## Facts

- R.L. Pattie, Elton W. Good, Waldo Moberly, and Robert M. Anderson were oil-and-gas lessees of the W ½ of Section 14, Township 37 North, Range 3 East, Toole County, Montana, located at the edge of a petroleum reservoir.
- Sumatra Oil Corporation held an adjacent lease, including the NE ¼ of Section 15, immediately west of plaintiffs’ lease.
- Under the Montana Oil and Gas Conservation Commission’s general spacing rules, oil wells could be located no closer than 330 feet from a legal subdivision line, but gas wells had to be at least 1,320 feet from a lease or property line (and were subject to wider spacing from other gas wells on the same reservoir).
- Sumatra filed to drill an oil well 330 feet from the common boundary line, a location permissible for an oil well under the general rules.
- Sumatra’s well did not produce oil; it encountered natural gas in commercial quantities, making the completed well nonconforming under the gas-well spacing rule because it was only 330 feet from the boundary.
- Because the gas discovery was in a newly discovered gas field with no special field rules in place, the Commission applied the general gas-well spacing requirements.
- Sumatra applied to the Commission for relief, seeking either special field rules for the new gas field or application of the gas-well spacing rule with its existing well recognized as an exception so it would not have to redrill.
- Plaintiffs also applied for an exception so they could drill a protective (offset) gas well 330 feet from the boundary on their side to guard against drainage and protect their rights in the reservoir.
- Commission rules allowed exceptions where strict enforcement of spacing would be “inequitable or unreasonable.”
- The Commission granted Sumatra an exception for its existing nonconforming gas well but denied plaintiffs’ requested exception for an offset well.
- Plaintiffs sued the Commission in district court, challenging the denial and the unequal treatment in light of the drainage risk.
- The district court granted plaintiffs summary judgment and ordered the Commission to reconsider plaintiffs’ application.
- The Commission appealed to the Montana Supreme Court.

## Issues

1. Whether the Commission acted unlawfully or unreasonably by granting Sumatra an exception for a nonconforming gas well while denying plaintiffs a comparable protective exception under the Commission’s “inequitable or unreasonable” exception standard.
2. Whether the district court properly granted summary judgment and ordered the Commission to reconsider plaintiffs’ exception application.

## Decision

- The Montana Supreme Court affirmed the district court’s judgment.
- The Court held that when the Commission exercises its exception power (a quasi-judicial function), it must act under stated standards and apply those standards in an even-handed, non-arbitrary way.
- Given the Commission’s grant of an exception to Sumatra for a spacing violation at the shared boundary, the Court agreed the Commission could not deny plaintiffs’ protective request without a rational, standards-based basis consistent with the Commission’s own exception criteria.
- The Commission was required to reconsider plaintiffs’ application consistent with the governing standards.

## Legal Principles

- When an administrative agency performs quasi-judicial functions, its authority must rest on legislatively stated policy and standards that define and limit discretion.
- An agency rule allowing exceptions where strict enforcement would be “inequitable or unreasonable” requires reasoned, consistent application; the agency must avoid arbitrary or discriminatory treatment of similarly situated operators.
- In oil-and-gas spacing administration, the Commission must balance conservation aims (such as spacing and orderly development) with fair treatment of adjacent owners and protection against uncompensated drainage.
- Courts may set aside agency action and require reconsideration when the agency’s use of discretionary exception power lacks consistent application tied to the governing standards.

## Conclusion

The Montana Supreme Court affirmed the district court’s order directing the Oil and Gas Conservation Commission to reconsider plaintiffs’ spacing-exception request, holding that the Commission’s exception-granting power is quasi-judicial and must be exercised under stated standards and applied consistently; having excused Sumatra’s nonconforming gas well near the common boundary, the Commission could not deny plaintiffs a comparable protective opportunity without a reasoned basis grounded in the Commission’s own “inequitable or unreasonable” standard.


Pattie v. Oil & Gas Conservation Commission, 402 P.2d 596 (1965)