In Seagull Energy E & P, Inc. v. Railroad Comm’n, No. 03-0364, 2007 WL 1299163 (Tex. May 4, 2007), the Texas Supreme Court affirmed a decision by the Austin Court of Appeals upholding the Railroad Commission of Texas’ authority to regulate both drilling and production of commingled oil and/or gas deposits and to treat commingled deposits as one reservoir. The petitioner, who unsuccessfully sought a permit from the Commission to reopen a shut-in well to produce from one of three discontinuous, lenticular gas sands in a field, argued that the permit it sought was a drilling permit rather than a production permit, and thus the Commission lacked authority to deny it. The petitioner also asserted that the Commission’s denial of the permit amounted to an unconstitutional taking of gas in the sand from which the well would produce. The Court rejected these arguments, holding that the Commission has broad authority to regulate commingled oil and gas. The Court also concluded that a mineral owner’s property interest in its fair share of minerals on and under its property does not extend to specific oil and gas beneath its property and is in any event subject to the state’s police power to conserve and develop natural resources.
