## Facts

- A 160-acre spacing unit in McKenzie County, North Dakota (NE ¼ of Section 25) was established for the Keene–Silurian Pool with one well allowed per 160 acres.
- Texaco, the operator, held leases covering 29/32 of the unit’s mineral interests.
- Harley Thompson owned an undivided, unleased 3/32 mineral interest in the spacing unit.
- Texaco and Thompson failed to reach an agreement for a lease or joint operations.
- Texaco drilled and completed a well in the spacing unit on December 10, 1987.
- Thompson applied to the Industrial Commission for a compulsory pooling order on July 15, 1988.
- The Commission ordered compulsory pooling of all interests in the spacing unit, made effective from the date of first operations, and required Thompson to reimburse Texaco for his proportional share of reasonable actual drilling and operating costs plus a reasonable supervision charge.
- Texaco objected that retroactive pooling improperly allowed Thompson to share in production despite not bearing drilling risk when the well was drilled and completed.

## Issues

1. Whether the Industrial Commission may issue a compulsory pooling order effective retroactively to the date of first operations under the North Dakota Oil and Gas Conservation Act.
2. Whether retroactive pooling coupled with proportional cost reimbursement is “just and equitable” to the operator and the unleased mineral owner.

## Decision

- The North Dakota Supreme Court affirmed the district court’s judgment upholding the Industrial Commission’s order.
- The court held the Commission acted within its statutory authority in making pooling effective from the date of first operations.
- The court upheld the order as “just and equitable” because Thompson was required to reimburse his proportional share of reasonable actual drilling and operating costs and a reasonable supervision charge.

## Legal Principles

- The Oil and Gas Conservation Act authorizes compulsory pooling on terms the Commission finds just and reasonable to prevent waste and protect correlative rights within a spacing unit.
- A pooling order may be made effective from the date of first operations when the order proportionately allocates both production and costs among all owners in the spacing unit.
- Requiring an unleased, nonconsenting owner to pay a proportional share of reasonable actual drilling and operating costs (plus a reasonable supervision charge) supports the fairness of retroactive participation.
- Courts give substantial deference to the Commission’s policy and fact determinations when the order is within statutory bounds and supported by evidence.

## Conclusion

The court upheld the Commission’s retroactive compulsory pooling order because it proportionately allocated production and required the unleased owner to pay his share of reasonable costs, consistent with statutory goals of preventing waste and protecting correlative rights.


Texaco Inc. v. Indus. Comm’n, 448 N.W.2d 621 (N.D. 1989)