## Facts

- The West Oneida Field in Tennessee began producing oil in 1969.
- By 1996, oil production had dropped sharply, even though the reservoir still contained nearly 1.5 million barrels of oil.
- Jarvis Drilling, Inc. owned and operated the field’s producing oil wells.
- Jarvis proposed a secondary-recovery plan that would inject natural gas into the reservoir to increase pressure and move remaining oil toward existing producing wells.
- The injected natural gas would be owned by third parties, and those third parties would pay to store the gas in the reservoir.
- The proposal therefore contemplated two revenue sources: (1) additional oil production and (2) fees for underground gas storage.
- More than 95% of the affected landowners consented to the proposal, but a minority of landowners, including Kidd and others, refused to agree.
- Jarvis petitioned the Tennessee Oil and Gas Board for an order unitizing the field under Tennessee oil and gas conservation law so the plan could proceed on a fieldwide basis despite the objections.
- The Board granted the petition and approved unit operations consistent with the proposal.
- The dissenting landowners sought judicial review, arguing (among other things) that the Board lacked authority to order unitization where the plan involved subterranean storage of third-party gas, and also arguing the plan was unfair, inadequately compensatory, and not economically feasible.
- The dispute proceeded to the Tennessee Court of Appeals after the Board’s order was upheld in the reviewing court.

## Issues

1. Whether the Tennessee Oil and Gas Board had statutory authority to order unitization for a secondary-recovery plan that injects gas into a reservoir and includes storage of third-party natural gas.
2. Whether the Board’s findings on feasibility and fairness (including compensation and allocation to nonconsenting owners) were supported by substantial and material evidence and were not arbitrary or capricious.
3. Whether the approved allocation/compensation method unlawfully impaired the rights of dissenting owners.

## Decision

- The Tennessee Court of Appeals affirmed the judgment upholding the Board’s unitization order.
- The court concluded the Board acted within its statutory authority in approving unit operations for Jarvis’s plan, even though the plan included underground storage of third-party natural gas as part of the project.
- Applying deferential review of an administrative decision, the court held the Board’s determinations on feasibility and the fairness of the unit plan were supported by substantial and material evidence.
- The court rejected the dissenting landowners’ objections to the compensation and allocation method, leaving the unit plan in place.

## Legal Principles

- Tennessee’s oil and gas conservation and unitization scheme authorizes the Oil and Gas Board to order unit operations when statutory conditions are met, including the goals of preventing waste and protecting correlative rights.
- A court reviewing a Board unitization order focuses on statutory authority and whether the decision is supported by substantial and material evidence; it does not substitute its judgment for the agency’s on technical matters.
- When an approved unit plan combines reservoir-pressure management (such as gas injection) with related reservoir use (such as storage of injected gas), the presence of a storage component does not, by itself, defeat the Board’s unitization authority if the plan otherwise satisfies the governing standards.
- A lawful unit plan must provide a just and equitable method for allocating production, proceeds, and burdens so that owners receive an appropriate share of unit benefits.
- Courts give weight to the Board’s evaluation of engineering and economic evidence bearing on feasibility and fairness in secondary-recovery unit operations.

## Conclusion

In Kidd v. Jarvis Drilling, Inc., the Tennessee Court of Appeals upheld a Tennessee Oil and Gas Board order unitizing the West Oneida Field to carry out Jarvis Drilling’s secondary-recovery plan using natural-gas injection, even though the injected gas would be owned by third parties and stored underground for a fee. The court held that the Board had authority to approve the unit operations and that the Board’s findings on feasibility and the fairness of the allocation and compensation approach were supported by substantial and material evidence under deferential administrative-review standards.


Kidd v. Jarvis Drilling, Inc., 2006 WL 344755 (2006)