Brief Fact Summary. In this case, Sun Oil Company (Defendant) leased property, which had oil wells on it. The property was subject to an order by the Michigan Department of Natural Resources, which limited production to seventy-five barrels of oil per well per day. The Defendant is accused of overproducing 180,000 barrels of oil and draining oil from beneath Plaintiffs’ land.
Synopsis of Rule of Law. If it can be said that Defendant’s overproduction deprived Plaintiffs of the opportunity to claim and take the oil under their respective properties, then Defendant will be liable for conversion.
Under the rule, each owner of the surface is entitled only to his equitable and ratable share of the recoverable oil and gas energy in the common pool in the proportion which the recoverable reserves underlying his land bears to the recoverable reserves in the pool.View Full Point of Law
Issue. Is the Defendant liable in conversion for the overproduction of oil, some of which was found to have been removed from underneath Plaintiffs’ land?
Held. Yes. The decision was affirmed.
In Michigan, the law is based on the “ownership in place” theory, which states that the nature of the interest of the landowner in oil and gas contained in his land is the same as his interest in solid minerals. Because of the migratory nature of oil and gas, the jurisdiction developed the rule of capture. In the absence of some state regulation of drilling practices, a landowner is not liable to adjacent landowners whose lands are drained as a result of drilling.
However, the rule of capture with regard to oil and gas is not absolute. The harshness of capture has been mitigated with the “fair share” principle. Fair share means that each owner of the surface is entitled only to his equitable and ratable share of the recoverable oil and gas in the common pool.
The rule of capture is modified to exclude operations that are in violation of valid conservation orders. The Supervisor of Wells Act in Michigan (Act), under which the Michigan Department of Natural Resources makes orders, is an Act designed to provide for rations of fair share of oil and gas.
The right to have a reasonable opportunity to produce one’s just and equitable share of oil in a pool is the common law right that the trial court found that Defendant violated. If it can be said that Defendant’s overproduction deprived Plaintiffs of the opportunity to claim and take the oil under their respective properties, then Defendant will be liable for conversion.
Discussion. Take note of the difference between the capture rule, with modifications, as it applies here to oil and gas, and the harsh capture rule with no modification as it applies to water in the Texas case of Sipriano v. Great Spring Waters of America, Inc.