CHAPTER 3 THE JURISDICTION OF STATE OIL AND GAS COMMISSION
| Jurisdiction | United States |
(Sep 1985)
THE JURISDICTION OF STATE OIL AND GAS COMMISSION*
Louisiana State University Law Center
Baton Rouge, Louisiana
Contents
Introduction
The Agency Responsibilities and Powers
Drilling Practices
Waste Disposal—Environmental Protection
Spacing and Allowables
Pooling and Unitization
NGPA—WPT Determinations
Delegation of Powers by the Legislature to an Agency
The Non-Delegation Doctrine
The Ultra Vires Doctrine
Federal Constitutional Issues
Due Process—14th Amendment Taking
Burden on Interstate Commerce
Preemption
Preemption: Natural Gas
Preemption: Federal Lands
Onshore
Outer Continental Shelf
State Law Issues
Zoning—County and Municipal
Due Process for County or Municipality
Conflict with Agency
Some Recent Legislation
Enforcement: Agency, District Attorney or Attorney General?
Conclusion
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INTRODUCTION
This paper is on jurisdiction, including the constitutional issues raised by the exercise of that jurisdiction. Steve Hackerman on the program will take up the matter of the Federal/State conflict on natural gas prorationing, but since ratable taking touches on some of the same principles covered by this paper's subject I have included a limited treatment of the natural gas area. The discussion will cover Federal/State issues on the Commerce Clause, due process, and the doctrine of preemption, and it will take up certain state law jurisdiction matters: conservation agency responsibilities under state law and conflicts with other state agencies, including counties and municipalities. Although the paper will attempt to cover everything on the subject, the treatment will be in greater depth on certain states: Colorado, Louisiana, New Mexico, Oklahoma, and Texas. Why these states? To paraphrase Willie Sutton, who, when asked why he robbed banks, replied "That's where the money is,"1 ,I will say "That's where the oil and gas and the jurisdictional issues are."
As a preliminary matter, let us state what we mean by the term "jurisdiction." From Ballentine's we get the statement that it means "in a particular sense, the right of a tribunal to exercise its power with respect to a particular matter."2 My American Heritage dictionary defines jurisdiction as "The right and power to interpret and apply the law."3 An agency has no inherent authority; it has only such power as may be granted it by the state legislature or, in some instances, by the state constitution. Our starting point then is the creation of conservation agencies by the state and the conferring of powers upon them.
In considering what an agency may and may not do, we must distinguish between questions as to those powers that even the legislature cannot confer upon the agency and questions of whether the legislature has conferred certain powers on the agency. That is, an agency may be prohibited from taking certain actions because it is not within the power of the state to take them at all. Thus, the state may confer power on an agency to set a minimum price for natural
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gas of say $5.00 per MMBtu; the agency will not be able to do this, not because it lacks jurisdiction, but because the exercise of that jurisdiction will conflict with an area of the law preempted by Federal law. Or the agency may be prohibited from taking certain actions because the legislature has not authorized the agency to act in the manner questioned. Here the agency is acting ultra vires. We may then inquire whether certain powers have been conferred exclusively upon the conservation agency, or whether the legislature has conferred similar or conflicting powers on another agency or subdivision of the state. Several subdivisions of the state may each have jurisdiction, and a court may have to decide between conflicting exercises of jurisdiction.
THE AGENCY RESPONSIBILITIES AND POWERS
Administrative agencies are established to carry out functions which the legislature cannot handle on a day to day basis. Such agencies are able to specialize in a complex area; they possess expertise; and they provide both flexibility and continuity that legislature and courts cannot provide. Oil and gas drilling and production are particularly beyond the technical ability of the legislature and courts to master and apply consistently, expeditiously and fairly. Before complicating matters further, let us go briefly over the areas in which most state conservation agencies exercise regulation.
Drilling Practices
The rule of capture leads to the drilling of wells that are unnecessary to drain a reservoir. It leads to excessive rates of production of oil that may cause coning, fingering, and premature loss of reservoir energy as gas cap gas or solution gas is depleted. Surface effects may include production in excess of storage and marketing facilities.
Apart from the incentives of the rule of capture, improper practices by operators can cause waste. Incorrect plugging of a well, for example, can lead to migration of oil out of a reservoir to pollute the surface or can lead to communication between formations thus damaging a productive formation. Putting a valuable resource to inferior uses might also be regarded as a wasteful practice.
All state conservation agencies regulate each phase of oil and gas drilling and production. Elaborate technical regulations govern the drilling and completion of wells, including rules on the setting of casing and protecting against fire, rules establishing requirements for drilling fluids and for storm choke or blow-out prevention equipment, and rules governing plugging and abandonment procedures.
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Inspectors have access to all rigs and monitor that permits have been obtained and regulations are being complied with.
Waste Disposal—Environmental Protection
The agencies have authority over underground injection of wastes and new responsibilities regarding transportation and disposal of oil field wastes. State conservation agencies have traditionally been responsible for prevention of pollution from drilling and production activities, but increased environmental awareness in recent years has led to new programs at both the state and Federal levels.
Spacing and Allowables
Well spacing is concerned with the location of wells and the density of drilling into a reservoir. Rules or orders of the state conservation agency may limit the proximity of wells to property lines and to other wells. Such regulations have the effect of protecting correlative rights in areas of diverse ownership and of limiting the number of wells that may be drilled into a reservoir in a given area. Well-spacing is done both by state-wide order and by individual field or reservoir rules. Exceptions may be granted on a well-by-well basis. Generally, an exception location may be approved when it is necessary to prevent waste or to prevent inequity or loss or property rights. A variety of factors will be considered in the setting of allowables. One concern is establishing for oil the maximum efficient rate of recovery. The agency will look to yardstick or depth-bracket allowables and a gas-oil ratio. Deliverability reports will be made to the agency and these may be used in setting allowables, together with information on market demand. This latter concept, market demand, has had a certain history in setting oil allowables that has given it a pejorative connotation. However, market demand has another role in the setting of allowables for protection of correlative rights within a reservoir or prevention of net drainage.
Pooling and Unitization
Pooling may be defined as the uniting of the interests in separately owned small or irregularly shaped tracts for the purpose of integrating the minimum acreage necessary for a drilling unit. Conservation agencies are empowered to effect such pooling as a necessary incident to the well spacing and setting of allowables. Otherwise, the state would be confiscating valuable property rights by preventing an owner of land from drilling a well on his property while allowing a neighbor to drain him without compensation.
Unitization is the consolidation of all or a substantial portion of the interests in an entire field or pool for the purpose of operating the reservoir as a single
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producing mechanism. This is pooling of an entire reservoir, so that each owner of an interest shares from the production of all wells regardless of location. It allows the most efficient operation and recovery of oil from a reservoir. The circumstances under which an agency can require forced unitization vary from state to state. Texas still does not have a compulsory unitization statute.
The conditions under which a conservation agency can require pooling or unitization are often said to be jurisdictional in nature. By characterizing a prescribed condition as jurisdictional, a court may be able to employ a broader scope or standard of review, or a collateral attack on an agency determination may be permissible. Such conditions may include notice requirements, findings of a fair offer to pool having been made beforehand, or specific percentages of consent to a unitization agreement having been obtained.
NGPA—WPT Determinations
In a real sense, the Congress has conferred certain jurisdiction upon the state conservation agencies. The agencies have accepted this somewhat reluctantly, for it imposes responsibilities upon them without the Federal government picking up the bills for the implementation of the new roles. In this area we may include well status determinations for implementing the Natural Gas Policy Act of 1978,4 and "property" determinations for Windfall Profit Tax5 through the recognition of a separate reservoir status for a producing reservoir.
DELEGATION OF POWERS BY THE LEGISLATURE TO AN AGENCY
Assuming for the moment that an area of conservation regulation can be...
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