Untitled Texas Attorney General Opinion

R-238 OFFIcE OF THE ATTORNEY GENERAE AUSTIN~ TEXAS PRICE DANIEL 1 ATTORNEYGENERAL May 14, 1947 - Honorable Ernest 0, Thompson Chairman Honorable W. J. Murray, Jr. Comlssloner Honorable Olin Culberson Commissioner Railroad Commlsslon ol Texas Capitol station Auetln, Texas Opinion Nor V-197 Re: Is the Railroad Commis- sion or Texas empowered under Article 6008, v. c. s., to amend a gas proration order for the Carthage Field, thereby permittingthe balancing of over and under pro’ductionfor a period of a year with proviso. And related questions. Dear Sirs: We have your letter ot Maroh 1, 1947, read- , lng ae followa: “This Commission has held extensive hearings looking to the entry of’a leaslble plan of proration for the Carthage Gas Field, Panola County,Texas. Many wit- nesses have been heard and considerable evidence ofrered, in support of an order containing provisions substantiallyas follows: 7’(B) Underproduction: Hon. Ernest 0. Thompson - Page 2 "'(1) In the event there shall not be proi duced from any gas well In the Carthage Field, during any one month, as much gas as Is allocated thereto under schedules of well allowables issued under orders of the Commission,the operator of any such well shall be pelmftted to carry fonrard to the succeeding month, as allowable gas to be produced during the succeedingmonth from suoh well, the amount of such month's under- production for that well. "'(2) If, during any succeedingmonth, all such underproductioncarried foxward from the preoeding month for any gas well is not produced during such suoeeeding month, ovm and above the current monthly allowable of such well as shown by the Commission'ssohed- riles,, then the amount of such underproduotlon so carried forward and remaining unproduoed at the end of the succeedingmonth, may be oarrled forward to the suooeedlngmonths, as allowable production over and above the allowable for such well as may be shown by the Commission'sschedules. "'(3) Any well incapable of producing its scheduled allowable shall have assigned as an allowable that quantity of gas that it can deliver in a 24 hour period ageist the pressure existing in the pipe Une to whloh it is connected. Such well will be given preferred treatment to the end that Its our- rent allowable may be produced monthly since such well is incapable of making up any underproduction. "'(C) Overproduction: "'(1) Exoept as hereinafter provided each operator of each gas well in the Carthage Field, whloh is over-produosdat the end of the oalendar month, shall so operate suoh well during the succeedingmonth so that the total productionfrom suchwell for the two months' period is not in ex- oesa of the total allouable of such well for the two months' period. Eon. Ernest 0. Thompson - Page 3 v’(2) To facilitate the purchase of gas from any gas well any operator, upon cer- tification of necessity by his purchaser to the commission,can dontinue to over- produce an well, beyond the limits of Para- graph C (1 providi the overproduction does not exceed v six3 6) times the current allowable, and further providing that any well overproducedby any amount will have its cumulative production balanced with its cumulativeallowable within one year after the first day of the first month when such accumulatedoverproductionbegan. No well shall be permitted to prod,uceduring any month a total quantity of gas in excess of two and one half times its c’urr~ent monthly allowable. “‘D) Ratable Take: “‘It is the intent of this order that eaoh well in the Carthage Field will produce ratably with every other well and all pre- ceding regulationsare designed to this end; and each purchaser shall take gas ratably from the wells to which it is con- neoted. “‘Any operator of a gas well in the Car- thage Field may call the attention of the Commission to conditions in the Field that result in un-ratable production of gas from gas wells therein. Upon taking evidence in a hearing, the Commissionwill take any action deemed proper to restore ratable production.’ *The present basic order for the field pro- vides as r0ii0ws: “Vnderproduction. “‘1) In the event there shall not be produced from any gas well in the Carthage Field, during any one month, as ‘much gas as is allocated thereto under schedules of well allowable issued under orders of the Commission,the operator of any such well Hon. Ernest 0. Thompson - Page 4 shall be permitted to carry forward to the suoceedingmonth, as allowable gas to be produced during the succeedingmonth from such well, the amount of such month’s under- produotion for that well. “I(2) If, during any succeedingmonth, all suoh underproductioncarried forward rrom the preceding month for any gas well is not produced,during such succeedingmonth, over and above the current monthly allowable of suoh well as shown by the Commission’s schedules, then the amount of such under- productionso carried forward and remaining unproduced at the end of the succeedingmonth, may be carried forward to the next succeed- ing month, as allowable production over and above the allowable for such well as may be shown by the Commission’sschedule, all sub- ject to the limitationsimposed by the next succeeding paragraph hereof. “‘(3) No operator shall ever be per- mitted to carry forward as allowable produo- tlon for any gas well, any underproduotion of gas from such well incurred during a pre- ceding month, or months, in exoess of the current monthly allowable gas allocated to such well, as shown by the current Commls- slon’s schedule of well allowables. “l(C) Overproduction. “‘(1) Each operator of each gas well in the Carthage Field, which is overpro- duced at the end of the calendar month, shall so operate such well during the suc- ceeding month so that the total production from such well for the two months’ period is not in ,excessof the total allowable of suoh well for the two months* period. “‘(2) Any gas well which, at the end of the oalendar month, is overproducedto the extent that its produotionduring that month is in excess of the allowable for such month, plus the allowable for the succeeding month, shall be shut in until its aocumulatedallowable, from the first Hon. Ernest 0. Thompson - Page 5 day of the calendar month in which such overproductionoccurred, is equal to its total productionsince that date.’ “Under the present order the Commission prorates the productionof gas from the Car- thage Field by determiningmonthly the market demand for gas based upon the nominations of purchasers and other information; When the mrket demand has been ascertained,a pro- portionate part thereof is allocated, ratably, to each well connection in the field based upon an allocation formula not here involved. “Under the portion of the present order above quoted, a well is permittedto overpro- duce during any one calendar month provided such overproductionis made up during the succeeding calendar month ‘so that the total production from such well for a two months’ period is not in excess of tbe t,otalallow- able of such well for the two months.’ “Evidence has been offered the Commis- sion that this go-day period has not sufficient flexibility to care for the requirementsof all gas lines during the seasonal highs. For example, a particular line taking gas from certain connections in the field will have in the winter months a demand for considerably more gas than allowed to its well connections; in the summer months the demand on this line will be less than the allowable of its well connections. In other lines from the field, the converse is true. The various pipe lines are not interconnectedas the pressures in the lines differ. Without regard to the dif- ficulty of working out the conflictingcon- tractual rights involved, it has,been esti- mated that a very considerableamount of money would be required completely to interoonnect all of the lines and wells in the field and install the required measuring devices and compress0rs. The proposed plan of proration has been offered to the Commission for con- sideration as designed to eliminate these difficultiesby providing a ‘bankingsystem’ of gas withdrawals whereby overproduction will be permitted for a six months’ period Hon. Ernest 0. Thompson - Page 6 provided such overproductionis maae up during the succeeding six months’ period. “The Commission understandsthat before any such plan of proration can be authorized for the Carthage Gas Field, the Commission must find that the plan will not cause waste, and will either prevent waste or protect cor- relative rights and promote the ratable taking of gas. “It has been suggested, however, that al- t,;;;;&t,heCommissionmay rake these necessary nevertheless,the proposed plan and order might be unlawful under the provisions of Article 6008, V. A. C. 5. “The opinion of the Attorney General is therefore respectfullyrequested in answer to the following question: “Is the Railroad Commission of Texas em- powered under the provisions of Article 6008, V. A. C. S., to enter a gas pro- ration order for the Carthage Field oon- taining provisionssubstantiallyin keeping with the proposed plan outlined in this letter, provided the Commission finds that the plan is necessary to pre- vent waste or to protect correlative rights and promote the ratable taking of gas from the field? “. . . “The further opinion of the Attorney Gen- eral is respectfullyrequested in answer to the following questions: “(1) Would an order containing the language in t(B) Underproduction1and contain- ing the three pSI%grSphS therein noted, on page one thereof, be violative of the court’s decision and the Commis- sion’s orders with reference to ‘back allowable’? “(2) Would an ,ordercontaining the language in l(C) Overproduotion’and the w Hon. Ernest 0. Thompson - Page 7 following two paragraphs be violative of Section 16, Article 6008, Revised Civil Stat- utsa , and of the Commission~sorder in Oil and Gas~,DocketNo. 108, dated Deoember 10, 1935, titled ‘SpecialOrder Fixing the Allow- able Production of Sweet and Sour Natural Gas in all Districts in Texas Except the Panhandle District’Pw We reword for clarificationthe problem you have in the Carthage Field. There are several outlets (pi,pelines) for the Field. Some of these outlets have a constant daily ae- mand or load factor. The other outlets vary with’the weather, i.e., one has a demand varying from practically zero in the summer months to in excess of 40 million cubic feet per day in the winter months. Under the present, _. .., method of proration the pipe lines wit h daily demand canno in the winter months (because of the increased demands of the pipe lines having seasonal de- mands) take all of the allowable gas from its oonnections. In the summar months, those ipe lines do not have suf- ficient allowable for their 7constant) requirementsb’e- cause of the low demand of the lines with t~heseas,onal demands. ,And on the other hand, the pipe’lines with seasonal demands cannot in the summer months take the. allowables assigned to their connections,while in the winter months, the allowable8 are not sufficient to meet their market demand. We have given your request extensive and studied research, for we are informed that the operators and royal- ty owners favor the proposed amendments,and by these amend- ments you seek to alleviate the operating problems encoun- tered in the Carthage Field. It is only after this study and our conclusionsthat we proceed with this opinion. It is without the province of your Attorney General to make the law. Our duty is ta enforce the law and to interpret it for your guidance. The Legislature in the exercise of its power has passed regulatory measures to protect correlative rights and prevent the waste of natural gas in this State. Title 102, V. C. 5. A considerationof these legislativeaats discloses, we think, a ~realization by the Legislature that due to the magnitude ana multi- plicity of problems encounteredin the productionand 4 V Hon. Ernest 0. Thompson - Page 8 conservationof oil and gas, it was the clear and express purpose and intention of the Legislature to vest in the Commission broad and discretionarypower and authority to carry out the duti ciner Oil (ERefining APP. 19431 49 w (SUD. Ct. h?d:kk We recocznlze further that “It is utterly impossiblefor the Legislature to meet the demands of every detail in the enactment of laws relating to the reduction of oil and gas . . . and (the LegislatureP has authorized the Railroad Commission to handle the details relating to the preservationand conservationof the natural resources of the State.” Corzelius v. Harrsll (Sup. Ct. 1945)) 186 S. Y!. (2d) 961, . Nevertheless,the broad power of the Railroad Com- mission to act in these matters is limited by certain specif- ic legislativeprovisi.ons.Certain acts were passed by the Legislaturewhich specificallydeclare the publio policy of this State with respect to the development and protection of natural gas and establish primary standards relating to such policy and place the duty upon the Commission to carry out the detail under the several-provisionsof the statutes. Compare Brown v. Humble Oil & Refinlnp 83 S. Vl.-Tza)? 940 941 Conellus 19451, i&s 9. w. I2d) ;Js1,;9K-----F Sections 10 and 11, Artlole 6008, V. C. S., pro- Vi&Y as followa : “SfJo.10. It shall be the duty of the Commissionto prorate and regulate the dally aas well oroductlonfrom each common reservoir yn~the manner and method herein set forth, Th Commission shall prorate and regulate such przduotion for the protectionof public and private interests: ‘(a) In the prevention of waste a8 ‘waste’ is defined herein; *(b) In the adjustment of correlative rights and opportunitiesof each owner of gas in a aommon reservoir to produce and use or sell such gaa as permitted in this Article.” (Emphasissupplied). . Eon. Ernest 0. Thompson - Page 9 “Sec. 11. The Commissionshall exercise the authority to accomplishthe purpose desig- nated under item (a) of Seotlon 10 when the presenoe or imminence of waste is supported by a finding based upon the evidenoe intro- duoed at a hearing to be held as herein provided. “The Commlsslon shall exeroise the au- thority to aooomplishthe purpose designated under item (b) of Section 10 when evidence introduced at a hearing to be held as herein provided will support a finding made by the Commission that the aggregate lawful volume’or the open flow or daily potential capacity to produoe of all gas wells located in a common reservoir, Is in excessof the daily reasonable market demand for gas from gas wells that may be produced from such common reservoir, to be utilized as permitted in this Article.” By Section 10, supra, the Legislature manda- torlly instructed the Commission to “prorate and regu- late the daily gas well produotion from each donvnon reservoir” to the ultimate ends of the preventionof waste and the adjustment of correlative rights. Sec- tion 11, supra, defines the conditions precedent to the exeroise of authority allowed in Section 10. Section 12 or Article SO@, V. C. S., provides as follows: Wet. 12. On or before the twentieth (20th) day of each calendar month the Com- mission shall hold a.-_. hearing _ after notice has been given, as provlded by law, for the pur- pose of determining the aggregate daily ca- pacity to produce of all gas wells in a com- mon reservoir, and as nearly as possible, the daily volume of gas from each common reser- voir that will be produced from gas wells during the following month to be utilized as permitted in this Article. Upon such deter- mination, the Commission,based upon evidence introduced at suoh heering, shall allocate to eaoh Rae well producing gas from such common reservoira percentage of the daily productive Hon. Ernest 0. Thompson - T%?e 10 capacity of euoh vie11which may be produced daily during the following month from each gas well producinggas from such common reser- voir. Such percentn<:e of the daily producing capacity of each :vellshall be re,Tardedas its daily allowable production of such daily vol- ume required for utilizationfrom such common reservoir. The d.ailynllo%sble production of eech gas well shall be computed anfi, allo- cated as provided in Sections 13 and 14.” In this Section, the Legislature provided that the Commission “shall allocate to eoc!?gas well” a -per- centage of the daily productive capacity of each well ;;;S$ ma~,,“,;,,p;o,c~,e;~~during the following month.” be retarded as its daily allow- able production.” Any flexibility in determiningthis “percentage”is constricted by those mandatory factors enumerated in Section 13, infra. The “dallv allowable prsducti.on” or “prrcen- taplenis to be computed and allocated in accord~anaewith Sections 13 and 14 of Article 6008, V. C. S., providing as r0ii0w8: Vet, 13. In determininr? the daily allow- able prod,uctlonfor each gas well the Commis- sion shall take into occount the size of the tract segre,gatedwith respect to surface po- sition and common ownershio upon which such gas well or wells are located; the relation be- tween the daily ?roducinK cnpacity of each gas well and the aggregate daily capacity of all gas wells producinv the seme kin.6 of gas in the same common reservoir or zone; and ~11 other faotors which nre prtinent;provi,ded tl1r.t the Commission shall not tnke into account the afve of the tract upon which any gas well or wells are located in exceea of the efficient drainage area of such Tide11 or wells, producing at twenty-five per cent (25;) of the doily oro- ductive capacity,which drainage area shall be determinedby the Commission. In ascertaining the drainage area of R well, the Commission shall take into account such factors as are reflected in the pror’uctivecapacity of R nas well, including formation pressure, the Hon. Ernest 0. Thompson - Page 11 permeabilityand porosity of the producing formation, and the well bore’s structural po- sition, together with all other factors taken Into aooount by a reasonably prudent operator In determiningthe drainage area for a gas well. “Sec. 14. It shall be the duty of the ‘ConunIssIon,after notice and hearing, to as- certain and determine the reasonablemarket demand for gas from gas wells to be used for light and fuel purposes and for all other law- ful purposes to which sweet gas may be put under the terms of this Article and by proper order to restrict the production of gas from all gas wells in said field producing such gas to an amount equal to market demand or to ,an amount which may be produced without waste as, otherwise defined; provided, however, the pro- duction of such gas shall in any event he restrictedto the amount of the reasonable mar- ket demand therefor. In such order the Com- mission shall allocate, distribute or apportion the total allowable production from such field among the various zas wells affected by the order on a reasonablebasis, and as provi.dedin Sec- tion 13. It shall likewise be the dut of the Commission to prorate the daily n,asweP1 pro- duotion of sour gas produced from each common reservoir of sour gas In this State. The hear- ins for such purpose shall be held at the same time as the hearing pertaIni,ngto the proration of sweetsgas well production. The proration of sour gas well production shall be accom- pli.shedaccording to the manner and method herein provided for the proration of sweet gas well production.” The phrase ‘Vailother facts which nre pertinentfq in Seotlon 13, supra, must be interpretedIn accordsnce with those faotore preceding. We cannot include within thIe phrase any power within the Commission commensurate with t.hepower you propose to exercise in your proposed amendments. The phrase has reference t,ofaotors similar to the “size of the tract”, “drai,nagearefl”,etc. In Section 14, supra, the Commission is to allocate “the total allowable production”‘from such field among the various gas wells on a “reasonable basi9 and . Hon. Ernest 0. Thompson - Page 12 as provided In Section 13. This Is a standard for the CommIsaIon. It must consider the factors outlined in Section 13 and allocate that productionamong those wells eon “8 reasonable besis” so as to prevent waste and/or protect correlativerights. It must do so to prevent dIsorImInatIonIn allocationamong gas wells of that “total allowable production”. In this connectionArticle 604961,Section 4, y. c. s., provides as follows: Vet. 4. Whenever the full production, from wells producing gas onlv, from any common source of supply of natural gas in this State ie in excess of the reasonsblemarket demand, the Railroad Commission shall Inquire into the productionand reasonablemarket demand therefor and shell determine the allowable production from such common source of supply, which shall be the reasonablemarket demand which can be produced without we&e, and the Commission shell allocate, distribute or apportion the al- lowable produotion from such common source of supply among the various producers on a reasonablebasis, and shall limit the produc- tion of each producer to the amount allocated or apportioned to such producer.” The CornmissIonis, therefore, to “limit the pro- duation of each produoer to the amount allocated or ap- portioned to such producer.” Your procedure is, therefore, outlined by statute and your duties provided. If the conditions are met as prescribed in Section 11, supra, on or before the 20th of each month, you are to hold a hearing,a fter proper notiae, for the purpose of determining the “ag- qregate daily capacity to produce of all gas wells In a common reservoir”and the “reasonablemarket demand for gas from gas wells that may be produced from the reservoir to be utilized as permitted” In Article 6008. (Sections11 and 12, supra) Upon t.hlsdetermination you are to allocate to each gas well producing gas from the coprmonreservoir, “a percenta.?e of tke daily pro- duotlve capacity of each well which may be produced daily during the following month.” Such percentage is “its daily allowable production”. Factors to be used in your determInatIonof this “daily allowable production”are outlined In Section 13, supra. By Article 6049d, Section 4, supra, you are to "limit the productionof each pro; duoer to the amount allocated or apportioned to such producer.” . . . L Hon. Ernest 0. Thompson - Page 13 An aoourate formula for the allocation of~mar- ket demand, pursuant to those legislativestandards,would ordinarily effeotuate the protection of correlativerights and/or the prevention of waste. The conditions you de- scribe do not necessarily Imply that the present formula is ill-designedfor the effectuationof those purposes if the oonditionsare the result of lndlvldual pipe lines at- tempting to .rulflll their contractual obligationsor mar- kets, taking gas only from their conneotions. Contractual obligations do not determine correlativerights. See Ed- formula whether market demand is rigid or ol’ allocation, oses (correlativeriuhts and pre- ur ~Z~~:.~t~~~a-~w~~complished~ for-the alloaa- tlon “percentage*wm zmain stable, iariatlon will be in the amount. The efieotuationof produotloe under the sllo- oatlon remains with the operator. All the Commission can do is allocate the market demand reasonablyand In agoord- anoe with legislativestandards to etfeotuatethe pur- poses of the act. This was the intent of the Legislature. We cannot attribute an intent of the Legislature to provide powers which are expressly denied in Section 16, inf’ra, the mandates of preceding sections, and further without the oontemplationof the Legislatureas gathered from Ar- tiole 6008. Section 16, Article 6008, V. C. S., provides as roiiows: *Sec. 16. It shall be unlawful for any person to produce gas from a gas well as herein defined in exoess of the daily allowable pro- duction in such sohedule of allowable produo- Mon. The rate of productiontram any gas well shall be deemed to be the average dally rate o? produotion for the month.” A *soheduleW, as long issued by the Railroad Commission, is an enumerationof the various producers . . Hon. Ernest 0. Thompson - Page 14 within a given field, providing therein the authorized dally allowable production’forthe ensaillg,month, Seo- tion 16 makes nunlawful.Rany *excess* production of gas over that authorized “daily allowable produotion‘inthe schedule.” Section 16 is a blanket prohibition and nega- tives any Implied power to permit acts whioh would be in violation thereof. The statute is unambiguous. In such oase, the proper rule of oonstrubtionIs the plain import and intent of the words. The provisions of Artiole 6008, heretoforedis- oussed, oompel the preparationot a sohedule for the en- eulns month, proviQlng preoisely the authorized dail allowable for eaoh well. The proposed amendment wou d --if lloense riolatiow of that asohedule.W Section 16, supra, speolfioallyprohibits that violation and makes *exoess produotlonn (authorizedunder the proposed amendment) Wnlawf ul .” Seotion 18 of Article 6008, V. C. S., ‘provides as follows: Veo. ia. When unforeseenoontingenoies inorease the demand for gas requiredby any distributor,transporter or purohaser to an amount in exoess of the total allowable pro- duotion of the wells to which he is oonneot- ed, suoh distributor,t nsporfer or purohaser is authorized to increas 5 his take ratably rrom all suoh wells in order to supply his de- mand for gas, provided, however, that notioe of suoh increase and the amount thereof shall be given to the Commissionwithin five (5) days; and provided rurther that the Corm&- sion, at Its next hearing, shall adjust tJie inequality of withdrawals caused by suoh”in- orease in fix1 the allowable pzroduction or the various we1 T a in the common reservoiror zone.” This Notion authorizes increased exoess pro- duotion on “unforeseenoontingenoies,”creating by stat- ute an exoeption to Section 16, supra, This increase in produotion over the authorized daily allowable must be balanoed the month following. .- * u ,r/’ Hon. Ernest 0. Thompson - Page 15 Section 19 of Article 6008, V. C. S., provides as follows: “Sec. 19. If the Commission finds upon considerationof the evidence introduced at a hearing that either or both of the purposes designated under Section 10 of this Article may be more adequatelyaccomplishedby zoning a common reservoir,the Commission shall zone such common reservoir. If the Commission zones such oommon reservoir, each zone shall be re- garded aa a separate oommon reservoir in making allooations of daily allowable produotlonas provided in this Artiole. The Commissionshall allooate to ~eaoh zone its just proportion of the market demand for gas from the common reser- voir, and shall establish appropriaterules and regulationsapplicable to each zone and shall have the right to adjust its orders to the prac- ticable conditionswhich exist and to enter any reasonableorder which is necessary to effectu- ate the purpose o? this law. The Commission is expressly authorized to segregate a sour gas ,,areafrom a sweet gas area and shall not be re- quired to restrict the allowable production of the sour gas zone to the same percentagesthat may be produced from the sweet gas zone.* If you have been unable to devise a formula for the allocation of production, proteotlng thereby oorrel- atlvs rights and/or preventingwaste, the ~Legislaturehas specifioallgauthorizedthe Connnlsslon upon a finding that those ourooses “may be more adenuatelyaooom she zon$a@ to aone “such oommon reservoir.” Br% pdebrgis gran ed the Commission in the effectuationof these pur- poses when a oommon reservoir is zoned. While we do not have the necessary facts to determine the question, this may be the solution to the conditions now existing in the Ca,rthageFielde This determinationis within the prov- ince of the Commission. The essence of Section 19, ‘~supra, supports I& view we have taken of the powers of the Commission. The Legislature provided in this Section alternativemeans for the effectuationof the purposes of Article 6008. If you determine that neither the statutory formula nor zoning will aooomplish the purposes of our conservationalews in the Carthage Field, then a change in the present laws by the Legislature is the only solution. w Hon. Ernest 0. Thompson - Page 16 WO answer your first question in the negative. In view of this opinion, your second and third questions do not require answers. The Railroad Commission of Texas is without power under Article 6008, V. C. S., et seq., to authorize by rule or order the balancing of over and under production of the legally prescribed gas allowable (with pro- viso for maximum daily and monthly allowable) for a period of a year. Yours very truly ATTORNZYGENERAL OFTEXAS EMH:jt The foregoing opinion was'consideredand approved inconferenoe composed of Assistant Attorneys Gen- eral Fagan Dickson, Joe Greenhill;Douglas Pruett, F. D. Brown, and Special Assistant James D. Smull- en. h P2 i?c$+d orney enera Chairman of the Gonferenoe