RICHFIELD OIL CORP v. CRAWFORD

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District Court of Appeal, Second District, Division 3, California.

RICHFIELD OIL CORP. et al. v. CRAWFORD et al.*

Civ. 18549.

Decided: March 13, 1952

Marlon F. Schader, Los Angeles, Griffith & Thornburgh and C. Douglas Smith, all of Santa Barbara, Cree & Brooks and John Brooks, all of Long Beach, O'Melveny & Myers, Jackson W. Chance and Rodney K. Potter, all of Los Angeles, for appellants. Joseph A. Ball, Clark Heggeness, Ball, Hunt and Hart, all of Long Beach, Schauer, Ryon & McMahon and Thomas M. Mullen, all of Santa Barbara, for respondents. Harry E. Templeton, Los Angeles, for intervenors.

This is an appeal by the plaintiffs and the defendants in intervention from a judgment denying them injunctive, monetary and certain declaratory relief and granting the plaintiffs in intervention declaratory relief. The litigation resulted from the drilling of an oil well on land in which the defendants and plaintiffs in intervention have interests. This well was surfaced more than 200 feet from the common boundaries of such land and that in which the plaintiffs have interests and bottomed in an oil pool within a few feet of those boundaries. It is claimed by plaintiffs, and they so pleaded, that all portions of the well that are less than 100 feet from the common boundaries violate section 3600 of the Public Resources Code and also that the producing interval of the well extends into and trespasses on plaintiffs' property. The defendants assert, and so pleaded, that section 3600 does not apply to the subsurface location of this or any other well; that if it does apply it is unconstitutional in its application to this well; and that the producing interval is entirely within defendants' property. The court found and declared in accordance with the contentions of the defendants. It also found and declared that the plaintiffs in intervention were the owners of 23% of the production of the defendants' well and that the Richfield Oil Corporation had no interest in the production of that well.

For the purpose of brevity the various parties and their respective predecessors will be hereinafter referred to in the following manner: The plaintiff and defendant in intervention Richfield Oil Corporation as ‘Richfield’; the plaintiffs composing the partnership F. R. Anderson Associates as ‘Anderson Associates'; the defendants and defendants in intervention composing the partnership Crawford & Hiles and the partnership itself as ‘Crawford & Hiles'; the plaintiffs in intervention Scott Carpenter and Maurice Henderson as ‘Carpenter & Henderson’; the Quality Oil Company as ‘Quality.’ It refused to join as a plaintiff, and while joined as a defendant does not appear to have been served with process and made no appearance.

The relationship of the various parcels of land involved, the approximate location of the Hadley-Stone fault, which limits production from the Colgrove formation (the formation from which all the wells involved have been producing), and the approximate surface and subsurface locations of the wells are illustrated by the accompanying diagram.

In December, 1947, one Norris as sublessor made an oil and gas lease of 80 acres, composed of parcels one and four, to Carpenter & Henderson. On March 8, 1948, Carpenter & Henderson as sublessors made an oil and gas lease of this 80 acres to Anderson Associates. On July 14, 1948, Anderson Associates assigned an undivided one-half interest in this lease to Richfield. On May 25, 1949, Anderson Associates and Richfield quitclaimed to Carpenter & Henderson all their interest in the 20 acres that comprised parcel four. Shortly thereafter they also quitclaimed to Carpenter & Henderson all their interest in the 20 acres of parcel one immediately to the south of parcel four. On June 22, 1949, Carpenter & Henderson as sublessor made an oil and gas lease of parcel four to Crawford & Hiles. Within a few days thereafter Crawford & Hiles commenced the drilling of Well No. 1 on parcel four and ever since July 25, 1949 have been producing oil therefrom. Prior to the above quitclaims Richfield had drilled Wells No. 187 and No. 88 on the north 40 acres of parcel one and ever since their completion has been producing oil therefrom.

In March 1948 one Colgrove as sublessor made an oil and gas lease to Anderson Associates, of the acreage comprising parcel two, and in June 1948 the latter assigned an undivided one-half interest therein to Richfield. Thereafter and prior to June 1949 Richfield drilled Well No. 18 and ever since its completion has been producing oil therefrom.

On March 17, 1948, Quality as sublessee had an oil and gas lease on parcel three in which on March 17, 1948, it assigned an interest to Richfield. The latter thereupon drilled Well No. 11 on said parcel and ever since its completion has been producing oil therefrom.

The Hadley-Stone fault as shown by the broken line on the diagram runs in a general northwest to southeast direction passing through the east half of the north 40 acres of parcel one, then through the northeast corner of parcel four and continues on through the west half of parcel three. It acts as a barrier to the migration of oil and gas from the Colgrove zone to the west and south thereof and prevents production from that zone west and south of the fault. The court found that all portions of the Colgrove zone which underlay parcel four were less than 100 feet west of the east boundary and less than 100 feet south of the north boundary of parcel four.

Except for their trespass cause of action plaintiffs cannot be successful on this appeal if it is determined either, that section 3600 of the Public Resources Code does not apply to the subsurface portion of Well No. 1 or, that if it does apply, such application under the circumstances of this case would be unconstitutional as to the defendants. We are satisfied the effect of such application of section 3600 would be unconstitutional, in that it would deny defendants the equal protection of the laws guaranteed by section 1 of the Fourteenth Amendment of the United States Constitution, and deprive defendants of their property without due process of law in violation of that amendment. It is therefore unnecessary for us to determine the fact of applicability and we will assume that fact for the purpose of this opinion only.

Public Resources Code, section 3600, reads as follows: ‘Except as otherwise provided in this chapter, any well hereafter drilled for oil or gas, or hereafter drilled and permitted to produce oil or gas, which is located within one hundred feet of an outer boundary of the parcel of land on which the well is situated, or within one hundred feet of a public street or road or highway dedicated prior to the commencement of drilling of the well, or within one hundred fifty feet of either a well being drilled or a well theretofore drilled which is producing oil or gas or a well which has been drilled and is not producing but which is capable of producing oil or gas, is a public nuisance.’ It is part of Div. III, Ch. 3. This is the only chapter which attempts to regulate the spacing of oil wells. The chapter is composed of sections 3600–3608 inclusive. The regulations contained in sections 3600–3605 inclusive, were first adopted in 1931, Stats.1931, Ch. 586. That act was entitled: ‘An act to protect persons and property against danger from fire and explosion in petroleum oil or gas wells by providing for the location of wells in relation to the outer boundary lines of the property, public streets, roads and highways and other wells.’ Section 3601 defines the term outer boundary where several contiguous parcels are operated as a single unit for oil or gas purposes. Section 3602 reads as follows: ‘Where a parcel of land contains one acre or more, but is less than two hundred fifty feet in width, there may be drilled on the parcel of land not more than one well to each acre of the area if the well is so placed as to be as far from the lateral boundary lines of the parcel of land as the configuration of the surface and the existing improvements thereon will permit.’ Section 3603 declares an alley is not a public street or road. Section 3604 declares each day of violation to be a separate offense. Section 3605 declares the provisions of the chapter do not apply to any field producing oil or gas on August 14, 1931. In 1939 the provisions of the 1931 Statute were made a part of the Public Resources Code virtually without change except for being numbered.

In 1945 sections 3606 and 3607 were added to the Code. (Stats.1945, Chs. 139 and 141.) Chapter 139 declared it was an urgency measure and recited that its purpose was to increase the production of oil and gas during the war emergency. Chapter 141 by its title stated it related to the spacing of oil wells. Section 3606 permits slant drilling into a parcel containing an acre or more where all or substantially all of the surface of that parcel is unavailable for a surface location of a well. Such well may be surfaced on another parcel of more or less than one acre which may or may not be contiguous to the other parcel. The section also provides that the producing interval must not be less than 75 feet from the outer boundary of the parcel into which it is drilled, and that the surface location of such well shall be not less than 25 feet from an outer boundary of the property on which it is located and not less than 25 feet from any dedicated street or highway. Section 3607 provides that the 100 foot prohibition contained in section 3600 does not apply to a street or highway opened though a field in which drilling was commenced prior thereto.

In 1947 the Legislature readopted sections 3600–3607, inclusive, without change and added section 3608 to the Public Resources Code (Stats.1947, Ch. 1559). This act declared it was an urgency measure and recited that the facts constituting the necessity therefor were as follows: ‘A recent decision of the California Supreme Court held that Sections 3600 to 3607 of the Public Resources Code are unconstitutional under the circumstances set forth in that case. Unless this act takes effect immediately, wells will be drilled in violation of the policy of this State expressed in those sections for the conservation of natural resources and the observance of safe and orderly oil field operations upon the surface of the land and as a result of such violation large quantities of natural gas would be wasted to the air.’ Section 3608 is designed to protect the owner of a parcel of oil-bearing land containing less than one acre, which is surrounded by other lands subject to one or more oil and gas leases. It provides a method whereby the owner of such parcel can share in the royalties from the oil and gas produced under such lease or leases according to the ratio the surface area of his parcel bears to the surface area of such other lands.

It is clear that by sections 3602, 3606 and 3608 the Legislature was attempting to protect the owners of oil-bearing lands who otherwise, by reason of the 100 foot set back contained in section 3600, would be prevented from drilling to the oil sands underlying their lands. Under the conditions described in section 3602 drilling is permitted as close to the lateral boundary of the parcel as is made necessary by the configuration of the surface and the existing improvements. Under the conditions described in section 3606 the surface of the well can be within 25 feet and the producing interval within 75 feet of the outer boundaries of the parcels on which they are respectively located. Under the conditions described in section 3608, while drilling is not permitted the rights of the owner of the parcel are protected by giving him what appears to be his fair share of the oil produced from the oil sands common to his and the surrounding lands. However, none of these sections protect the rights of land owners who find themselves in the position of the defendants herein. Yet the latter are as fully entitled to protection as are those who come within the provisions of sections 3602, 3606 and 3608. Furthermore the defendants' present well violates the provisions of section 3600 and the purpose recited in the title of the 1931 act less than do those permitted by section 3602 and section 3606, since its surface location of more than 200 feet from the boundary lines insures more protection from the ‘danger [of] fire and explosion’ than is required by section 3600, while sections 3602 and 3606 greatly lessen that protection. In addition, the location of its producing interval constitutes no greater violation of the declared purpose of the 1947 act of ‘protection of natural resources' than may the location of those permitted by section 3602. Furthermore the defendants' parcel of land contains 20 acres, whereas the general area limitation per well established by Chapter 3 of Division III is one acre.

The power of the Legislature to enact police regulations to protect public safety and welfare and to prevent the waste of natural resources is well established and not questioned by the parties hereto. Sections 3600–3608 are regulations of that character. However, such regulations are not valid to the extent that by their application they are unreasonable or discriminatory and result in a denial of constitutional rights. See Bernstein v. Bush, 29 Cal.2d 773, 777, 177 P.2d 913. It is a judicial question whether a particular regulation is a reasonable and just restraint although the authority of the courts to declare a regulation invalid will be exercised with caution and only when it is clear that the law exceeds the limits of legislative power and infringes upon constitutional rights. In re Smith, 143 Cal. 368, 371, 77 P. 180. A landowner has a property right to drill upon his land for oil and gas located beneath the surface thereof and his absolute title attaches after the substances have been reduced to possession. Tanner v. Title Ins. & Trust Co., 20 Cal.2d 814, 129 P.2d 383. This is a right which is ‘as much entitled to protection as the property itself and an undue restriction on the use thereof is as much a taking ‘for constitutional purposes as appropriating or destroying it.’' Bernstein v. Bush, supra, 29 Cal.2d at page 778, 177 P.2d at page 917; People v. Associated Oil Co., 211 Cal. 93, at page 99, 294 P. 717. In the case of Ohio Oil Co. v. State of Indiana, 177 U.S. 190, 209, 20 S.Ct. 576, 584, 44 L.Ed. 729, 739, the United States Supreme Court said: ‘* * * the surface proprietors within the gas field all have the right to reduce to possession the gas and oil beneath. They could not be absolutely deprived of this right which belongs to them without a taking of private property. But there is a coequal right in them all to take from a common source of supply * * *.’ In the case of Gulf Land Co. v. Atlantic Refining Co., 134 Tex. 59, 131 S.W.2d 73, the Texas Supreme Court said that the denial to one surface owner of his fair chance to recover the oil and gas beneath the surface, or its equivalent, would be a confiscation of his property.

The case of Bernstein v. Bush, supra, 1947, 29 Cal.2d 773, 177 P.2d 913, is so similar in legal principles and ultimate facts involved as to be controlling in this case. It is asserted by counsel that it is the ‘recent decision’ referred to in the urgency paragraph of Act 1559 of the 1947 Statutes. In the case of Hunter v. Justice's Court, 1950, 36 Cal.2d 315, 317, 223 P.2d 465, the court said that section 3608 was ‘probably adopted’ in response thereto. The petitioners in Bernstein v. Bush, supra, sought a writ of mandate compelling the State Oil & Gas Supervisor to grant them a permit to drill for oil and gas upon the lease and properties owned by them. They owned several parcels of non-contiguous land, aggregating more than one acre, in the harbor area of the City of Long Beach, that had been subdivided into town lots, approximately 3000 square feet each, which were intersected by streets and highways. Wells had been drilled into the oil basin common to the area, under leases covering contiguous lots aggregating one acre or more, and it was asserted that many wells had been located pursuant to the exceptions to the spacing requirements of section 3600. The petitioners alleged that due to the strategic placing of these wells and leases their single lots of less than one acre were isolated and cut off from participation in the leases and royalties from oil produced from adjacent property. They also alleged that the drilling of a well on some portion of their property would not cause the number of wells to exceed the number of acres in the field.

The court in Bernstein v. Bush, supra, refused to issue the peremptory writ on the ground that petitioners were not required to obtain a permit before commencing to drill. However it held that the prevention of the drilling of the proposed well, 29 Cal.2d at page 781, 177 P.2d at page 918, ‘* * * would amount to a deprivation of the petitioners' right, coequal with the right of surrounding owners and lessees, to recover their fair share of the oil and gas from the common source of supply, and consequently would infringe upon the constitutional guaranties invoked. We conclude that the spacing provisions of the Public Resources Code are inapplicable to prevent the drilling of a well by the petitioners.’ In its opinion the court stated many of the principles of law recited herein and cited many of the supporting authorities. It also made the following statements, 29 Cal.2d at pages 778, 780, 177 P.2d at page 916: ‘Here then we are more directly concerned with the contention of the petitioners that in its application to them the statute is discriminatory and therefore unconstitutional. They assert that such discrimination results from the fact that the enforcement of the regulations permits some owners of lands overlying the oil basin to exercise and enjoy their property right to take oil from the field, while the petitioners, who are property owners overlying the same oil supply, are deprived of the use and enjoyment of their coequal right. The mere assertion of the problem suggests the answer. * * * The decisions approving the regulatory legislation involved in the cases of People v. Associated Oil Co., supra, 212 Cal. 76, 81, 297 P. 536, and Bandini Petroleum Co. v. Superior Court, supra, 110 Cal.App. 123, 134, 293 P. 899, were based in part upon the legislative recognition and preservation of the correlative rights of the surface owners, and the necessity of one landowner to make productive use of his parcel in view of the equal right of the adjoining owners not to be deprived of correlative production from their parcels. * * * Equal protection is so denied where, as here, the law, in its application at least, does not afford adequate means of protection as a substitute for the right to drill an offset well.’

In the case of Hunter v. Justice's Court, supra, 1950, 36 Cal.2d 315, 223 P.2d 465, the Supreme Court upheld the constitutionality of section 3608 as applied to the circumstances and the parties there involved. But during the course of its opinion it reiterated many of the legal principles declared by it in Bernstein v. Bush, supra, and did not modify any of those upon which we rely. In the case of Sindell v. Smutz, 1950, 100 Cal.App.2d 10, 222 P.2d 903, this court held that a city ordinance which restricted oil wells to two in a city block, while more than two wells per block were permitted in nearby areas overlying the common oil and gas pool, was unduly oppressive, not reasonably necessary to promote the general welfare, and deprived the owners and lessees of the block in question of their right, coequal with the right of other owners and lessees, to recover their fair share of the oil from the common source of supply, thus infringing upon their constitutional rights.

The defendants in our case are in a similar position to that of the petitioners in Bernstein v. Bush, supra, and are entitled to the same protection from the courts. If section 3600 applies they are not only deprived of the right to drill for and capture the oil and gas beneath the surface of their parcel but they are also provided with no lawful means for obtaining their fair share, or the proceeds therefrom, of the oil and gas recovered from the pool common to the property of all the parties to this action. The Legislature by sections 3602, 3606 and 3608 has provided a lawful means whereby the owners of oil bearing lands subject to the physical conditions therein described can be protected. Yet it has failed to do so (if section 3600 applies) to one who may own a large quantity of oil bearing land no portion of which is more than 99 feet distant from its boundary line or an adjacent public street or highway. Such a failure is clearly discriminatory and unreasonable as to the latter. We therefore hold that section 3600, under the circumstances involved in this case, is unconstitutional as applied to the defendants and their property in that it would deny defendants the equal protection of the laws guaranteed by section 1 of the Fourteenth Amendment of the United States Constitution, and would deprive the defendants of their property without due process of law in violation of that amendment.

Plaintiffs urge additional points, some of which require consideration herein. They claim that section 3600 does not deprive defendants of their opportunity to drill for oil because they may do so on any part of their 20-acre parcel that is 100 feet or more from the boundary lines. The equal opportunity to drill a well on one portion of a parcel which contains no part of the oil and gas pool in question, is not an equal opportunity to tap or an equal right to share in that part of the oil and gas pool that is contained in some other portion of that parcel. The equal opportunity and right to which defendants are entitled is to share in the oil and gas that is in their property. As said by the court in the zoning case of Sindell v. Smutz, supra, 100 Cal.App.2d 10, at page 21, 222 P.2d 903, at page 909: ‘The case is one ‘related to regulations prohibiting the recovery of natural resources from the earth. Such a business must operate, if at all, where the resources are found. * * *’'

Plaintiffs also claim that the defendants Carpenter & Henderson are already receiving their fair share of the proceeds of the oil pool, by reason of their royalty interests in the wells located on the north 40 acres of parcel one, and that therefore the application of section 3600 would not be discriminatory as to them. However, the court found that Carpenter & Henderson were not receiving their fair share of the oil being produced from the Colgrove zone. It is difficult to understand how the court could have failed so to find. The only restriction by law against the number of wells to be drilled by Carpenter & Henderson, or any other landowner, is one to an acre, and the fair share of the oil and gas to be recovered from an oil and gas pool will normally depend on the number of wells which tap it. Considering the number of wells in which Carpenter & Henderson have an interest the one well to an acre limitation has not been approached. The large quantities of oil already produced from Well No. 1, with resulting additional financial benefit to Carpenter & Henderson, demonstrates that they were not receiving their fair share of the oil and gas in the Colgrove zone by reason of their royalty interests in Wells No. 88 and No. 187. Plaintiffs seem to consider the 80 acres originally leased as the drilling unit. If there was any basis therefor it was destroyed by the act of Richfield when it quitclaimed parcel four to Carpenter & Henderson. Thereafter the rights of Carpenter & Henderson as to parcel four were not affected by their rights in parcel one. Parcel four became a separate and independent unit. By quitclaiming parcel four Richfield relieved itself from the obligation, contained in its lease, of drilling a third well (not less than one well to each 20 acres of the 80-acre parcel). Having benefited by its quitclaim, it is hardly in an equitable position to deny to defendants the right to drill upon the portion of the 80 acres so quitclaimed.

Plaintiffs further assert that defendants ‘voluntarily created the hardship’ and therefore should not be heard to complain. However, it was Richfield alone who created the hardship by quitclaiming parcel four. Carpenter & Henderson were compelled to accept it and therefore did not create it. They and their sublessee Crawford & Hiles were thereafter entitled to protect their own rights. The fact that Richfield may have thought that a well located as is Well No. 1 would be barred by section 3600 in no way limited defendants' rights. Neither did the existence of section 3600, since if applicable it was and is unconstitutional, as to the defendants, in so far as the drilling of Well No. 1 by Crawford & Hiles is concerned.

We pass now to a consideration of the plaintiffs' second cause of action whereby they alleged that the defendants Crawford & Hiles, by reason of the location of the bottom of Well No. 1, were trespassing upon their property or that of Quality. In order to prevail it was necessary for plaintiffs to prove such trespass by a preponderance of the evidence. According to the findings and decision of the trial court and its memorandum of opinion, contained in the clerk's transcript filed in this appeal, the plaintiffs failed to carry this burden. Unless the evidence was such as to establish the claimed trespass as a matter of law we are bound by the findings of the trial court thereon since there was substantial evidence in support thereof. There is no contention that these findings do not support the judgment.

The dispute arose out of the interpretation to be given to the term ‘due north’ and its abbreviation ‘due N.’ as contained in the various deeds, leases and assignments. The defendants contended that such term meant north according to the astronomical meridian, while the plaintiffs contended it meant north according to the ‘basis of bearings' as determined from the southwest line of the Russell Rancho, from which the various descriptions took their courses. Surveys made in accordance with the respective contentions of the parties resulted in a difference of approximately 12 feet in an easterly and westerly direction at the northeast corner of parcel four, with lessening difference as the surveys progress to the south thereof. The exact location of the producing interval of Well No. 1 was apparently not capable of determination. The court did not find that any portion thereof was located on the plaintiffs' or Quality's side of the common boundary line if the plaintiffs' survey was the correct one. It contended itself with the finding that ‘due north’ meant ‘true north’ and ‘along a true north meridian’, and that no part of the defendants' well was on or in the plaintiffs' or Quality's property.

During the course of the trial many days were devoted to the reception of oral and documentary evidence in support of the parties' respective contentions. The plaintiffs rely in part on certain deeds and documents executed in 1948, which was the year when the first conveyance of any part of the Rancho was made by a metes and bounds description. The defendants Crawford & Hiles were not parties to any of these documents. Their immediate predecessor in interest, Carpenter & Henderson, were parties to none of them except to a quitclaim deed made by them to Norris Oil Co. of all their interest in the Norris Oil Co. head lease, except the 80 acres in question, and to a re-lease of the 80 acres made by Norris Oil Co. to Carpenter & Henderson shortly thereafter. However, these latter documents were only a part of all the evidence received and considered by the trial court. We cannot say that it or the evidence as a whole, as a matter of law, established the east boundary of parcel four as other than one extending due north according to the astronomical meridian.

The trial court having properly determined that the plaintiffs were entitled to none of the relief prayed for and that the plaintiffs in intervention were entitled to relief as prayed, the judgment is affirmed.

VICKERS, Justice pro tem.

PARKER WOOD, Acting P. J., and VALLÉE, J., concur. Hearing granted; SCHAUER, J., not participating.