Exxon Corp. v. Railroad Commission

A Texas Railroad Commission (Commission) (defendant) rule prohibited parties from drilling a well closer than 1200 feet to another well. The Commission could grant an exception to the rule if such exception would “prevent waste or . . . the confiscation of property.” BTA Oil Producers (BTA) was a lessee on a tract of land. BTA drilled a well (Wedge 2) in the Montoya Reservoir approximately 13,000 feet below the surface. The Montoya reserves, however, were nearing depletion and BTA thus wished to plug back and recomplete the well at a higher depth, approximately 12,000 feet below surface. However, BTA already had a well at this higher depth (Wedge 1), and BTA’s desired completion location for Wedge 2 would be less than 1200 feet away from Wedge 1. As a result, BTA filed an application with the Commission, seeking an exception to the spacing rule. BTA presented evidence that none of the wells in the vicinity of its Wedge 2 bore were sufficiently capturing oil at the 12,000 foot depth. BTA also presented evidence that although a totally new well could be drilled at a location that complied with the spacing rule, BTA could not economically justify doing so, particularly when Wedge 2 was already dug and only needed to be plugged back and recompleted at the desired level. The Commission granted BTA the exception over the objection of Exxon Corp. (Exxon) (plaintiff). The Commission, taking BTA’s pleaded economic factors into consideration, found that oil was being wasted by not being captured near Wedge 2. Exxon brought suit in the District Court of Travis County, challenging the order. The district court affirmed the Commission order. Exxon appealed.