Parkin v. State Corporation Commission

An oil-and-gas operator filed an application with the Kansas State Corporation Commission (the commission) (defendant) seeking unitization of an oil pool. The commission approved the application. The application stated that the unit would be used for secondary-recovery operations. However, the unitization plan approved by the commission also stated that the operator may change its method of operation. The unit-operation agreement provided that termination could occur only upon a determination by the operator that the unitized pool could no longer be produced in paying quantities or that unit operations were no longer feasible. Oil production from the pool was minimal. Attempts at secondary recovery by water injection eventually were ceased when they did not create more production. However, the operator determined that production could still be made in paying quantities and that there was still production from the unit. The owners of the mineral interests in the unit (plaintiffs) filed an application with the commission seeking an order from the commission dissolving the unit. The commission rejected the owners’ application, stating that the operator did not agree to dissolve the unit, as was required in the unitization plan. The owners appealed the decision to state court, arguing that (1) the unit was set up for secondary-recovery operations, which were ceased; (2) the commission erred by concluding that the unit should continue until terminated by the operator; and (3) the commission improperly delegated its authority to terminate the unit to the operator. The commission argued that the operator had a contractual right to determine when to dissolve the unit. The trial court held that the utilization plan was contractual and binding upon the owners. Thus, the court ruled that the unit must continue until the operator determined otherwise. The owners appealed.