The Trees Oil Company v. State Corporation Commission

Chesapeake Operating Inc. (Chesapeake) owned several oil wells and wished to unitize adjacent reservoirs connected by well bores and then use the process of water flooding to increase production across the entire unit. The Trees Oil Company (Trees) (plaintiff) owned a well on the boundary of Chesapeake’s proposed water flooding plan. The overwhelming majority of the owners in the proposed plan approved the unitization. Trees, however, did not want its well to be included. Chesapeake filed an application with the State Corporation Commission of Kansas (Commission) (defendant) to force the unitization of the tracts, including that of Trees. Under a Kansas unitization statute, “pool” is defined as “an underground accumulation of oil and gas in a single and separate natural reservoir characterized by a single pressure system so that production from one part of the pool affects the reservoir pressure throughout its extent.” At the proceeding before the Commission, Trees argued that the proposed forced pooling would violate this definition. Specifically, Trees submitted that two reservoirs could not be commingled in one unit, because the statute applied to a “single and separate natural reservoir.” Chesapeake stated that many wells in the proposed unit had commingled production from both reservoirs, and that good pressure communication existed across the entire proposed unit. Chesapeake also stated that the proposed increased oil recovery would not be available through primary production methods. Moreover, Chesapeake stated that Trees’s well would stand to benefit from the proposed water flooding, and that if Trees’s well was not included in the proposed unit several thousands of barrels of oil would migrate from the unit to Trees’s well. The Commission granted Chesapeake’s application. Trees appealed the Commission’s order to the Haskell County District Court. The district court affirmed the order. Trees appealed.