  --    . .




                     THE     ,QTTORNEY                GENERAL

                                 OF’      TEXAS

                                 AUSTIN     zi.   -
GERALD C. MANN




       Honorable John E. Taylor
       Chief Supervisor
       Railroad Commission of Texas
       Austin, Texas
       Dear Sir:                Opinion No. 0-853
                                Re: Rule to require owner of a tract
                                     of land to pool and combine with
                                     other tracts.
                 We are in receipt of your opinion request wherein
       you ask us the following questions:
                 "1 . Does the Railroad Commission of Texas
          . have the right under the law as it now exists to
            promulgate as a part of its spacing regulations
            and as a conservation measure in a particular
            oil field the following provisions: 'As to ang~'-
            tract containing less than 20 acres, the Commis-
            sion, in order to prevent waste or to prevent
            the confiscation of property, will grant excep-'
            tions to prevent drilling on such tracts upon
            application therefor as hereinabove providedt
            however, the Commission will not grant an appli-
            cation to drill on a tract or tracts containing
            less than 20 acres unless the applicant has made
            a bona fide effort to pool such tract or tracts
            with a contiguous tract or tracts or parts there-
            of, so as to establish at least a 20-acre unit.
            In such cases, applicant shall offer,evidence at
            the Hearing on his application concerning iis
            efforts to enter into a pooling agreement.
                    “2 . Is the Railroad Commlsslon of Texas now,
              clothed with the legal power to adopt any rule
              which would require the owner or owners of'a tract
              of land to pool or comblne same as a prerequisite
              to granting such owner or owners a permit to drill
              a well for'oil and/or gas thereon even though the
              drilling of same be necessary in order to prevent
              waste or the confiscation of property."
                 In an article styled "The Conservation of Oil", 51
       Harvard Law Review 1236, by the Honorable Northcutt Elg, we
       find the following statement:
Honorable John E. Taylor, May 30,   1939, Page 2     o-853



          "The Texas statute says that 'It is not the in-
   tent of this act to require -- that the separately
    owned properties in any pool be unitized under one
   management, control or ownership.' Texas Annotated
   ~~;~;;~~Civll Statutes/Vernon's 1937, Article 6Cl4g.
             several cases which have denied exceptions
   to the kpacingrule and thereby prevented drilling
   of *ells on small 'tractshave suggested that a fair
   result could be reached by control of production on
   the adjoining lands. The power of the Commission to
   regulate production in relation to spacing was thought
   favorably settled In the.decislon in Brown-v. Humble
   Oil Company, 126 Tex. 296, 83 S.W. (2) 935, but the
   opinion on'~rehearing,126 T&x. 296 at 314, 87 S.W. ~~-
   (2) 1069, castsome doubt upon this, and the Commis-
   slon.has indicated that it does not construe the
   original provision as authorlzlng it to require.pool-
   .ing. (Statement of,Chairman Thompson at hea~ring,
   May 17, 1937.)"
          Whlle~we do not contend that such a-departmental
construction should govern in answering this question, we ,do
feel that same is .entltledto considerable weight, Is per-
suasive, and 'shouldbe given our consideration.
          An.injunction against 'productionhas been detiiedin
some cases unt1l'th.ewell owner shall (at some future date)
shaveobtained "the amount of oil he is legally entitled to';
that is, "his fair share of the oil in place under his land."
See Stanolind Cl1 & Gas Company v. Railroad Commission, 96
S. W. (2) 664; Bumble Cl1 & Refining Company v. Railroad Com-
mission, 85 S. W. (2) 813.
          In 1935 Oklahoma and New Mexico, and in 1936 Louisi-
ana enacted statutes of a new pattern. These statutes whlchh
have been the subject of considerable favorable attention be-
fore trade and proiessional groups, authorize the regulatory
body to establish in each pool proration units composing a
uniform number of acres fixed by the area which one well will
economically drain and develop. Where the slze or shape of
an individual tract does not conform to that of the standard
proration unit, "Pooling" of properties can be required. 'By
 Pooling" Is meant an arrangement whereby the owners of small
tracts club together on the costs of drllling a single well,
sharing in expense and in the recovery In proportion to their
acreage. However, these allow the owner of a small tract tb
drill his well, nothwithstanding failure of his lease to equal
the size of a proration unit; but In such case he receives
only an allowable which is proportlonate to the,ratio between
his area and the area of the standard unit.
._,-   ~I
                                 :




       Honorable John E. Taylor,'+y     30, 1939, page 3      O-853


                  The New Mexico and'iouisia&' statutes make "Pooling"
       available to-owners who, because of the smallness or shape of
       their tracts, might 'be deprived of a fair share of oil in the
       proration unit. The Oklahoma statute permits the'owners of
        one or more smaller tracts in the unit to pool with the owner
       of a ~majWlt,y of~the:tyqWag,e,xn,theunit ,lf.,the latter drills
       a well..~'TheOklahoma'.‘atat~te'has.been~upheld   by the Supreme
       Court of Oklahoma in'a,recent case by a blear-cut,'loglcal
       opinion which cites other applicable decisions. Pattersonv.        .
       Stanollnd Oil ana Gas Company, 77 Pac. I?) 83 (March 11, 1938).
       Affirmed 59 Supreme Court ~Reporter', ,259.
                              ,.
                  These statutes have 'an interesting background. As
       long ago as 1928 in the &Geof. l4arrs.v~.   City of ,Oxfora,24 F.
        (2) 541, an ordinance of a Kansans~townwhich~llmited the drill-
        ing of wells to one per city.block.w,assustained by the Fed-
       eral Court. ,The ordinance allocated a 1/8th royalty interest
       among ,the land ovners ofa ~~~b1odk:~.in~.proport,ion~to~their
                                                                   acre-
       age andawarded the.r~ht"to,drill~tq,'the;operatorholding
       .the"~major,ity
                     ,o.f
                        ,acres;in the:~bloCk.
                                            underleas, :.'It gave ~the
       ,other'~laridovners .theright;to'~
                                        oontribute,,tothe'c.ostof that
       ~811;~and,to r?ceive.in,ret~n'a:,ahare"Sn th@;working int&rest
       in proportion to acreage;,.,,The case :turnina'onthe validity
       of ~a eitr ordinance'did not~Involve a renulatorg statute al-
       though the Court did mention the~doctrine of correl&tive riahts
        in uassinu~.~A:,sabse~uent,ae~lsion.by,a Texas Federal Court
       has csus ained an, orderof the Railroad Commission; made in
       conformitv with an ordinanae of the Citr of South Houston,
       oreatlng drilling dlstric.tsof sixteen acres ea&hpo;iz$tiq
       drilling .to.,one well.per'district. and DrOViainR         aoollng
         f xoenses~-a~/or.~r,Fodaotion,,amOnRthe nroaerties in the dis-
       &igt .alongthe same.general,lines of ~theordinance passed
       win      Rarrs vi~City~of~'Gxfordl~~Tysco~:Oil..Company~v. Rail-
       road Commiss'son,12 F. Supp.'1,95,Agaln, Tysco Oil Company v.
       Railroad Commission, 12 F. Supp.202.,
                  ","The drill.ingdistrict program, invo'lvingcom-
            ~,pulsory localized anltization, is a step'ln the
              direction,of a plan of field-wide unitiza tion in-
             ~troduaed to the industrynearly a decade ago. The
              legal and engineering basest for.requlrlng and'ef-
              fectuatingeompulsorg~unltization~of an entire pool
              seem,capable of demon~strat'ion,but the political
              difficulty of enactme,ntand enforcement have kept
              field-wide compulsory unit~izationin,the blueprint
              ,stage." See "The Conservation of.Oil",in Volume 51
              of the.Harvard.%aw Review, 1937-1938,,.atpage 1236
            _,by R.orthcuttElg.
                 : ~In~T~exaswedo.:.nothave,
                                           such a.statute which author-
       &es a,reaylator~ oodv td :eatablish~in each'pool proration
           i-7
        ~?,.,
        ,..C,>'.
                                                            ,   ._.,




Honorable John E. Taylor, May 30,   1939, page 4    O-853



units comuosing a uniform number of acres fixed br the area
which one well will economically drain and develoD. but on
the'other hand) Article 6014 (g), Revised Civil Statutes of
Texas, 1923, expressly provides:
          It. . .It is not the intent of this act to re-
              .that the seDaratelr owned DroDerties In
         ooi be unitized under one management. control
    orownershiD."
          While it has been argued by some persons that this
statute does not directly prohibit enforced pooling In the -
State of Texas 'by the.Railroad Commission, (see article pub-
llshea..intheeProgress Reports of the American Petroleum
Institute Committee on Well,Spacing, submitted at the Eighth
Mid-year Meeting, at Wlchita,.Kansas, May, 1938, on page 8'
thereof under paragraph B, designated "Pooling of Tracts in
Lieu ofnExceptions ), ~see 13 Texas Law Review, "The Rule of
          written by Robert B. Rardwicke of FortWorth, Texas,

          '"In ,Texas,manyof the difficulties in connection
   'with the spacing rules arise from efforts to get ex-
    ceptions to the general.rule, ,especiallywhere the
    distribution of~the allowable is on a potential basis,'
    regardless of the',.sizeof the tractupon whichthe
   ~well.is situat,ed.,Texas Revised Civil Statutes,, ~'
    1925, Article 6014g, as amendedby Texas Lawa, 1935,
    House Bill 782, Par.~2, approved by the Governor April,
    13, 1933, whi&h,reaas inpart:    'It is not the Inten-.,
    tion of 'thisact to~reou'ire'reDressurinn f an oil uool
    or that the seuaratslr owned DroDerties $ anv uool
    be unitized under one management. control or ownershiD.'
    This languagesappeared in previous acts, and apparently
    for the purpose of protecting some operators from the
    bugaboo of compulsory unit operation for the entire
    pool. In that Connection the article by Vance Rowe,
    ~Unltizatlon:Proves Its,elf',ln.l9?4,i7'4011 pekly,
    No. 7, page 19; ,isinteresting: llh le the exas a&
   ~av have the desired and desirable effect of.Drevent-
        unit oDeration for the entire ~001. it has bea
    forcefullr argued that It also Drevents the Railroad,,~-
    Commission fro%Yenforcinn the ~oolina'of'small or ir,--
   regularly shaDed tracts with other tracts so that un-
    iiecessarv'wellswill not be drilled.~ If there be no
    authority to enforce pooling of tracts.in order to
    carry out a proper and uniform spacing program or a "-
    proration unit program, the Texas act certainly auth; ,.~
    oi+iie$~,and almost requires, confiscation of the
    smaller-or irregularly shaped tracts.,should the spat-
 Honorable John E. Taylor, May 30, 1939, Page 5      o-853


     ing of proration units programs be strictly enforced
     to prevent the waste and hazard of close drilling.'"
-we are of the opinion, however, that the language of Article
 6014 (g) certainly does not.specifically grant the power to
 enforce poollng and clearly, by innuendo, precludes the en-
 forcement thereof by the Railroad Commission: On the other
 hand, we are of the opinion that Article 6014 (g) as amended,
 defines and denounces "waste" of oil and gas, and that same
 confers upon the Railroad Commission the power to adopt rules
 and regulations to prevent waste. The power thus conferred
 is~administrative. It is the power t.oenforce, or execute the
 statute; not to extend it. The members of the Commission
 must stay within the statute, %hLch'-goes to the .iurlsdiction."
 Waite v. Macy, 246 ,U. S. 606, 609; RaFlrod Commission v.   .~-
 G. H. & S. A. Railway Company, 112.S. W. 353; Sugarland Rail-
 way Company v. State, 163 S. W. 1057.
                                                               .-
           The Railroad Commission may adopt reagonable regula-
 tions to enforce the statute, but cannot go beyond it.
          We submit that if such an important change in pol-icg
is to be adopted, tt must be adopted by the Legislature.lt-
self, if indeed, under the situation, it can be adopted at
all.
          It is settled.law that the power to promulgate
"rules and regulations" for the purpose Of enforcing-or ex-
ecutlng a statute is not legislative. United Statesv.
United Verde Copper Co., 196 0. S. 20 7-215, but on.the other
hand it has been repeatedly hela that the limits of the
Railroad CosWssfon's power is to regulate and~not to abridge
or enlarge; see Railroad Company v,.UnitedStates, 188 F.
X91-195;
          "'Ifthe power here granted to promulgate,
    rules and regulations has been validly granted,
    It is simply the power, "to make and enforce regu-
    lations for the ,executionof a statute according
    to its terms.' It Is not the power to tiodifyex-
    lsting rules of law.!'
          The true rule'on this subject i'svery carefully -.
stated in St. Louis Merchants' Bridge Company v. United States,
188 Federal 191, opinion by Judge Sanborn of the Eighth Cir-
cult Court of Appeals, one of the ablest of the Fed.eralJudges,
as follows:
           'The Congre'ssdid not in fact~delegate, and
     it could not delegate, to the Secretary of Agri-
Honorable John E. Taylor, May 30, 1939, page 6        O-853


    culture, or to any other executive officer the
    power to a&a to the class of railroad companies
    or to the acts punishable under this statute such
    others as Ln his judgment ought to be punishable
    thereunder.
          "A legislative body-may delegate the power
    to find some fact or situation on which the opera-
    tlon of a l&w is conaltloned or to make and en-
    fbrce regulations for the execution bf a statute
    according to its'terms. UnionsBridge Company v.
    United States, 204 U. S:364, 386, 27 Sup. Ct.
    357;51 Ii;Ed. 523. -MarshaPl~Fi.eld & Compan
    Clark, 143 U. S. 649, 677, 693, 12~Snp: Ct. $9";;
    36 L. Ea; 294; Caha v. United States, 152 U: S.'
    211, 218, 219, 14 Sup. Ct. 513, 38 L. Ed. 415;
    St:Louis & I. Ea:Ry. v. Taylor, 210 U.S. 281;
    287, 28 sup. Ct. 616, 52 L. M. 1061; Coopers-.
    ville Cooperative creamery company v. Lemon, 163
    Fed. 145, 147, 89 C. C. A. 595..
          But it cannot delegate Its legislative power,
    its power to exercise the indlapensbble discretlbn
    to make, to add to, to take from, or to modify the
    law. 'The true distlnctlon,t',sald'Judge Ranney       --
    for the Supreme Court of 0hl.oln Clnclnnatl, Wilmlng-
    ton & Zanesvllle R. R. Company v. Commissioners, 1
    Ohio-St..77, 88, in a declaration which has been--
    r&eateiily apprbvea by the Supreme Court, 'is be;
    tween the delegation of power to make the law, which
    necessarily involves a discretion as to what It shall
    be, and conferring authority or discretion as to Its
    exception, to be exercised under an& In pursuance '.-
\   of the law. The first cannot be done. To the lat-
    ter no valid objection can be made:    Marshall Field
    & Company v. Clarki 143 U. S. 649, 693, 12 Sup. Ct.
    495, 33 L,.Ed. 294i:.UnionBridge Company v:United
    Statea, 204.0. 9. 364, 382, 27 Sup. Ct.. 67 .51 L.
         523;~Morrlll v. Jones, 106 U. S. 46 i?, 467 1
         ct. 423, 27 L. Ea:267; United States'v. &ton,
        u. s. 677, 687, 688, 12 sup. Ct. 764, 36 L. Ed.
    591; Unlted States v. Maid (D.C.) 116 Fed. 650.;"
    Unit& Sttitesv. Blasll ame (D.C.) 116 Fed; 654;
    United States v. HooverY D.C.) 133.Fed. 950, 952;
    United States v. Moody (D.C. .164 Fed. 269, 271-'
    Locke's Appeal, 72 Pa. 491, 198, 13 Am. Rep. 716.
           Therefore, answering your last question firs%--it
is 'dur opinion, and you may be so advised, that the Ra%lroad
Commission of Texas has no authority, conferred upon'lt, under
the present statutes which will enable kt to make such ref3uls-
  Honorable John E. Taylor, May 30, 1939, page 7        o-853


  tory orders that would requFre the owner or owners of a tract
  of.lana to pool or combine same with other tracts as a pre-
  requisite to grantMg such owner or owners a permit to drill
  a well for oil and/or gas thereon even though the drilling of
  same be necessary in order to prevent waste or confiscatLon
  of property.
             Having answered your second.question in the negative
'.land being of the opinion that an administrative body is pre-
   cluded from doing that j.ndirectlywhich it cannot do directly,
   we also answer your first question 1n the negative. In aaai-
   tion to the'authorities we have already cited, we,feel that
  we may be justlfled Fn making the following observations with
   reference thereto:
            If the Railroad Commission were to enter an order
  to the effect:
                                                           .,
           "'The'Commisslon will not grant an appllca-
      tion to"arill on a tract or tracts containing
      less than 20 acres unless the applicant has made
      a bona fide effort to pool such tract or tracts '.
      with a contiguous tract or tracts orparts there-
      of, 80 as to extablish at least a 20-acre unit.
      In such cases, applicant shall ,offer evidence
      at the hearing onehis applLcatLon concerning his
      efforts to enter into a pooling agreement."
  then and in that event, it is our opinion that the effect of
  such an order would be that the Commlssion'would be imposing
  a rule affecting the title to property and being a regulation
  on the use of property. Such a regulation coulanot be in-
  posed without an express delegation of statutory authority
  from the Legislature to the Commission, giving it power so
  t0 do.
            We further submit that the effect of such an order
  would be to permit the Railroad CommissFon to pass upon the
  reasonableness of the proposed pooling contract, sought to
  be entered into by the applicant and in the absence of ex-
  press legislative authority granting the Commission the power
  so to do,~we are of ~the opinion that in so doing the Commis-
  sion would be in fact exceeding its delegated authority and
  would be wholly without jurisdLction in so acting.
            .Inthe case of United States v. 11,150 Pounds of
  Butter, 195 F~. 657-644, the court held that a forfeiture of-
  property could not be validly claimed on account of a viola=-
  tion of an administrative order or regulation where the con-
  trolling statute aid not SO provide.
Honorable John E. Taylor, May 30, 1939, page 8      O-853


          This case follows the theory that the legislative
policy in respect to the consequences flowing from a viola-
tion of an admlnistratlve regulation must be declared by the
Leglslature itself.
          St is our opinion that if the Legislature haadin-
tended to grant the Railroad Commission authority to impose
such regulatory orders - that intention could have been
easily stated - and 7% is necessary that it should have
been stated. (See) Eaton v. United States, 144 0. S. 677.
          Trusting that this satlsfactorlly answers your
question in the premises, we remaln
                              Yours very truly
                           ATTORNEY GENERAL OF TEKAS


                              By s&ar    Gale
                                   Edgar Cde
                                    Assistant
EC :MM:wc

APPROVED:
S/Ge~ala C. Mann
ATTORl?EYGEIiERALOF~S
