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Gawenis v. Arkansas Oil & Gas Commission

Supreme Court of Arkansas

May 28, 2015

RICHARD G. GAWENIS, APPELLANT
v.
ARKANSAS OIL & GAS COMMISSION, AND SEECO, INC., APPELLEES

Editorial Note:

This opinion is uncorrected and subject to revision before publication in the printed official reporter.

APPEAL FROM THE VAN BUREN COUNTY CIRCUIT COURT. NO. CV-2012-150. HONORABLE H.G. FOSTER, JUDGE.

Matt D. Campbell, for appellant.

Dustin McDaniel, Att'y Gen., by: Jennifer L. Merritt, Ass't Att'y Gen., for appellee.

JIM HANNAH, Chief Justice. Special Justices SARAH CAPP and DUSTIN JONES join in this opinion. HART, J., dissents. DANIELSON and BAKER, JJ., not participating.

OPINION

JIM HANNAH, Chief Justice

Appellant Richard G. Gawenis appeals from an order of the Van Buren County Circuit Court affirming an order of appellee Arkansas Oil and Gas Commission to integrate Gawenis's unleased mineral interests into a drilling unit. For reversal, Gawenis contends tat the Commission's forced integration of his mineral interests is an unconstitutional taking of his property and that the Commission's order deprived him of his constitutional right to a jury trial to determine just compensation for his property. This appeal requires interpretation of the Arkansas Constitution; therefore, our jurisdiction is pursuant to Arkansas Supreme Court Rule 1-2(a)(1) (2014). We affirm the circuit court's order.

Gawenis is the owner of the oil, gas, and other minerals beneath a .69 acre tract in Van Buren County, Arkansas, that is situated within the Ozark Highlands Unit (" OHU" ). Formed by the United States of America Bureau of Land Management, the OHU is believed to be prospective for natural-gas exploration and development from the Fayetteville Shale formation. The OHU is composed mostly of mineral interests owned by the United States of America, but it also contains some privately owned mineral interests, such as the .69 acre mineral tract owned by Gawenis.

On May 22, 2012, the Commission held a public hearing to receive evidence related to SEECO's application seeking to create a 5,154-acre oil-and-gas drilling unit in the OHU and to integrate all unleased and uncommitted mineral interests within the unit. On June 4, 2012, the Commission established the unit and integrated all of the unleased and uncommitted mineral interests within the unit, except for the unleased mineral interests of Gawenis.

On June 26, 2012, the Commission held a hearing to receive evidence related to SEECO's request to integrate Gawenis's unleased mineral interests into the drilling unit. Gawenis testified at the hearing, stating that he believed that the forced-integration procedures of the Commission amounted to a taking of his property, that the risk-factor percentage was inappropriate, that his rights and his land belonged to him, and that he had not been afforded a jury trial to determine just compensation for his mineral interests. In a July 12, 2012 order, the Commission approved SEECO's application and integrated Gawenis's unleased mineral interests into the drilling unit.

Gawenis sought review of the Commission's decision in the circuit court pursuant to the Arkansas Administrative Procedure Act, Arkansas Code Annotated sections 25-15-201 to -219. At a hearing before the circuit court, Gawenis argued that the Commission's forced-integration procedures amounted to a taking of his property and that he was entitled to have a jury determine compensation. On March 31, 2014, the circuit court entered an order affirming the Commission's decision and finding, inter alia, that the forced-integration procedures are constitutional and that the terms provided under the Commission's order were fair and reasonable consideration for an oil-and-gas lease. Gawenis appeals.

A brief review of the history of relevant oil-and-gas law is helpful to an understanding of Gawenis's arguments. In early twentieth-century Arkansas, the " rule of capture" governed the production and use of oil and gas. This court defined the rule of capture in a 1912 case as follows:

Petroleum, gas, and oil are substances of a peculiar character. . . .They belong to the owner of land, and are part of it so long as they are part of it or in it or subject to his control; but when they escape and go into other land or come under another's control, the title of the former owner is gone. If an adjoining owner drills his own land and taps a deposit of oil or ...

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