Nature of the Case
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Facts
D’s order fixed the rate at which the various owners of the oil could produce. The formula had two basic elements: (1) the number of surface acres in the production unit on which there is a well, usually 160 acres; and (2) the number of acre-feet of productive sand or rock that are within, or below, the 160 surface acres. The acre-foot is a measure of volume. Some surface acres of the field have, vertically, a thicker section of productive sand below them. An acre-foot, as used here, refers to a horizontal square acre with a thickness of one foot of productive sand. An acre-foot contains 43,560 cubic feet of oil or gas-bearing formation. Ps claimed the order was unreasonable because it did not protect their correlative rights and would permit uncompensated drainage. Ps claimed that any order that was not 'based solely on net acre-feet of pay underlying each unit tract' would be unreasonable, would fail to protect their correlative rights, and would deprive them of their property without due process of law. Ps' witness's testimony was that the formula should have been based 100 percent on acre-feet of productive sand. Each month D would determine the amount of oil to be produced from all fields in Texas. It divides this amount among the various fields. The total amount this particular field may produce is determined is not fixed in the proration allowable formula here attacked. What the proration order does is to allocate to the wells in the field the part of the total field allowable that each well may produce. There are exceptions because some wells have limited capacity, others have a high gas-oil ratio, and so forth. Those wells are given particular allowables and are not here involved. The remaining volume of oil, whatever it is, is divided in half: one-half of the oil is allocated to the wells in that proportion which their assigned surface acreage in the oil field (usually 160 acres) bears to the total acreage in the field (about 21,000 acres); and the other half is distributed among the same wells in that proportion which their assigned acre-feet, their net acre-feet, bears to the total acre-feet in the field. D's formula allows 50 percent for acreage (up to 160 surface acres), and 50 percent for acre-feet. So the formula was 50 percent per well and 50 percent for surface acreage. Eventually, D withdrew its proration formula which contained the 50 percent 'per well' factor, and promulgated a proration schedule based 100 percent on surface acreage in each producing unit. The allowable oil production for each well was then determined entirely by the number of surface acres, up to 160, which were situated over productive sand or rock. Ps protested this formula. D held a new hearing. On March 6, 1963, it retained 160 acres as the spacing unit for wells (about which there is no controversy); and, as stated, it announced that the proration of the allowable production of oil among the wells would be based on a fraction made up of two factors: (1) 50 percent for the number of surface acres over the productive strata, and (2) 50 percent for the number of acre-feet in the production unit. This '50 percent acreage, 50 percent acre-feet' differs very substantially from another 50-50 formula previously used which allocated 50 percent to the well alone and 50 percent to surface acres. The total allowable for the field is approximately 40,000 barrels per day. There were 135 wells in the field, three of which were operated by P. On the basis of surface acres in the field, each well on a 160-acre tract would be allowed to produce approximately 302 barrels per day. Ps' testified that when the field was prorated on a 100 percent acreage basis, Appellant Pickens' three wells on 480 of the field's 21,000 acres had an allowable of 333 barrels per day each. The effect of the 50-50 formula was to raise his allowable to between 362 and 378 barrels per well per day. The allowables on other wells having fewer acre-feet were lowered. Ps contend that the order was unreasonable and was not supported by substantial evidence, in that it discriminates against people who have the most oil in place under their surface acres, i.e., the most acre-feet; and it allows, they say, an undue advantage to those having the same surface acreage over the oil but fewer acre-feet of oil in place. D’s witness testified about the water entering the field replacing the oil under those wells and reducing the amounts of oil that those wells can produce. The court upheld D’s order and P appealed.
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