Face Challenges Confidently

074 Arkla Exploration Company v. Haywood, Rice & William Venture

Thursday, September 3rd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Arkla Exploration Company v. Haywood, Rice & William Venture, 863 S.W.2d 112 (Texas App.–Texarkana 1993, writ dism’d by agr.) holds that a suit for damages for negligently depleting a gas reservoir was an impermissible collateral attack on a Railroad Commission order. Arkla drilled through the Upper Pettit and successfully completed and produced from lower zones. Haywood attempted to produce an oil well from the Upper Pettit under a neighboring tract, but found the gas pressure too low. Haywood decided that Arkla had produced gas from the Upper Pettit negligently and in violation of Railroad Commission orders. Haywood filed suit. Three years later, after obtaining a continuance (delay) to seek an administrative ruling, Arkla obtained a favorable finding from the Railroad Commission that it had not violated Railroad Commission rules or orders and that it had not produced gas from the Upper Pettit. The case then proceeded to trial, and the jury found that Arkla had produced gas from the Upper Pettit negligently.
Although the Court questioned the necessity of requiring a ruling by the Railroad Commission in this case under these circumstances, Haywood’s entire case in the trial court hinged on obtaining fact findings which would be contrary to the fact findings already made by the Railroad Commission on matters within its authority. Couching the allegations in terms of negligence did not alter the thrust of the suit, that the conduct alleged, whether intentional or negligent, would constitute a violation of Railroad Commission rules. (If Arkla had produced gas from the Upper Pettit in accordance with the rules, then Arkla would have had a right to take the gas under the Rule of Capture.)
The opinion distinguished the two prior Texas Supreme Court cases on Bolton v. Coats, 533 S.W.2d 914 (Tex. 1976) and Amarillo Oil Co. v. Energy – Argi Products, 794 S.W.2d 20 (Tex. 1990). In Bolton, the Court found that the suit was not merely an attack on the classification of the well (a matter within the primary jurisdiction of the Railroad Commission), but it was also a suit to recover royalty on oil produced by drainage and breach of the duty to explore. The trial court could proceed in that case to consider the drainage and breach of duty claims. In Energy-Agri, the Court found that the Railroad commission had no authority to determine title and ownership of gas, to construe a lease, or to grant an injunction, all of which were matters properly to be determined by the courts. These cases were distinguished because the Texas Supreme Court was not in those decisions overriding determinations already made by the Railroad Commission orders. For the present case to precede, it required findings to be made (which were made) directly contrary to those already made by the Railroad Commission. Thus distinguished, Haywood lost the $1,000,000.00 in damages awarded by the jury.
The case represents another attempt to define the gray area in which the jurisdiction of the courts and the Commission appears to overlap in regulating the manner or production. It appears to follow a trend to show considerable deference to commission decisions, once rendered.