Proration of natural gas in Kansas, Louisiana, Oklahoma and Texas

Abstract

In 1963, the United States Supreme Court handed down its decision in the case of Northern Natural Gas Company v. State Corporation Commission, 372 U.S. 84. This decision impaired the ability of the states to protect the correlative rights of natural gas producers by invalidating an order entered by the Kansas Corporation Commission requiring an interstate pipe tine purchaser to take ratably from all producers in a common source of supply. The state administrative order was held unconstitutional on the ground that state control over interstate purchasers had been preempted by the 1938 Natural Gas Act 15 U.S.C. H 7l7-7l7w. Ratable take and common purchaser orders which had been the principal regulatory controls employed by the states to prevent discrimination in the production of natural gas were thus invalidated if directed to interstate purchasers. This paper seeks to evaluate the extent of the damage which the Northern Natural Gas Company decision inflicted upon the conservation machinery of the various producing states. The natural gas proration systems of four such states - Texas, Oklahoma, Louisiana and Kansas - are examined during the course of this evaluation. Each of the producing states in question continues to operate its natural gas proration system on the basis of statutory machinery which was largely rendered ineffective by the Northern Natural Gas Company decision. Although the author concludes that state ratability orders directed solely to producers will continue to be upheld as a constitutional method of protecting correlative rights, he submits that such orders do not afford a practical tool to the states with which discrimination in gas production can be prevented in every situation The problem of assuring ratable production does not appear to be pressing at the present time, but should it ever become a serious one, the states will be severely handicapped in their attempts to provide a legal solution.