HUNTER v. JUSTICE COURT OF CENTINELA TOWNSHIP LOS ANGELES COUNTY

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District Court of Appeal, Second District, Division 1, California.

HUNTER v. JUSTICE'S COURT OF CENTINELA TOWNSHIP, LOS ANGELES COUNTY et al.*

Civ. 17713.

Decided: June 21, 1950

Arthur C. Fisher and John C. Packard, Los Angeles, for petitioner. Harold Judson, Hollywood, and Orris R. Hedges, Los Angeles, for amici curiae on behalf of petitioner. Fred N. Howser, Attorney General, John F. Hassler, Jr., Deputy Attorney General, for respondents and others. O'Melveny & Myers, W. B. Carman Jr., William W. Alsup and Deane F. Johnson, all of Los Angeles (Robert T. Patton and Donald S. Coye, Los Angeles, of counsel), for Shell Oil Company, Real Party in Interest.

Since 1925 petitioner has owned two town lots, an area 140 feet long and 100 feet wide, and 39/10039100 of an acre. Shell Oil Company has what is called a community lease from lot owners in the vicinity. The lease includes lots adjacent to, and surrounding petitioner's lots.

Petitioner is not a party to the Shell lease. But, under Section 3608 of the Public Resources Code petitioner's lots are included within the lease—whether he likes it or not. Section 3602 forbids him to drill upon his own lots, they being less than an acre in extent.

Petitioner commenced to drill a well for himself on his own property. Whereupon the District Attorney of Los Angeles County filed a criminal complaint in the respondent Justice's Court, charging him with violation of Section 3600 of said Code. Petitioner's motion to dismiss the complaint was denied; he pleaded not guilty; and his case has been set for trial. Hence petitioner prays for the issuance of the Writ of Prohibition from this Court.

This raises the question of constitutionality of Sections 3600 and 3608 of the Public Resources Code, as applied to the facts alleged in the Petition.

The California Well-Spacing Act was first enacted in 1931. Stats.1931, Ch. 586, p. 1277. In 1939 it was embodied in Sections 3600 to 3605 of the Public Resources Code. Stats.1939, Ch. 93, p. 1067. The Legislature did not state specifically that the law was for the purpose of conservation of oil until 1947. Stats.1947, Ch. 1559, p. 3200.

The well-spacing act of 1947 was drafted in the light of the decision of our Supreme Court in Bernstein v. Bush, 29 Cal.2d 773, 177 P.2d 913. The Legislature then stated that the code sections were enacted for the conservation of natural resources and the observance of safe and orderly oil field operations.

In addition to Section 3602, which prohibits drilling on less than an acre, Section 3608 was added. Section 3608 gives to the owner of less than an acre, surrounded by an oil lease, the status of one of the lessors in that lease, with the right to share proportionately with the other lessors in the royalties paid to the landowners.

The Benstein case indicated that unless the lot owner not included in, but surrounded by community lessors, was permitted the enjoyment of the co-equal right to recover petroleum beneath his property, California's well-spacing legislation would be held unconstitutional. The case, however, went off on the proposition that it was not one requiring issuance of the Writ of Mandate by the Supreme Court. And three of the Justices indicated they would seriously question whether the Supreme Court should declare the statute unconstitutional, in the circumstances in that case.

Until the enactment of Section 3602 every landowner, irrespective of the size of his parcel of land, had the right to drill for oil and reduce it to possession. Callahan v. Martin, 3 Cal.2d 110, 43 P.2d 788, 101 A.L.R. 871; Dabney-Johnston Oil Corp. v. Walden, 4 Cal.2d 637, 52 P.2d 237; La Laguna Ranch Co. v. Dodge, 18 Cal.2d 132, 114 P.2d 351, 135 A.L.R. 546. This has been sometimes called the rule of capture.

The problem here presented, then, is whether Section 3608 secures to the petitioner a co-equal right with other landowners to recover his proportion of the oil underlying his property, the State having taken away from him the right to drill his own well.

Petitioner says it does not, for the following reasons:

1. The owner of a lot or lots the size of petitioner's cannot under any set of circumstances drill upon his own property.

2. Under the lease with Shell, petitioner is to receive his proportionate part of one-sixth royalty to be paid to the landowners. This denies petitioner any share in the remaining five-sixths of the oil recovered. Petitioner should be permitted to pay his proportionate part of the cost of drilling under the lease, and thus be entitled to share accordingly in all of the oil recovered.

As stated in the brief of amici curiae: ‘In California the lot owner is relegated by Section 3608 to the enforced role of a lessor receiving only one-eighth,* even though he may be financially able, technically equipped, and otherwise desirous of drilling a well upon his own property, or sharing with others the cost of drilling upon the spacing unit of which his lot forms a part.

‘*The lease in the present case gives somewhat more than the law requires—one-sixth * * *’

3. Petitioner's land is subjected to the obligations of a lease in the making of which he had no part. He is forced by law into a contract in which he has no say. At least there should be some tribunal established to hear and pass upon his case, and assure to him his constitutional right of due process of law.

Under the California well-spacing law, no forum is set up to determine the respective rights of the parties whose lands are affected by well spacing, either in their relations as lessors inter se, or in their relations as lessors with the lessee. To instance this objection, the law of Oklahoma is cited.

Oklahoma sets up a commission with power, among other things, to determine: (a) The lands embraced in the common source of supply as then defined; (b) The plan of well-spacing then being employed in said source of supply; (c) The depth of such producing wells as may already have been completed therein; (d) The thickness, porosity, and permeability of the producing sand in said source of supply; (e) The nature and character of the reservoir energy found therein; (f) The formations encountered in any wells then drilling in said source of supply; (g) Cores taken from said source of supply; (h) The history and producing characteristics of wells in other sources of supply producing from the same or similar formations; (i) Any other available geological or scientific data pertaining to said source of supply which may be of probative value to said commission in determining the proper spacing and well drilling unit therefor. All with due and reasonable allowance for the correlative rights and obligations of the producers of oil and royalty owners interested therein.

4. Under the terms of the lease, Shell is not required to drill more than one well to each twenty acres. On property adjacent to the lease many more wells have been and are being drilled, and one well to each twenty acres does not fairly offset drainage of wells upon other and adjoining property.

5. A valid spacing act must contain a provision designating the maximum community unit or drilling area. The California law does not do this. Thus, assuming petitioner's land to be over the most prolific part of the oil structure, the lease may include lands far removed from the structure, and give to the owners of such lands a part of the oil under petitioner's property which they never otherwise could get.

6. A valid spacing act must not for an undue length of time prevent owners of less than one acre from enjoying the benefits of property over a producing oil structure. The lease in question was held for more than four years before any drilling was done, and during all that time petitioner could not drill. Under the terms of the present lease the lessee could defer drilling for twenty years.

These objections will be considered separately.

First—that the owner of less than an acre is denied the right to drill upon his property:

To understand this Court's ruling upon this objection, it is necessary to sketch, generally and roughly, the consensus of opinion among oil experts and engineers as to the immediate sources of petroleum.

Oil is not present beneath the ground as a pond or lake of liquid. It is present in the interstices of sandlike rock formations. Along with the oil, is gas under pressure.

Oil is not everywhere under the ground; it is confined to what oil men call structures. Sometimes structures are of considerable size, but each has its limits. After sufficient wells are drilled into an oil structure, experts can determine generally its limits as to length and breadth and depth. And the experts can determine with considerable accuracy how deep you have to drill to hit the structure.

Of course, no two structures are ever the same, so no exact rules can be stated as to length or depth or breadth. And ofttimes an expert's prediction as to what will happen to a particular well over a proven structure is confounded by one of the sly quirks of Mother Nature.

On the top, most structures may roughly be likened to the slanting roof of an old-fashioned house. Some are quite steep in pitch, others more nearly horizontal. It is seldom that both sides of the roof are the same in pitch or extent, or indeed, the same in productivity.

The overall size of structures is variable; some are large, some are small; in some the roof pitches off so rapidly that the structure into which wells may successfully be drilled is not very wide; in others the pitch is so gradual on one flank or the other, or on both, that it is said to be an extensive structure.

Similar observations may be made as to length and depth below the tops of these natural reservoirs.

But there is one characteristic common to all petroleum structures. The pressure of the gas is what primarily brings the oil to the surface. Other pressure of oil and water is also present. But to go into the effects and results of all pressure in an oil structure, and what man's interference does to it, would unduly complicate this layman's statement, for illustrative purposes only, of exceedingly complicated natural phenomena.

Suffice it to say that if title to property over a producing structure is held by many owners, too many wells are drilled. And too many wells diminish pressure so rapidly that only a part of the oil in the structure is recovered. When the pressure falls below a certain degree, or fails entirely, large quantities of petroleum are left in the structure and are lost. So far no technical means has been perfected to recover oil thus wasted.

In Harvard Law Review (1938) Vol. 51, at page 1219, the forces which bring oil to the surface through oil wells are described, as follows:

‘An oil pool is an engine; it represents an equilibrium of rock pressure, gas pressure and underlying water pressure. Pierced by a well, these forces propel oil or gas or water, or all three, to the surface. The fundamental concept of the early cases was that an oil well produced oil, as a spring might produce water, and was itself, consequently, the subject of a property right. But, from an engineering standpoint, it has been said that the well is nothing but a vertical pipe line which permits the reservoir, as an engine, to transport oil to the surface of the lease, just as a horizontal pipe line is a means permitting a pump to transport oil from the lease to the refinery. Once placed in production, an oil pool is now known to change its underground characteristics. The lessening of the pressure around the well permits the gas which is dissolved in the oil to expand, propelling that oil through the pores of the rock ro sand to the well. Concurrently, the underlying water, under a hydrostatic head, pushes upward, driving oil through the rock pores ahead of it. Under ideal conditions, those natural underground forces, i. e., ‘water drive’, gas pressure, and so on, may be so harnessed and controlled as to lift to the surface 90 to 95 per cent of the oil contained in the reservoir, by flowing, over a long period of years. But when oil is produced without restriction, the engine figuratively races itself to pieces: the gas, which has accumulated on top of the oil, is blown off; the underlying water rushes up through the oil-bearing sand to the well, and traps off oil; and the gas dissolved in the oil is permitted to escape so rapidly that the remaining oil is left too thick and viscous to be propelled through the rock by the diminishing pressure. The well then has to be pumped, producing much smaller quantities at a much higher cost. The result, under the American system of ownership, is that in the older fields which were operated without restriction during their flush periods, from 75 to 90 per cent of the oil has been left underground and capable of production only at a slow rate through pumping, or perhaps ultimately by mining methods. Certain fields in foreign countries, where the concessions were large enough to embrace the entire pool as a single operating unit (in contrast with the American unit of the single lease), have been so drilled and produced as to yield, by flowing, almost the full theoretical recovery.'

So, here is the public interest which is the basis for regulation by law of oil drilling, and in the present case, for well-spacing legislation. Concededly, such legislation is a departure from the rule of capture. The enactment is for the public welfare, under the police power, to insure that drilling too many wells in a given area will not waste oil. The people have the undoubted right to insure maximum recovery of this natural resource. People v. Associated Oil Co., 211 Cal. 93, 294 P. 717. Otherwise, we would lose for all of us that much of a commodity vital to our needs, to our welfare, and in wartime, to our existence.

Other reasons of public welfare, justifying regulation of oil drilling, under the police power, are well recognized, as forbidding the location of wells too close to highways or railways, and determining the number of wells, if any, in thickly settled districts; but the impelling reason for regulating the number of wells in an oil field is the need for conservation of this essential and useful product of nature.

Therefore, California's oil well spacing laws are well within the police power of of the state, and are not unconstitutional for the single reason that drilling on less than an acre is prohibited.

The second objection—that petitioner should be permitted to contribute his part of the cost of drilling, and to receive his proportion of all of the oil recovered:

In most, if not all of the oil well spacing laws in other states, this privilege is given to owners of less than an acre. However, what other states may or may not do is not necessarily decisive of what the state of California may do. The test is whether the law applied to petitioner's property is so oppressive and unreasonable as to amount to an improper exercise of the police power. Willett & Crane v. City of Palos Verdes Estates, 96 Cal.App.2d 757, 216 P.2d 85.

This Court will take judicial notice of the fact that drilling an oil well is an expensive undertaking, and would not be economically feasible upon land less than an acre in extent. People v. Associated Oil Co., supra. Therefore, the principle involved in Section 3608 affords to petitioner a fair adjustment of the problem of doing justice to individuals and at the same time protecting the public interest in conservation of oil.

The third objection (in which may be included the fourth, fifth, and sixth):

Petitioner, without his consent, is included in a lease with which he had nothing to do. As pointed out in the objections above stated, the owner of less than an acre of land is delivered hand and foot to the lessee and the lessors who own more than an acre. All he gets is a one-eighth share in oil produced under the community lease, in the proportion that his short acre bears to all the land leased.

The other parties determined the area to be leased, and the lessors who will share in the production; they determine the term of the lease, the time when the first well shall be drilled to hold it, the manner of performance thereunder, the number of wells to be drilled to hold the lease, provisions for offset drilling, the lessors' share of oil recovered (which under the Section may not be less than one-eighth); they determine all of the things essential for the protection of the lessor of oil property.

If the state takes away part of the ownership of property for the general good of all, it must afford means for the protection of the owner. Petitioner is entitled to have his lessor's rights determined in some forum set up by the state—a forum with power to secure for him his right, coequal with surrounding owners and lessees, to recover his fair share of the oil and gas from the common source of supply. Bernstein v. Bush, supra. The Public Resources Code sections under consideration in their present form do not do this for owners of parcels of land of less than an acre; and to that extent unlawfully invade petitioner's constitutional property rights.

Let a Writ of Prohibition issue as prayed.

DRAPEAU, Justice.

WHITE, P. J., concurs. DORAN, J., concurs in the judgment.

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