative intent to defer to agency expertise, especially in situations involving vested rights. Forma-. tion of a horizontal well unit over existing producing units affects vested rights in the following ways: It permits encroachment on existing production. It could reallocate production without regard to geologic advantage. Forced pooling actions could force prudent operators to elect between forfeiting rights and participation in a marginal or uneconomic horizontal drilling project. Furthermore, a ‘no consent rule’ will disrupt accounting and elections arising under joint operating agreements and forced pooling orders. It will not provide a fair and reasonable process for obtaining drilling commitments from the working interest owners, especially when the [665] working interest owners may not agree to going forward with costly horizontal drilling. As a group, Samson’s opponents took the position that the Commission should adopt rules building on the foundation of compulsory enhanced recovery to provide at least an equitable election process for the formation of a horizontal spacing unit.
Most mineral lawyers concurred that an election process, if any, should model the process under the compulsory Enhanced Recovery Statute. They argued that due process guarantees mandate access to the forum, even though consent requirements may be necessary to obtain the remedy_

The above referenced enhanced recovery statute is found at 52 O.S.1991 § 287.5. It requires the written consent of 63% of the affected unit owners. The Commission argues that the Supreme Court rejected an argument identical to that of Samson’s in Palmer Oil Corporation v. Phillips Petroleum Co., 204 Okl. 543, 231 P.2d 997 (1951). In Palmer, the issue was the validity of the unitization act, 52 O.S.Supp.1945 §§ 286.1-286.7 (now repealed). It required 50% of the owners of a unit to join in the petition in order for the Commission to acquire jurisdiction. If at least 15% of the lessees protested the formation of the unit, the Commission had to vacate it. The Palmer Court held the consent requirement was not an unlawful delegation of legislative power to private parties and stated, “This type of legislation is not uncommon and has been applied in a variety of situations where community of interest obtains. Frequent examples are acts dealing with water rights and drainage.” 231 P.2d at 1004 (citations omitted).

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Samson Resources Co. v. Corporation Commission, 1992 OK CIV APP 62, 831 P.2d 663, 63 O.B.A.J. 1956, 119 Oil & Gas Rep. 520, 1992 Okla. Civ. App. LEXIS 37, 1992 WL 146675 (Okla. Ct. App. 1992).

1992 OK CIV APP 62 (Samson Resources Co. v. Corporation Commission) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Palmer Oil Corp. v. Phillips Petroleum Co.
1951 OK 78 (Supreme Court of Oklahoma, 1951)
Samson Resources Co. v. Oklahoma Corp. Commission
742 P.2d 1114 (Supreme Court of Oklahoma, 1987)