## Facts

- The North Dakota State Industrial Commission (Commission) issued an order establishing field-wide spacing rules for the Glenburn Oil Field in Renville County, including 80-acre drilling units (one well per unit).
- The order treated quarter sections as four 40-acre tracts and allowed any two adjoining 40-acre tracts within a quarter section to be designated as an 80-acre spacing unit.
- The order also set a fixed drilling pattern: regardless of how the 80-acre unit was configured, a permitted well location had to be in the northeast or southwest 40-acre tract of the quarter section (not in the northwest or southeast tract).
- Tenneco Oil Co. held the lease on the west half of a quarter section in Section 6 within the Glenburn Field. California Oil Company held the lease on the east half of the same quarter section.
- California designated the east half as its spacing unit and drilled a well at the allowed northeast location under the Commission’s pattern. The well was a dry hole, and California later surrendered or failed to renew its lease.
- Tenneco applied for an exception to drill in the northwest 40-acre tract rather than the southwest location required by the spacing pattern, claiming the southwest location would be nonproductive and that the northwest location was necessary to recover its fair share.
- At the Commission hearing, technical testimony conflicted: Tenneco’s witnesses supported the northwest location, while other witnesses testified a southwest-location well could produce oil.
- While the matter was still being considered, Tenneco acquired the lease on the east half and filed a new application, designating the north half of the quarter section as its 80-acre spacing unit and again requesting a northwest-location well.
- Evidence at the second hearing indicated the northwest location was the only successful location within Tenneco’s newly designated north-half unit, but opponents testified that a northwest-location well would interfere with correlative rights in surrounding units and that a well at the regular southwest location would still give Tenneco a fair opportunity to recover.
- The Commission denied the requested exception. The district court affirmed. Tenneco appealed to the North Dakota Supreme Court.

## Issues

1. Whether the Commission acted arbitrarily, unreasonably, or in a confiscatory manner by denying Tenneco an exception to drill in the northwest location rather than the location required by the field drilling pattern.
2. Whether the denial deprived Tenneco of a fair opportunity to recover its share of oil from the common source of supply.

## Decision

- The North Dakota Supreme Court affirmed the district court’s judgment, leaving in place the Commission’s denial of the exception location.
- The court held that, given the conflicting technical evidence, it was for the Commission to decide which testimony to credit, and the Commission’s decision was supported by evidence.
- The court accepted the Commission’s determination that granting the northwest-location exception could affect correlative rights under the established spacing program.
- Because the Commission’s order was within its authority and supported by evidence, the court would not substitute its judgment for the Commission’s on technical and factual questions.

## Legal Principles

- The Commission has statutory authority to set spacing units and drilling patterns to prevent waste and protect correlative rights.
- A spacing and location order must still allow each owner or lessee a fair opportunity to recover its share from the reservoir; an exception may be warranted if the order, as applied, effectively denies that opportunity.
- The applicant for an exception bears the burden of showing that the regular pattern will not provide a fair opportunity for recovery and that the exception is justified.
- On judicial review, courts do not reweigh conflicting technical testimony; if the Commission’s findings are supported by evidence and the order is not arbitrary or unreasonable, the order will be upheld.
- Redesignating a spacing unit does not, by itself, require the Commission to approve an otherwise prohibited well location when the Commission finds the regular pattern still affords a fair opportunity and the exception would threaten correlative rights.

## Conclusion

The North Dakota Supreme Court upheld the Industrial Commission’s denial of Tenneco’s request to drill a well in the northwest location because the Commission, after hearing conflicting technical testimony, could reasonably find that the regular drilling pattern still provided Tenneco a fair opportunity to recover and that an exception posed risks to correlative rights; under the limited standard of review, the court would not overturn that evidence-based agency decision.


Tenneco Oil Co. v. State Industrial Commission, 131 N.W.2d 722 (1964)