747 S.W.2d 892

Mary Ann Campbell MUSICK, et al., Appellants, v. RAILROAD COMMISSION OF TEXAS, Appellee.

No. 3-87-132-CV.

Court of Appeals of Texas, Austin.

Feb. 24, 1988.

Rehearing Denied April 13, 1988.

*893Ivan D. Hafley, Reynolds, Shannon, Miller, Blinn, White & Cook, Austin, for Mary Ann Campbell, W.V. Harlow, Jr. and Strick Watkins.

Jim Mattox, Atty. Gen., Robert L. Sei-bert, Asst. Atty. Gen., Austin, for R.R. Com’n of Texas.

Carroll Martin, Scott, Douglass & Luton, Austin, for Colorado Interstate Gas Co.

Before POWERS, BRADY and CARROLL, JJ.

POWERS, Justice.

The Texas Railroad Commission denied Mary Ann Campbell Musick’s application for a permit to drill and complete a well in the Panhandle West Field, a natural-gas field in Moore County. She sued in district court for judicial review of the Commission’s decision, joined by W.V. Harlow, Jr. and Strick Watkins who were entitled to a royalty in production from the proposed well. The district court declined to reverse the Commission’s decision, a judgment we will affirm.1

THE CONTROVERSY

Harlow and Watkins discovered in 1980 a vacancy tract comprising 8.064 acres. The tract is some 9,000 feet in length but ranges in width from 31.58 feet to 45.80 feet. Weymouth Corporation, the surface owner who had in good faith enclosed the 8.064 acres, exercised its statutory right to purchase the small tract from the State and received a patent. Tex.Nat.Res.Code Ann. §§ 51.171-.173 (1978). Weymouth Corporation subsequently leased the land to Musick for development of the minerals.

Musick applied to the Commission for a permit to drill the first well on the small tract, intending to complete it in the Panhandle West Field — a natural-gas field discovered in 1933 from which production is enjoyed through several wells surrounding the small tract. Harlow and Watkins joined in the Commission proceedings in support of Musick’s application. Colorado Interstate Gas Company and Anadarko Production Company appeared in the agency proceedings in opposition to Musick’s application.

The Commission’s spacing rules prescribe 330 feet as the minimum distance between a well and the nearest property or lease line, allowing an exception when necessary to prevent waste or confiscation of property. Owing to the narrowness of Mu-sick’s tract, her application could be granted only on an exceptional basis because the distance from the proposed well to the north-south boundaries of her small tract is *894only about 20 feet in either direction. She therefore proceeded in the Commission on a contention that she was entitled to an exception to prevent confiscation of her vested rights under the lease from Wey-mouth Corporation.

After notice and hearing, the Commission determined in its final order that Mu-sick was not entitled to the exception because she had not shown that it was necessary to prevent confiscation of any rights she had acquired in the lease from Wey-mouth Corporation. The agency reasoned that each of Musick’s predecessors in title and interest, first the State and then Wey-mouth Corporation, had in fact enjoyed during their respective periods of ownership a fair and reasonable chance to recover the natural gas in place under the small tract, it being undisputed in the case that each owned an interest in production from nearby wells that had drained from under the small tract all but 11,000 mcf of the natural gas previously in place there.2 Consequently, Musick’s claim of confiscation was precluded by the rule of law that one cannot acquire from his grantor a right to a well permit when the grantor himself had none. Railroad Commission v. Williams, 163 Tex. 370, 356 S.W.2d 131, 137 (1961). The Commission therefore denied Musick’s application for a well permit.

Musick, Harlow, and Watkins sued in district court for judicial review of the Commission’s final order. The Commission appeared in defense of its order as did Colorado Interstate Gas Company and Ana-darko Production Company, intervenors, who own interests in wells producing from the Panhandle West Field under nearby tracts. The district court refused to reverse the Commission’s final order and this appeal ensued.

DISCUSSION AND HOLDINGS

Musick contends the Williams decision was not applicable to the present controversy, or was misapplied by the Commission, for several reasons that we shall now consider.

Musick contends the Williams decision is not applicable to the case because the State’s conveyance to Weymouth Corporation was involuntary in the sense that the State was compelled to sell and convey the small tract to Weymouth Corporation once it had complied with the statutory provisions giving it the right to purchase the small tract.3 See Tex.Nat.Res.Code, supra, § 51.171 et seq. This theory is highly doubtful. Nothing “compelled” the *895Legislature to enact the statute giving those in the position of Weymouth Corporation a preferential right to purchase the property; the Williams “corollary” to the “voluntary subdivision rule” would be entirely redundant under such a theory: and, nothing in Musick's contention alters the fact that Musick derives her “vested rights” immediately from Weymouth Corporation and not the State. We shall, *896nevertheless, address the reasoning necessary to Musick’s theory.

Musick assertedly derives her contention from the following passage in Williams:

Murel, [the] grantee of the undivided one-half mineral interest, could have no better rights to a well permit [than his grantors]. To hold otherwise would mean that a grantor of a mineral interest could create valuable oil development rights in his grantee which he himself did not have. This rule is a necessary corollary to the voluntary subdivision rule. That rule prohibits the creation of a right to a well permit on each small tract subdivided from a large one when the owner of the larger tract did not have such a right....

356 S.W.2d at 137 (emphasis added). Mu-sick apparently argues from the unstated premise that the “corollary” can only apply when the “voluntary subdivision rule” also applies; and, that rule does not apply here because the Commission determined specifically that her small tract “was not a voluntary subdivision.”

Nothing in Williams suggests Musick’s premise and she offers no authority for it. Her premise is contradicted by Williams itself where the court, “without deciding” the issue, constructed an analysis that assumed the “voluntary subdivision rule” did not apply to the case because the 3.3-acre tract had been created as a separate tract, for oil and gas development purposes, before a 1958 judicial decree effectuated a voluntary subdivision under the applicant’s theory. In fact, the Court assumed the applicant’s grantors could have applied for a well permit as an exception grounded on confiscation (implying again the inapplicability of the “voluntary subdivision rule”) but noted that the grantors could not have established confiscation because it was undisputed that they shared in production from another well that drained the 3.3-acre tract. Having thus assumed the “voluntary subdivision rule” was not applicable, the Court then held the case was controlled by the “corollary” that the applicant could not have acquired a right to a well permit when his grantors had none. 356 S.W.2d 134, 135.

Musick’s premise is also contradicted by the fundamental proposition that both the “voluntary subdivision rule” and the Williams “corollary” rest upon fundamental legal principles as set out in footnote 3: an owner holds and enjoys his property subject to the State’s police power, as manifested in the Commission’s rules promulgated under the conservation laws; vested rights may arise only in conformity with those rules, when they apply to the case, and not through their violation or evasion; to hold otherwise would negate the State’s conservation laws. When those principles apply, they may apply through the “voluntary subdivision rule” or its Williams “corollary” as the circumstances make one or the other applicable. In either case, the principles control the result and not the circumstances alone.

Musick next advances several related arguments, all founded upon the undisputed proposition that the natural gas in place under the small tract has been drained to adjacent tracts where it has been produced through wells in which she herself has no interest. This proposition, in her view, establishes as a matter of law the “confiscation” of her vested rights under the Weymouth lease — unless she is now permitted a well on the tract to produce the 11,000 mcf that remains and, presumably, whatever additional quantities she may capture under an allowable set by the Commission.

In her first argument, Musick contends the Williams “corollary” does not apply because her predecessors in title (first the State then Weymouth Corporation) did have a right to a well permit in order to prevent confiscation. Consequently, she avers, this is not a case where she is claiming a right that her grantor did not have. The State had a right to a well permit, Musick contends, because the State “owned no other property abutting the” small tract. Sohio Petroleum Company v. *897 Schumacher, 460 S.W.2d 445, 449 (Tex.Civ.App.1970, no writ). We need not consider the meaning and effect of the Schumacher decision because we believe the Commission could properly conclude that Wey-mouth Corporation — Musick’s immediate grantor — did not have a right to a well permit, to prevent confiscation, while it owned the small tract.

Musick contends that Weymouth Corporation did have such a right because none of the draining wells in which it had an interest were “entirely draining” natural gas in place under the small tract. She purportedly infers from Williams and Benz-Stoddard, v. Aluminum Company of America, 368 S.W.2d 94 (Tex.1963) the expression “entirely draining.” We find in neither of those opinions such an expression. More importantly, neither suggests directly or by implication that an owner does not have a reasonable opportunity to recover his fair share of production, through a well on a nearby tract, unless that well is “entirely draining” his tract. Musick’s unsupported theory is, in our view, refuted by the “proper test of confiscation” stated in Williams — that is,

whether an owner, with the wells which already exist, has been accorded a fair and equal opportunity with other producers of surrounding tracts within the drainage area to recover his fair share of the oil in place beneath his tract. If he has, no confiscation results.

356 S.W.2d at 136. (emphasis added). This “test” implies a consideration and orchestration of several variables and negates the idea of one controlling factor such as that suggested by Musick.

Musick’s theory is also, in our view, contrary to the rule that the Commission must be allowed “some latitude” in such matters, owing to technical complexities and the varying factual and legal circumstances that may arise in administering the confiscation exception. Railroad Commission v. Shell Oil Co., 139 Tex. 66, 161 S.W.2d 1022, 1027 (1942); Gulf Land Co. v. Atlantic Refining Co., 134 Tex. 59, 131 S.W.2d 73, 85 (1939). The rule of law she suggests would be a straitjacket on the Commission’s essential powers. We therefore reject the theory.

Musick contends next that she was entitled to the permit, in order to prevent confiscation of her vested rights under the Weymouth lease, independently of whether her predecessors in title were entitled to such a permit on that ground. She cites in support of this contention the decision in Texaco, Inc. v. Railroad Commission of Texas, 716 S.W.2d 138 (Tex.App.1986, writ ref’d n.r.e.), where a substandard tract such as her small tract was not involved. This argument amounts to no more than a veiled assault on the rule stated in Williams: one may not claim a right to a well permit on a substandard tract, as an exception to the spacing rules and on the ground of confiscation, when one’s grantor did not have such a right. If the Texaco decision be so extended, it would be contrary to the Williams holding and the rule of stare decisis by which we are bound. We therefore reject Musick’s contention.

The foregoing discussion has been directed at Musick’s contentions regarding the applicability and application of the Williams decision. We now overrule each point of error wherein the contentions are made.

Musick raises another point of error that is unrelated to the Williams case. She complains the Commission’s order is invalid because it does not contain necessary findings of fact; and, even had the necessary findings been set forth in the final order, they would not have been supported by substantial evidence.

We believe the final order does indeed set forth sufficient findings of fact and conclusions of law, demonstrating the basis of the agency’s decision, for the various purposes that underlie the requirements of § 16(b), Tex.Rev.Civ.Stat.Ann. art. 6252-13a, Texas Administrative Procedure and Texas Register Act (APTRA) (Supp.1988). In any case, Musick contends in her brief *898that [t]he facts m this case are undisputed” and it appears that the other parties agree. We cannot, in consequence, conceive that Musick has been prejudiced by the omission of which she complains. We may not reverse the agency’s final order absent such prejudice to the complaining party. APTRA § 19(a). We therefore overrule her point of error.

Finding no reversible error as assigned by Musick, we affirm the judgment of the district court.

Musick v. Railroad Commission
747 S.W.2d 892

Case Details

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Musick v. Railroad Commission
Decision Date
Feb 24, 1988
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747 S.W.2d 892

Jurisdiction
Texas

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