Burford v. Sun Oil Co.

Facts

The East Texas field, in which the Burford (D) tract is located, is one of the largest in the United States. It is approximately forty miles long and between five and nine miles wide, and over 26,000 wells have been drilled in it. The East Texas field is a giant pool. The chief forces causing oil to move are gas and water, and it is essential that the pressures be maintained at a level that will force the oil through wells to the surface. As the gas pressure is dissipated, it becomes necessary to put the well 'on the pump' at great expense. The oil moves through the entire field, one operator can not only draw the oil from under his surface area but can also drain oil from the most distant parts of the reservoir. The practice of attempting to drain oil from under the surface holdings of others leads to offset wells and other wasteful practices; and this problem is increased by the fact that the surface rights are split up into many small tracts. There are approximately nine hundred operators in the East Texas field alone. Based on geologic realities, each oil and gas field must be regulated as a unit for conservation purposes. To prevent 'past, present, and imminent evils' in the production of natural gas, a state statute was enacted 'for the protection of public and private interests against such evils by prohibiting waste and compelling ratable production.' The Texas Railroad Commission (D) has been put in charge. Its judgments are made with due regard for the factors of full utilization of the oil supply, market demand, and protection of the individual operators, as well as protection of the public interest. The Texas Railroad Commission (D)  also regulates the spacing of wells. The Commission (D) must thus work out the difficult spacing problem with due regard for whatever rights Texas recognizes in the separate owners to a share of the common reservoir. At the same time, it must restrain waste, whether by excessive production or by the unwise dissipation of the gas and other geologic factors that cause the oil to flow. Rule 37 provides for certain minimum spacing between wells, but also allows exceptions where necessary 'to prevent waste or to prevent the confiscation of property.' One of its basic tenants is that each surface owner should be permitted to withdraw the oil under his surface area and that no one else can fairly be permitted to drain his oil away. The Commission (D) protects interests either by adjusting the amount of production upward or by permitting the drilling of additional wells. If a substantial amount of oil will be saved by the drilling of a well that otherwise would ultimately be lost, the permit to drill such a well may be justified under one of the exceptions provided in Rule 37 to prevent waste. It is estimated that over two-thirds of the wells in the East Texas field exist as exceptions to the rule, and since each exception may provoke a conflict among the interested parties, the volume of litigation arising from the administration of the rule is considerable. The Texas legislature has established a system of thorough judicial review by its own state courts. The Commission orders may be appealed to a state district court in Travis County, and are reviewed by a branch of the Court of Civil Appeals and by the State Supreme Court. The orders of the Commission are tested for 'reasonableness' by trial de novo before the court. The court may even formulate new standards for the Commission's (D) administrative practice and suggest that the Commission (D) adopt them. The legislature provided for the concentration of all direct review of the Commission's (D) orders in the state district courts of Travis County. P attacked the validity of an order of the Texas Railroad Commission (D) granting Burford (D) a permit to drill four wells on a small plot of land in the East Texas oil field. Jurisdiction of the federal court was invoked because of the diversity of citizenship of the parties, and because of P's contention that the order denied them due process of law. P sued in Travis County state court and the federal District Court under diversity and asked for an injunction against the construction of the wells. The district court dismissed the complaint. The Circuit Court of Appeals in its decision correctly viewed this as a simple proceeding in equity to enjoin the enforcement of the Commission's (D) order and reversed the order. The Commission (D) appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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