The Oklahoma Bar Journal May 2024

its resources. After all, such theory is particularly proper in Oklahoma, because oil and gas constitute to a large degree the basic wealth of the state. This basic wealth and basis of tax ation and income should not be wasted. The waste of any natural resource that cannot be replaced should be and is against public policy .” 24 Resting, as it does, on the police power, the mandate of the Corporation Commission is thus to regulate those businesses in which the general public has an interest in such a way as to benefit the general public. With respect to the Corporation Commission’s jurisdic tion over the oil and gas industry, that amounts to the prevention of waste and protection of correlative rights. 25 In some respects, little has changed since 1979 concerning the pooling of hydrocarbons for devel opment. Mr. Nesbitt wrote that in “simplest terms, the pooling order offers the non-consenting owner of oil and gas rights a choice either 1) to pay his proportionate share of the cost of the well and receive the same share of the working interest; or 2) to receive a bonus in lieu of the right to participate in the working interest of the well.” That remains broadly true, though these days, an irrevocable letter of credit satisfactory to the opera tor securing the payment is often included among the options, as is a no-cash, higher royalty alternative. Pooled mineral owners are entitled to know how much it will cost to participate in the well if they elect to do so and what bonus (or other consideration) they will receive if they do not. Though so-called “back-in” interest arrangements were once an option commonly SPACING AND POOLING ORDERS

of waste in the production of hydrocarbons, the Supreme Court said, is a benefit conferred on the general public of the state. 21 This position is consistent with the purpose of the Corporation Commission: to exercise the state’s police power, which is to say, the state’s power to regulate the use of private property in the interest of the common good. While mineral owners and oil and gas compa nies have an obvious pecuniary interest in the development of hydrocarbons, the doctrine of waste points to the interest that all citizens of Oklahoma have in the full development of the mineral resources of the state. Even decisions that circum scribe the rights and interests of the state acknowledge the state’s underlying interest in prevent ing waste for the common good, including in instances where it has no other claim to a right or interest, to wit: “The state has no title to oil and gas in place, and is without power to appropriate the oil and

gas in and under the lands of one owner to the use and benefit of another owner. The only interest the state has under its police power is to prevent actual waste and to provide equal privileges to every land owner to reduce such products to possession and place them in the channels of legitimate commerce.” 22 The United States Supreme Court has similarly endorsed the idea that, where they are in conflict, certain public interests (such as the prevention of waste in oil and gas production) take precedence over private property interests. 23 The plain fact that the doc trine of waste exists to protect the interests not merely of mineral owners but of all Oklahomans was once self-evident. The Oklahoma Supreme Court said as much in terms that could hardly be clearer when it held in 1933: “Gas energy should be preserved and properly utilized in order to extract all of the oil from oil-bearing sands. This theory recognizes the interest of the state in the proper utilization of all

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

10 | MAY 2024

THE OKLAHOMA BAR JOURNAL