Amdt14.S1.4.8.1 Oil and Gas

Fourteenth Amendment, Section 1:

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

A state may prohibit conduct that leads to the waste of natural resources. 1 Thus, for instance, where there is a limited market for natural gas acquired attendant to oil production or where the pumping of oil and gas from one location may limit the ability of others to recover oil from a large reserve, a state may require that production of oil be limited or prorated among producers. 2 Generally, whether a system of proration is fair is a question for administrative and not judicial judgment. 3 On the other hand, where the evidence showed that an order prorating allowed production among several wells was actually intended to compel pipeline owners to furnish a market to those who had no pipeline connections, the order was held void as a taking of private property for private benefit. 4

A state may act to conserve resources even if it works to the economic detriment of the producer. Thus, a state may forbid certain uses of natural gas, such as the production of carbon black, where the gas is burned without fully using the heat therein for other manufacturing or domestic purposes. Such regulations were sustained even where the carbon black was more valuable than the gas from which it was extracted, and notwithstanding the fact that the producer had made significant investment in a plant for the manufacture of carbon black. 5 Likewise, for the purpose of regulating and adjusting coexisting rights of surface owners to underlying oil and gas, it is within the power of a state to prohibit the operators of wells from allowing natural gas, not conveniently necessary for other purposes, to come to the surface unless its lifting power was used to produce the greatest proportional quantity of oil. 6

Footnotes

  1.  Jump to essay-1Cities Service Co. v. Peerless Co., 340 U.S. 179 (1950) (sustaining orders of the Oklahoma Corporation Commission fixing a minimum price for gas and requiring one producer to buy gas from another producer in the same field at a dictated price, based on a finding that low field prices for natural gas were resulting in economic and physical waste); Phillips Petroleum Co. v. Oklahoma, 340 U.S. 190 (1950).
  2.  Jump to essay-2This can be done regardless of whether the benefit is to the owners of oil and gas in a common reservoir or because of the public interests involved. Thompson v. Consolidated Gas Co., 300 U.S. 55, 76-77 (1937) (citing Ohio Oil Co. v. Indiana (No. 1), 177 U.S. 190 (1900)); Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61 (1911); Oklahoma v. Kansas Natural Gas Co., 221 U.S. 229 (1911). Thus, the Court upheld against due process challenge a statute that defined waste as including, in addition to its ordinary meaning, economic waste, surface waste, and production in excess of transportation or marketing facilities or reasonable market demands, and which limited each producer’s share to a prorated portion of the total production that can be taken from the common source without waste. Champlin Rfg. Co. v. Corporation Comm’n, 286 U.S. 210 (1932).
  3.  Jump to essay-3Railroad Comm’n v. Rowan & Nichols Oil Co., 310 U.S. 573 (1940)(evaluating whether proration based on hourly potential is as fair as one based upon estimated recoverable reserves or some other combination of factors). See also Railroad Comm’n v. Rowan & Nichols Oil Co., 311 U.S. 570 (1941); Railroad Comm’n v. Humble Oil & Ref. Co., 311 U.S. 578 (1941).
  4.  Jump to essay-4Thompson v. Consolidated Gas Co., 300 U.S. 55 (1937).
  5.  Jump to essay-5Walls v. Midland Carbon Co., 254 U.S. 300 (1920). See also Henderson Co. v. Thompson, 300 U.S. 258 (1937).
  6.  Jump to essay-6Bandini Co. v. Superior Court, 284 U.S. 8 (1931).