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Phillips Petroleum Co. v. Am. Trading & Prod. Corp - 361 S.W.2d 942 (Tex. Civ. App. 1962)

Rule:

The law of capture allows the owner of minerals to drill for and produce the oil and gas from under his land only so long as he operates within the spirit and purpose of conservation statutes and orders of the Railroad Commission. These laws and regulations are designed to afford each owner a reasonable opportunity to produce his proportionate part of the oil and gas from the entire pool and to prevent operating practices injurious to the common reservoir. The right of an owner to recover oil and gas from beneath his own land is qualified and is limited to legitimate operations. Each owner whose land overlies a common reservoir has a like interest, and each must exercise his right with some regard to the rights of others, and must submit to such limitations as are necessary to enable each to get his own.

Facts:

After the Texas Railroad Commission (Commission) denied an application for a permit for appellees, the American Trading and Production Corporation (American), to drill a certain well, an injunction was obtained against the enforcement of the Commission's order, and American drilled the well. Appellant Phillips Petroleum Company, who were royalty owners, filed suit, and the trial court upheld the order of the Commission, and the injunction was dissolved. Phillips filed a suit again, alleging that since American had illegally drilled the well, American were not entitled to those proceeds. The trial court ruled in favor of American, and Phillips appealed, arguing that because the final judgment in the prior suit between the Commission and American as well as the Commission's order were and are res adjudicata and stare decisis of all matters there involved, including the fact that the the well was never legally drilled and produced, American is estopped and foreclosed to further litigate any such matter or issues. Phillips also asserted that because the well was drilled and produced by American while its right to do so was being contested, American deliberately overproduced the well.

Issue:

Does the Railroad Commission’s denial of the application to drill also mean that the appellee drillers are not entitled to the proceeds?

Answer:

Yes.

Conclusion:

The appellate court held that the trial court improperly sustained appellee American's exceptions to the complaint. The court further held that case law supported the cause of action by appellants, Phillips and other royalty owners, against appellees for American's illegal drilling. The court also held that the trial court erred by rendering judgment in favor of American solely on the pleadings without a trial of the issues on the merits. The appellate court reversed thetrial court's judgment that had awarded American the monetary proceeds derived from the sale of oil and gas produced from a well drilled in violation of a valid order of the Texas Railroad Commission.

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