Calvert Drilling Co. v. Corporation Commission
1979 Okla. LEXIS 225, 62 Oil & Gas Rep. 516, 589 P.2d 1064 (1979)
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Rule of Law:
A state conservation commission has the authority to establish a drilling and spacing unit that includes land not definitively proven to be productive, as long as substantial evidence from geological or other data indicates that the land is part of a "prospective common source of supply." This power is necessary to prevent the economic and physical waste associated with excessive drilling.
Facts:
- Calvert Drilling Company completed a productive gas well, the Snyder #1, in the southwest quarter of Section 2, tapping into the Prue common source of supply.
- This well's production indicated that the Prue formation, part of the larger West Edmond field, extended into Section 2.
- Following this discovery, Exxon Corporation and Kerr McGee Corporation applied to the Oklahoma Corporation Commission to create two 320-acre drilling and spacing units covering all of Section 2.
- Geological testimony presented to the commission indicated that while the Prue formation was present across most of Section 2, a portion of the eastern half might not be underlain by the productive part of the formation.
- Expert witnesses for the applicants testified that the precise boundaries of the productive formation could only be determined by further drilling.
- Witnesses also testified that creating the 320-acre units would prevent economic and physical waste by allowing a single well to drain each unit efficiently, avoiding the drilling of unnecessary wells.
Procedural Posture:
- Exxon Corporation filed an application with the Oklahoma Corporation Commission to establish two 320-acre drilling and spacing units.
- A trial examiner for the Commission heard evidence and recommended denying the application, reasoning the Commission lacked jurisdiction over land not entirely underlain by the common source.
- The Oklahoma Corporation Commission rejected the examiner's recommendation and issued Order No. 129314, which established the requested spacing units.
- Calvert Drilling Company, an appellant and interest owner, appealed the Commission's final order directly to the Supreme Court of Oklahoma.
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Issue:
Does the Oklahoma Corporation Commission have the authority to establish a drilling and spacing unit that includes land which is not proven to be entirely underlain by a productive common source of supply, but is reasonably believed to be part of a prospective common source?
Opinions:
Majority - Hargrave, J.
Yes. The Oklahoma Corporation Commission has the authority to establish a drilling and spacing unit covering a prospective common source of supply, even if portions of the unit are not certain to be productive. The court reasoned that the primary purpose of the state's conservation statutes is to prevent waste. Requiring absolute proof of a reservoir's productive limits before establishing a spacing unit would defeat this purpose, as such proof can only be obtained by drilling—the very activity the statutes seek to regulate and minimize. The statutes explicitly grant the Commission power over any "prospective common source of supply," which allows it to act on scientific and geological probabilities rather than waiting for certainty. The court distinguished prior cases by noting they involved land that was proven not to overlie a common source, whereas here, the extent of the source was merely uncertain. Where substantial evidence supports the finding of a prospective common source, the Commission's order is valid.
Dissenting - Doolin, J.
No opinion provided.
Analysis:
This decision clarifies the scope of a state conservation agency's power, prioritizing the policy of preventing waste over the risk that a non-productive tract might be included in a unit. It solidifies the principle that absolute certainty is not a prerequisite for spacing, allowing agencies to act on the basis of geological probability and expert testimony. By interpreting "prospective common source of supply" broadly, the court gives regulators the flexibility needed to manage resource development efficiently at the early stages of a field's discovery. This precedent makes it more difficult for interest holders to challenge spacing orders based on uncertainty about a reservoir's precise boundaries, thereby promoting unitization and orderly development.
