Face Challenges Confidently

140 Railroad Commission of Texas v. WBD Oil & Gas Co.

Tuesday, September 8th, 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.
Railroad Commission of Texas v. WBD Oil & Gas Co., 2002 WL 31992122 (Tex. 2003) holds that an aggrieved party may lose the right to challenge Railroad Commission field rules by failing to act within thirty days after the Commission’s decision. WBD sued the Railroad Commission in 1995, challenging the validity and applicability of the 1989 Panhandle Field Rules, and alleging that the Commission should not be permitted to change the completion requirements for existing wells. The Commission filed a plea to the jurisdiction, arguing that WBD was too late and improperly attempting to circumvent the requirements of the Administrative Procedure Act (“APA”) for obtaining judicial review of a Commission order. The issue was whether field rules determined under “contested case” procedures could be judicially reviewed as “rules” and under “rule making” procedures under Section 2001.028 of the APA. The Texas Supreme Court agreed with the Commission.
In determining the 1989 Panhandle Field Rules, contested case procedures were used, which included giving notice to all operators, so that production rights in the field could be determined. Thus, like a judgment in a class action, the Commission’s decision adjudicated the rights of those who chose to participate in the proceeding and all others similarly situated, which would include all operators in the Panhandle Fields, including WBD. In the context of the APA as a whole, the court held that field rules clearly are not rules of “general applicability,” but are rather an adjudication of the individual interests principally affected. In Railroad Commission v. Torch Operating Co., 912 S.W.2d 790 (Tex. 1995), the court had previously held that field rules are not adopted under the rulemaking provisions of the APA, but are promulgated through the adjudication provisions of the APA. Field rules concern a specific field and a specific group of operators and do not affect the statewide oil and gas industry as a whole.
Therefore, the WBD Court held that the Commission’s field rule orders cannot be challenged in a declaratory judgment action under Section 2001.038 of the APA. The significance of WBD is that it upholds the method of judicial review for contested case decisions, to include Commission orders regarding field rules. Thus, once the Commission has adopted field rules, any challenge to them must be immediate. An operator may not wait years, or even months, after the adoption of field rules to challenge their applicability. Indeed, to obtain a review of a contested case proceeding, an aggrieved party must, among other requirements, file a petition with the court within thirty days of the Commission’s decision.
WBD may be of interest to operators in the Panhandle for its brief and succinct history of oil and gas development in the Panhandle Field. The “Old Field” was at one time the most exciting discovery in Texas.  The Court stated [slightly edited for readability]:
The discovery gas well in the Panhandle Field–the Canadian River Gas Company Masterson No. 1 well in Potter County–was completed in 1918 to little delight because there was then, and for many years afterward, no significant market for gas. On the other hand, the 1921 completion of the discovery oil well in the field–the Gulf Production Company S.B. Burnett No. 2 well in Carson County–set off massive drilling and production throughout the area. It was customary at the time for oil wells to be completed and the casing perforated both in lower oil horizons and higher gas horizons so that gas and oil were produced together. The so-called “wet” or casinghead gas from the well was processed to remove whatever liquid condensate or “natural gasoline” could be extracted under pressure, and the remaining “dry” gas–some 90% of the volume–was vented or flared. The gas lost by this lamentable practice could reach, by one 1934 estimate, 1 billion cubic feet per day. In 1935, the Legislature prohibited such wasteful operations. About the same time, the Commission began issuing a series of orders adopting field rules to regulate the production of oil and gas in the Panhandle Field, and specifically, to prohibit perforating oil well casing in higher gas strata so as to produce gas and oil together.
By 1986, the Panhandle Field had been divided into thirteen separately designated fields (several simply on county lines) together containing 10,796 producing oil wells and 3,510 producing gas wells. From information the Commission had obtained and from operators’ requests for clarification of the field rules, the Commission had grown concerned about persisting “high-perforation” practices as well as the adequacy of the field rules in other respects. Accordingly, in January 1986 the Commission initiated Docket No. 10-87,017 by notifying all operators in the Panhandle Fields, as well as all other interested persons and the public, that it would hold a hearing to consider consolidating the fields and changing the field rules. . . . The hearing began in January 1987, and in March 1989 the Commission issued its final order, adopting findings and conclusions and changing the field rules. In part, the new rules changed completion requirements, well spacing, and allowable production.