Rd. Comm. v. Humble Oil Ref.

The writer dissents from the majority judgment striking down the prima facie and presumptive valid permit of the Commission to drill the oil well in question. Such permit order is not only made "prima facie valid" by statute (Arts. 6042 and 6049c, Sec. 8, Vernon's Ann.Civ.St.); but "being an official act, would be presumptively valid without a statute." Railroad Comm. v. Magnolia Pet. Co., 130 Tex. 484, 109 S.W.2d 967, 972. The party challenging the permit order has the burden of showing by clear and satisfactory evidence leaving no doubt in the judicial mind, that the well was not necessary to prevent physical waste of oil nor to prevent confiscation of permittee's property. And in reviewing the permit order the courts are not bound by any reason given by the Commission for the order, provided another valid ground or basis is shown for it; and the prima facie order and findings of the Commission to sustain it are not reviewable on the statutory appeal unless they are unsupported by any substantial evidence, since they have at least as high standing in regard to finality as a verdict or finding of a jury. To hold otherwise would simply permit one challenging the permit order to have two trials on the facts, one by experts, the Commission, presumed to be skilled in the oil industry; and the second by a jury of laymen, who, upon conflicting evidence, would be permitted to substitute themselves for the Commission. Humble Oil Ref. Co. v. R. R. Comm., Tex. Civ. App.112 S.W.2d 222, error dismissed.

But notwithstanding the prima facie and presumptive validity of the permit order in question, the majority view has struck it down upon the mere unsupported opinion of a geologist employed as an expert witness by Humble Company, both with respect to whether the well was necessary to prevent physical waste of oil and to prevent confiscation of permittee's property.

Without discussing the testimony of the geologist, the majority dismiss the issue with the statement that "the evidence conclusively showed that the drilling of this well was not only not necessary to prevent waste, but would tend to create waste." This was merely the opinion of the geologist, which was unsupported by any factual data, and was predicated upon his own view and interpretation of the spacing rule as a fact finding that the wells drilled closer than the prescribed distances would cause waste; which view the majority still adhere to notwithstanding it was expressly overruled by the Supreme Court in the Magnolia Case,130 Tex. 484, 109 S.W.2d 967. In reasoning to his point or opinion, the geologist explained that all oil wells would tend to cause intrusion of water into the oil producing sands and thus tend to cause waste by dissipation of the reservoir pressure. His opinion was therefore predicated upon the fact that any well drilled into the oil producing strata underlaid with water will cause intrusion of the water to replace the space left by the oil, and proved nothing. Of course, the operation of all wells consumes reservoir energy, but that is its only useful purpose. So, the opinion of this expert merely begs the question, because without the consumption of reservoir energy no oil would be produced; and manifestly the opinion of this witness, unsupported by any factual data, will not suffice to set aside the prima facie and presumptive valid order granting the permit to drill the well in question. And the expert's opinion is in direct conflict with the repeated findings of fact by the Commission with regard to drilling more wells to prevent physical waste of oil.

By its order of August 26, 1935, the Commission expressly found upon evidence adduced at its many hearings and from its actual experience, and through its experts continuously employed in the administration of the rule, that the closer wells are drilled the greater will be the ultimate recovery of oil and gas from any area so drilled, provided the wells produce equally; and closer spacing is accomplished through the application of the exception to the general rule to prevent waste, or to prevent confiscation. If more oil will be recovered from denser drilling, then failure to so drill will necessarily result in waste of oil and gas left in the ground; and in consequence will also result in confiscation of the oil through failure to enforce the exceptions to the rule so as to recover the greatest amount of oil under any given tract of land or area.

The Commission has developed the East Texas Oil Field in accordance with its aforementioned findings of fact and its interpretation of its own rule to such an extent that only a few of the approximately 25,000 wells are spaced in accordance with the general distances prescribed by the rule. Of these facts and interpretation by the Commission the oil industry may take notice and contract accordingly. That is, if those engaged in the industry are required to take notice of Rule 37 in making and developing oil leases, then equity and fair dealing require that they may also take notice of the interpretation placed on the rule by the Commission and the manner of its enforcement of the rule and the exceptions. Such is in accord with the decision of the Supreme Court in the New Process Case, 129 Tex. 617, 104 S.W.2d 1106, wherein it is held that where vast property rights have become vested by orders entered by the Commission under the conservation laws, the court on review of such orders will follow the construction adopted by the Commission.

The writer's views with respect to the majority interpretation of Rule 37 are expressed by dissenting opinions in the Magnolia Case, Tex. Civ. App. 105 S.W.2d 792; the Gulf Case, Tex. Civ. App. 115 S.W.2d 508, writ granted on the dissent; the Magnolia Cases, Tex. Civ. App. 120 S.W.2d 548,550; and the Tide Water Associated Oil Co. v. Railroad Comm., Tex. Civ. App. 120 S.W.2d 544, 548, which are here referred to.

The administration of the oil and gas conservation laws of Texas and the findings of the Railroad Commission with respect thereto are matters exclusively within the prerogative of the Railroad Commission. The resolving of divergent conclusions arrived at from conflicting opinions and theories of experts in this respect are issues likewise solely within the Commission's jurisdiction. Railroad Comm. v. Royal Pet. Co., Tex. Civ. App. 93 S.W.2d 761, error dis. This was recognized in Woods et al. v. Humble Oil Ref. Co., 120 S.W.2d 464, wherein this court in an opinion written by Associate Justice Baugh stated [page 466]: "While, in many instances, the issue of whether, as between individual owners, the property of one is being confiscated by a permit granted to another may be one largely quasi judicial in nature, the question as to what may or may not constitute underground waste of oil is one particularly within the province of the Commission to determine."

On the issue of whether the well in question was necessary to prevent confiscation of Flanagan's property rights in the 1-acre tract, the majority recognize the holding of the Supreme Court in the Magnolia Case,130 Tex. 484, 109 S.W.2d 967, to the effect that the prima facie and presumptive validity of the permit order to drill the well is not overcome merely by proof that the 1acre tract on which the well was granted had been voluntarily subdivided from the larger Della Johnston 58 1/2-acre tract. However, the majority in effect hold that the burden rested upon Flanagan to show that the 1-acre tract, when considered as a part of the 58 1/2-acre tract, was entitled to the well in order to afford to the owners an equal opportunity to recover their fair share of oil under the entire tract. Such holding is manifest from an analysis of the testimony of the Humble's geologist, and from the decision cited and quoted from in aid of such testimony.

The Humble's geologist testified that in his opinion the entire Della Johnston 58 1/2 acre tract was fully developed and adequately protected from drainage; but he admitted, upon cross-examination, that he did not know the densities of all of the leases adjoining the original Della Johnston 58 1/2-acre tract, nor had he prepared or even seen a map showing the density of drilling within an area eight times that of the 58 1/2-acre tract, either in circular or rectangular form, and had made no calculations whatsoever of the density of an area eight times that of the Della Johnston 58 1/2-acre tract. Humble's plat did not show these densities, merely showing the offset wells to the Humble-Della Johnston lease and to the Humble-McFarland lease.

The geologist also testified that he kept up "in a general way" with the densities of all leases adjoining the Humble leases in the East Texas Field, and "in a general way" knew the densities of such leases, and was of the opinion that the original Della Johnston 58 1/2-acre tract and all adjoining tracts thereto were approximately of the same density. This obviously constitutes merely the estimate or conjectural opinion of a witness upon matters of fact readily susceptible of exact ascertainment and specific proof; therefore, such testimony, even in the absence of objection thereto, is wholly incompetent evidence which must be disregarded by the courts Henry v. Phillips, 105 Tex. 459, 151 S.W. 533.

The method commonly employed by the Railroad Commission to determine the necessity of a tract for additional development to prevent confiscation of property or to prevent drainage is to compare the density of drilling of the tract in question with the densities of drilling of all adjoining leases thereto, and with the density of drilling within an area eight times that of the tract in question, using both the circular and rectangular eight times area method of comparison. The order granting the well to accomplish such purposes is prima facie and presumptively valid, and the above detailed testimony of Humble in this suit is clearly insufficient to overcome the presumptive validity of the permit order of the Commission authorizing Flanagan to drill and operate the well to prevent confiscation of property and to prevent drainage thereof.

The majority hold that the testimony of the witness is sufficient to overcome the prima facie validity of the permit order in suit, in absence of any evidence to the contrary introduced by the Commission and Flanagan. The effect of this holding is to remove from Humble the burden to overcome the presumptive validity of the permit order in suit, and to place upon the Commission and Flanagan the burden of affirmatively sustaining the validity and reasonableness of the Commission's order.

The majority seek to apply to this case the rule of evidence quoted in Pullman Co. v. Nelson, 22 Tex. Civ. App. 223, 54 S.W. 624, as follows [page 626]: "When the proof tends to establish a fact, and at the same time discloses that it is within the power and to the interest of the opposing party to disprove it if false, the silence of the opposing party not only strengthens the probative force of the affirmative proof, but of itself is clothed with a certain probative force."

The quoted rule is clearly inapplicable in this case, because by statute the burden of proof rests upon plaintiff to overcome the presumptive validity of the order of the Commission in question, by clearly showing its invalidity, and the quoted rule is not applicable where the burden of persuasion rests upon the party seeking to invoke the rule. Wichita Falls, etc., Ry. v. Emberlin, Tex. Civ. App. 255 S.W. 796; 17 Tex.Jur. 305; McCormick Ray, Texas Law of Evidence, Sec. 59, p. 110. Nor, in any event, is the quoted rule of evidence applicable until plaintiff has proved a prima facie case. Texas P. R. Co. v. Shoemaker, 98 Tex. 451, 84 S.W. 1049; Texas Unity Oil Co. v. Dolman, Tex. Civ. App. 8 S.W.2d 815, error dis.; Galveston, H. S. A. Ry. Co. v. Landeros, Tex. Civ. App. 264 S.W. 524; Texas Co. v. Chas. Clark Co., Tex. Civ. App. 182 S.W. 351, error dis.; Davis v. Etter Curtis, Tex. Civ. App. 243 S.W. 603; St. Louis, etc., Ry. v. West, Tex. Civ. App. 174 S.W. 287, error ref.; Gayle v. Perryman, 6 Tex. Civ. App. 20,24 S.W. 850; 17 Tex.Jur. 307; McCormick Ray, Texas Law of Evidence, Sec. 59, p. 111. Nor is the quoted rule of evidence applicable where, as here, the unproduced evidence is equally available to both parties. Reynolds v. International G. N. R. Co.,38 Tex. Civ. App. 273, 85 S.W. 323, error ref.; Smith v. Triplett, Tex. Civ. App. 83 S.W.2d 1104; Davis v. Castile, Tex.Com.App., 257 S.W. 870; Hines v. Kelley, Tex.Com.App., 252 S.W. 1033; 17 Tex.Jur., 305, Sec. 86; McCormick Ray, Texas Law of Evidence, Sec. 59, p. 110.