Tenneco Oil Co. v. State Industrial Commission

The state Industrial Commission (the commission) (defendant) established a spacing pattern for oil wells in a particular oil field. The commission established 80-acre spacing units, meaning only one well could be drilling within each 80-acre plot. Sections were broken into 40-acre quarters—any two adjacent quarters within a section could be designated as a spacing unit. However, drilling could occur only in the northeast quarter or southwest quarter of a section. Tenneco Oil Co. (plaintiff) owned the lease on the west half of a section. California Oil Company owned the lease on the east half of the same section. California had attempted to drill in the northeast corner of the section, but failed to strike oil. Tenneco wanted to drill in the northwest quarter of the section, as opposed to the southwest corner, and thus applied for an exception to the commission’s rule. Tenneco argued that a well in the southwest corner would not provide oil and that the only way Tenneco could recover its fair share of the oil under the section was by drilling in the northwest corner. Experts testified, however, that a well in the southwest corner would produce oil. While the issue was under consideration, Tenneco acquired the lease to the east half of the section. Tenneco then filed a new application for a drilling exception. Instead of designating the west half of the section as the spacing unit, Tenneco designated the north half as the spacing unit. Tenneco again requested a permit to drill in the northwest quarter. At a hearing, it was established that the northwest quarter was the only location in this new spacing unit where a well could successfully be drilled. Opponents testified that a well in this quarter would interfere with the correlative rights of other producers. The opponents also argued that that a well in the southwest quarter, although it was not in the newly designated spacing unit, would give Tenneco a fair opportunity to recover its share of oil. The commission denied Tenneco’s application. Tenneco appealed, and the court upheld the denial. Tenneco again appealed.