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Click here for the full text of this decision FACTS:Seagull Energy E&P Inc. held the 115.64 acre Albert Davis lease in the Waskom/Cotton Valley Field. This field comprised several discontinuous, lenticular gas sands. Beneath Seagull’s lease there were three vertically separate sands, the Stroud, the C and the Taylor. Because the Waskom Field was in pressure communication through drilling, the Texas Railroad Commission regulated the field as though the sands were a single common reservoir. Seagull completed its first well into the C Sand (Well No. 1) in 1991 and produced gas until June 2000. In 2000, the commission granted Seagull a permit to complete a new well (Well No. 4) in all three sands. Because concurrent production from both wells violated the field rules, Seagull shut-in Well No. 1 before producing from the new well. Seagull successfully completed Well No. 4 in the Stroud and Taylor Sands, but not the C Sand. Seagull therefore sought an exception permit to reopen Well No. 1 so it could produce from the C Sand. The commission, however, denied the permit. Treating the commingled sands as a common reservoir, the commission concluded that Seagull was not entitled to an exception from field rules, because it had not shown confiscation. Seagull appealed, but the district court agreed with the commission and affirmed its decision. The 3rd Court of Appeals affirmed the district court, and Seagull petitioned for review by the Texas Supreme Court. HOLDING:Affirmed. Texas Natural Resources Code �86.081(b), one of the statutes authorizing the commission to regulate commingled oil and/or gas production in effect at the time of the permit denial, formerly provided: “When . . . the commission has permitted production by commingling oil or gas or oil and gas from multiple stratigraphic or lenticular accumulations of oil or gas or oil and gas, the commission may prorate, allocate, and regulate the production of such commingled, separate multiple stratigraphic or lenticular accumulations of oil or gas or oil and gas as if they were a single common reservoir[.]“ Seagull argued that the former �86.081(b) authorized the commission to regulate the production of commingled oil and gas but not drilling. Seagull argued then that the permit to reopen Well No. 1 was, in fact, a drilling permit and not a production permit; thus, the commission lacked authority to deny it. But the 3rd Court concluded that, because the commission previously granted Well No. 1 a permit, Seagull did not seek a drilling permit but rather sought a production permit in the application at issue. The Texas Supreme Court agreed with the 3rd Court that the issue was Seagull’s right to produce from both wells at the same time. The Legislature, the court stated, intended the former �86.081(b) to grant the commission broad authority over gas production from commingled deposits. Any doubt about this proposition, the court stated, was put to rest when the 79th Legislature in 2005 amended �86.081(b) to provide that “the commission may regulate all activities that are under its jurisdiction and associated with such commingled, separate multiple stratigraphic or lenticular accumulations of oil or gas or oil and gas as if the accumulations were a single common reservoir.” Thus, the court concluded that the regulation at issue here was within the scope of that authority delegated to the commission by the Legislature. Seagull also complained that the commission’s order, as applied to it, is unconstitutional, because it amounts to a taking of its gas in the C Sand. The commission responded that no taking occurred, because the three gas deposits on Seagull’s lease were commingled into one common reservoir in which Seagull had a well and from which Seagull did not show confiscation. The court sided with the commission. Although a mineral owner, the court stated, has a right to its fair share of the minerals on and under its property, this right does not extend to specific oil and gas beneath the property. Moreover, the court stated, a mineral owner’s rights to oil and gas in place under its land are subject to the state’s police power to conserve and develop the state’s natural resources. In addition, the court found that the record therefore did not support Seagull’s charge that the commission applied its authority to commingle oil and/or gas in an arbitrary manner or that, under the record, its failure to grant an exception to the field rules was confiscatory. Seagull also failed to demonstrate that concurrent production from both wells was needed to prevent drainage as to the common reservoir. OPINION:Medina, J., delivered the opinion of the court.

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