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Reed v. the Texas Co.

JULY 2, 1959.

HELEN S. REED, ET AL., PLAINTIFFS-APPELLANTS,

v.

THE TEXAS COMPANY, ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Wayne county; the Hon. ROY O. GULLEY, Judge, presiding. Decree affirmed.

PRESIDING JUSTICE SCHEINEMAN DELIVERED THE OPINION OF THE COURT.

This is a suit for injunction, brought by three owners of a portion of the oil rights in a certain reservoir of oil in Wayne County, known as the South Aden Pool, against The Texas Company (hereafter called the Company) and some 30 individuals, besides Unknown Owners, as the other owners of oil rights in the same pool.

The purpose of the injunction was to require the discontinuance of a repressure program which consisted of forcing water, under pressure, into the oil pool to increase the flow of oil from producing wells. This process is known in the industry as "secondary" production, to distinguish it from "primary" production, which is the natural flow of oil caused by the inherent pressure that originally existed in the pool.

The defendant company is the operator of the oil pool and had developed the field by drilling various wells, collecting and marketing the oil, and accounting to the royalty owners according to their respective rights. The company and other defendants answered the complaint asserting, in substance, that the operation in force was according to law, and without it the royalty owners would suffer great financial loss. The plaintiffs contend that the operation entails the migration of oil, that oil to which they have "title" is being forced to flow to wells owned by others, that they have not consented to unitization of the field, and that it is not a legal operation without such an agreement.

The Chancellor heard the testimony of the plaintiffs in person and of engineers expert in the science of oil production, and also received in evidence a mass of statistical data concerning the physical conditions of the pool and the production history of each and every well drilled therein, from its start to the time of the suit. The prayer for injunction was denied, and this appeal followed. It was originally taken to the Supreme Court on the ground that constitutional questions, and freeholds, were involved. These claims were resolved against appellants and the cause was transferred to this court.

It is not feasible to detail the testimony and statistics in this opinion, but for the purpose of indicating the problem involved, a history of the total production in the pool is here given. The figures are not in dispute, but it must be observed that this is a composite of statistics for the entire pool, in which there was never any uniformity in the flow from separate wells, nor in the several leaseholds, nor in the rate of decline from the initial flow of each well.

The development of this pool began in the thirties, and by October of 1938 the production was about 650 barrels per day. Thereafter the combination of decline in flow from existing wells, and the bringing in of new wells, caused ups and downs in the average daily, monthly, and annual production rates of the whole field, and which varied in the several leaseholds therein. The general trend was upward, because of new wells, so that the total production from the whole field reached a peak in November of 1943, of about 1250 barrels per day.

During the ensuing five years the trend of production was downward, reaching its low point in the latter part of 1948, when the total production from the pool fell to about 275 to 280 barrels per day. While some wells were still profitable, others were at or approaching the point of no return. One well which happened to be on a leasehold wholly owned by plaintiffs, got down to a rate of about one barrel per day. This well had been in operation for about three years, but had not yet produced enough to pay for its cost.

The experts are agreed that there is no method known which will serve to capture all of the oil in place, but, when the natural pressure has decreased, the modern device of repressuring can serve to recover a great deal more of the oil. It is a matter of common knowledge that this invention has been used in abandoned fields, sometimes to produce more oil by the secondary method than the total procured in primary production.

During this declining period in the South Aden Pool, the company sought to use secondary methods under a unitizing agreement. Such an agreement would permit operation of the field as a unit, with total production allocated among leases according to a fixed ratio, regardless of which wells are actually producing. Under this method, an operator may inject gas, water, or other fluid, at one edge of the pool and as succeeding rows of wells allow escape of the pressure without profitable quantities of oil, they may be capped or converted to input. In effect, the oil is swept from the pool so that the last profitable production is on the opposite side, but royalties are paid according to the agreed ratio.

One of the plaintiffs refused to enter such an arrangement, which effectively blocked the proposal to unitize, as to the entire pool. The company was faced with the continued down trend in production, coupled with the fact that the wells were producing large amounts of salt water. This could not legally be disposed of by allowing it to run off in streams to the damage of other land, it was necessary to dispose of it on the leaseholds. This was an increasing operation expense, in spite of the decline in production, which eventually left only 22% of the maximum attained in 1943.

In 1946 the company experimented in the disposition of the water by pumping it back into the underground reservoir under pressure. Production was not affected for some time, but in the latter part of 1948, after the low point had been reached, the pressure began to have a noticeable effect, and production began to rise. Thereupon the company's engineers devised and put into operation a repressuring system without unitization. This involved placing injection wells around the periphery and others in the interior area of the pool. The latter were spotted as close to boundaries of leaseholds as was practical, so as to diffuse the pressure and minimize the migration of oil from one leasehold to another.

There resulted a substantial rise in production in 1949. After that additional wells were added to the injection system from time to time, to maintain pressure and to equalize the ratio of production from the several leaseholds with the ratio that existed during primary production. The overall uptrend continued until October of 1955 when it reached its peak of 1350 barrels per day, thus surpassing the peak production under primary operation. Thereafter, production again declined, and in September of 1957 the pool got down to an average of 450 barrels a day.

The above history is sufficient to indicate the serious results which would flow from an injunction prohibiting a repressure program. In other respects the evidence is conflicting. There are some discrepancies in statistics, but the main disagreement lies in the expert opinion testimony. Without ...


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