Ward v. Corporation Commission
501 P.2d 503, 1972 OK 122, 42 Oil & Gas Rep. 473 (1972)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a state agency establishes a well spacing unit, the right of all mineral interest owners within that unit to share in the production from the unit well vests on the date the spacing order is issued, not on the later date of a compulsory pooling order.
Facts:
- L. O. Ward and his associates ('Ward') owned oil and gas leaseholds covering approximately 45% of Section 34, while Tenneco Oil Company ('Tenneco') owned leaseholds covering the remaining 55%.
- In December 1968, before the area was subject to any spacing regulations, Ward began drilling the No. 1 Freed well on his portion of Section 34.
- Ward completed the well as a productive gas and condensate producer on January 7, 1969.
- After the well was completed but before a spacing unit was established, Ward kept the well shut in for a period to await a more favorable market.
- After a spacing unit covering all of Section 34 was created, Tenneco attempted to pay its pro-rata share of the well's costs to participate in production, but Ward refused this offer.
Procedural Posture:
- On February 4, 1969, Tenneco filed an application with the Oklahoma Corporation Commission ('Commission'), a state administrative agency, seeking to establish 640-acre drilling and spacing units for Section 34.
- On March 11, 1969, Ward filed a competing application with the Commission seeking 160-acre spacing for the same area.
- The Commission, as the tribunal of first instance, combined the applications and issued Order No. 75,137 on June 26, 1969, establishing 640-acre spacing units.
- Ward, as appellant, appealed this spacing order to the Oklahoma Supreme Court, which affirmed the Commission's decision.
- Tenneco then applied to the Commission to force-pool the interests, and the Commission issued Order No. 83,811, which was later modified by Order No. 84,842 on May 4, 1971.
- The modified order held that Tenneco's right to participate in production from Ward's well began on June 26, 1969, the date of the spacing order.
- Ward, as appellant, appealed Order No. 84,842 to the Oklahoma Supreme Court. Tenneco is the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Do non-drilling oil and gas lessees within a well spacing unit have the right to share in the unit's production from the date the spacing order is issued, even before a compulsory pooling order is entered?
Opinions:
Majority - Davison, V.C.J.
Yes. The right of non-drilling owners in a spacing unit to participate in production from the unit well commences on the date the spacing unit is established. A spacing order serves to create the drilling unit and, by law, prohibits owners other than the designated operator from drilling a well to protect their interests from drainage. To deny these non-drilling owners the right to share in production from the moment this drilling prohibition takes effect would constitute a taking of their property without due process of law in violation of the Fourteenth Amendment. A subsequent compulsory pooling order does not create the right to share; it is merely a procedural mechanism to adjudicate the terms of participation and cost allocation when the parties cannot voluntarily agree.
Analysis:
This decision solidifies the distinction between the legal effects of a spacing order and a pooling order in Oklahoma oil and gas law. By holding that the right to share in production vests upon the entry of the spacing order, the court protects the correlative rights of all mineral owners within a unit from the moment their ability to independently develop their property is restricted. This precedent prevents the operator of the first well in a unit from exclusively capturing production during the interim period before a pooling order is finalized, ensuring a more equitable distribution consistent with constitutional due process principles. The case reinforces that a spacing order fundamentally alters property rights by creating a communal interest in a common source of supply.
