Montana Attorney General Opinion 16-85

Opinion No. 85. Oil Conservation Board-Powers- Personal Liability of Members of the Board. HELD: 1. The production of crude oil in the state of Montana need not be limited to the amount allocated to the state by the Secretary of the In- terior. 2. The Oil Conservation Board has power to pro rate production in any oil field where waste is occurring. 3. The Board, being vested with a certain amount of discretion, the members of the Board, acting in the performance of a public duty which involves the use of discretion, are not personally liable in a civil action for damages arising out of their acts, where an error of judgment has been made, unless such acts were done cor- ruptly or maliciously. April 19, 1935. Hon. E. B. Coolidge Chairman, Oil Conservation Board Great Falls, Montana Your letter to us of March 25, is in part as follows: "Some of the members of the Oil Conservation Board wish to know how far the Board can go in the pro- ration of oil; first, whether the power to prorate is limited by the amount of allowable production al- located to Montana by the Federal Administrator; second, whether the Board has the power to prorate any particular field or fields individually or collectively or whether we would be required to prorate the whole State of Montana on a certain fixed basis; and third, whether or not the fact that some producers have con- tracts for all their crude production would exempt them from proration orders of the Board. These are the three questions I would like to sub- mit to you for your opinion. "It is my belief that we have the power to prorate and that we mayor may not stay within the allowable fixed by the Government but if we do not want to be penalized by em- bargoes on interstate shipments of crude oil in excess of the fixed al- lowable we must stay within that amount and that in prorating we may exercise our best judgment in determining what fields shall be pro- rated and how much based on con- sideration of markets, the nature of the fields and all other conditions which would affect the matter. This expression is not made with the in- tention of influencing your opinion in any way but I thought the expres- sion may invite you to analyze the various angles as to what you think we are legally entitled to do. "Some members also thought that there perhaps might be personal li- ability for any rulings of the Board which could be shown by any pro- ducer affected to have damaged him in any way. It is assumed that all members of the Board will act hon- estly and fairly with a view of doing justice between the various fields and producers. Assuming that the latter statement is a fact, what would be your opinion with reference to this personal liability?" We will first deal briefly with the federal side of the question. Section 9(c), Title I, of the National Indus- trial Recovery Act of June 16, 1933, is as follows: "The President is authorized to prohibit the transportation in inter- state and foreign commerce of pe- troleum and the products thereof produced or withdrawn from storage in excess of the amount permitted to be produced or withdrawn from stor- age by any State law or valid regu- lation or order prescribed thereun- der, by any board, commission, offi- cer, or other duly authorized agency of a State. Any violation of any order of the President issued under the provisions of this subsection shall be punishable by fine of not to ex- ceed $1,000, or imprisonment for not to exceed six months, or both." In the case of Panama Refining Co. v. Ryan, 79 Law. Ed. 223, 293 U. S. 388, the supreme court invalidated this provision of the law as an uncon- stitutional delegation of legslative power, and at the same time invali- dated certain pertinent Executive Orders and certain Regulations issued thereunder by the Secretary of the In- terior. The court declined, however, to pass on the constitutionality of OPiNIONS OF THE ATTORNEY GENERAL 81 some provlslons of the Code of Fair Competition for the Petroleum Indus- try, including section 4 of Article III, as amended by Executive Order made on September 25, 1934, on the ground that the matter was not properly be- fore it. Sections 1, 2 and 9 of Chapter 18, Laws of Extraordinary Session 1933- 34, provide: "Section 1. The production of crude petroleum in the State of Mon- tana in such manner, under such con- ditions and in such amounts as to constitute or result in waste is here- by declared to be opposed to the public interest and is hereby pro- h\bited." "Section 2. There is hereby cre- ated and established an Oil Conser- vation Board of the State of Mon- tana to be known as 'Oil Conserva- tion Board of the State of Montana', said Board shall consist of five (5) members to be appointed by the Gov- ernor, but may be removed by him at any time. They shall serve for two (2) years and until their successors are appointed and qualified, provid- ed, however, that said Board shall be in existence only during such pe- riod as the Code of Fair Competi- tion for the Petroleum Industry (approved by the President of the United States, August 19, 1933, or any amendments thereto, or revi- sions thereof) shall be in effect, it being the intention that the life of said Board shall be cotermiIJ.ous with that of the Code of Fair Competi- tion of the Petroleum Industry, or amendments thereto or revisions thereof." "Section 9. The Conservation Board shall have general power and it shall be its duty: 1. To have general control, regu- lation and supervision of the produc- tion, transportation and storage of crude petroleum within the State of Montana. 2. To make and prescribe rules and regulations, not inconsistent with the Constitution and Laws of the State of Montana, which shall govern the operation of wells for the production of crude petroleum and the conservation thereof and the transportation and storage of crude petroleum within the State of Mon- tana for the effectual carrying out of any and all laws, regulations and orders with regard to crude petro- leum production, transportation and storage made by the United States Government, or by the Department of the Interior of the United States of America, by the National Recov- ery Administration of the United States Government, or by the au- thorities administering the Code of Fair Competition for the Petroleum Industry and/or any amendments thereof or any revision or modifica- tion thereof. 3. To determine and prescribe what producing wells shall be de- fined as 'stripper wells', and to make such orders as in its judgment shall be required to protect said wells, and to provide that such wells may be produced to capacity if it is deemed necessary in the interest of conser- vation so to do, notwithstanding al- location or restriction of production of other wells. * * * 5. To act as a regulatory board or agency for any allocation and reg- ulation of crude petroleum produc- tion and/or storage within the State of Montana under and in accordance with the terms and provisions of the Code of Fair Competition for the Petroleum Industry or any amend- ments or revision thereof, and to have full power and authority to car- ry out the provisions of said Code and to provide for the conforming thereto of all producers, transport- ers, dealers in and/or storers of crude petroleum within the State of· Montana." In Montana the rule is that petro- leum and gas, so long as they remain in the ground, are a part of the re- alty. They belong to the owner of the land, and are a part of it, so long as they are on it or in it or subject to his control. When taken to the surface they become personal proper- ty and belong to the owner of the well. (Gas Products Co. v. Rankin, 63 Mont. 372; Williard v. Federal Surety Co., 91 Mont. 465). Accordingly, in the Gas Products Company Case the court held that Chapter 125, Laws of 1921 (secs. 3550-3552, Rev. Codes 1921), prohib- iting the use or consumption of gas from a natural gas well in such man- 82 OPINIONS OF THE ATTORNEY GENERAL ner as to prevent the heat therein contained from being utilized for other manufacturing purposes or do- mestic purposes, was unconstitution- al as depriving the owner of his prop- erty without due process of law. But the court significantly remarked: "We do not intend hereby to indicate as our opinion that the state govern- ment may not with propriety prevent the waste of natural resources, even though the lands on which they are produced are privately owned." It is well settled that a state may, in the interest of the conservation of its natural resources and as a proper exercise of its police power, provide by legislation for the regulation of the production of crude oil in order to prevent waste as the term is com- monly understood in that industry, and this is so whether the doctrine of qualified ownership or the doctrine of absolute ownership of the mineral in place prevails. (Champlin Rfg. Co. v. Commission, 286 U. S. 210; Danciger Oil & Refining Co. v. Railroad Com- mission, 49 S. W. 837; Sterling Refin- ing Co. v. Walker, 25 Pac. (2d) 312; People v. Associated Oil Co., 294 Pac. 717, 297 Pac. 536; F. C. Henderson, Inc. v. Railroad Commission, 56 Fed. (2) 218; People's Petroleum Produc- ers v. Sterling, 60 Fed. (2) 1041; Ca- nadian River Gas Co. v. Terrell, 4 Fed. Supp. 222; Amazon Petroleum Corp. v. Railroad Commission, 5 Fed. Supp. 633; 40 C. J. 1140.) This brings us to the concrete ques- tions involved herein. It is our view that the production of crude oil in the state of Montana need not be limited to the amount allocated to the state by the Secretary of the Interior, but it may not be prudent or business-like to exceed it, particularly when the power of congress over interstate commerce is considered. We believe the Board has power to pro rate pro- duction in any oil field where waste is occurring. Otherwise, its value as a conserving force would be much di- minished. Great care must be exer- cised, however, to avoid discrimina- tion against particular fields or against individual operators. The Board should not by order or regula- tion interfere with or prevent the full performance of any contract existing between a producer of crude oil as such and a purchaser or refiner at the time that Chapter 18 became effec- tive. Subsequent contracts of that kind would, no doubt, be affected by the provisions of the Act, for a law in force when a contract is made is a part thereof. (State v. City Council of Great F.'alls, 19 Mont. 518; 9 Mon- tana and Pacific Digest, sec. 167 of "Contracts"; 6 Page on Contracts, sec. 3676.) In the exercise of its powers the Board is of necessity vested with a certain amount of discretion. (School Dist. No.2 v. Richards, 62 Mont. 141; 46 C. J. 1036.) The general rule is that members of a public board or commission, acting in the perform- ance of a public duty which involves the use of discretion, are not person- ally liable in a civil action for dam- ages arising out of their acts, where an error of judgment has been made, unless such acts were done corruptly or maliciously. (Wilbrecht v. Bab- cock, 228 N. W. 916; 46 C. J. 1043.)