Supreme Court of Texas
                             ══════════
                              No. 21-1035
                             ══════════

                  Ammonite Oil & Gas Corporation,
                                Petitioner,
                                    v.
     Railroad Commission of Texas and EOG Resources, Inc.,
                              Respondents

   ═══════════════════════════════════════
               On Petition for Review from the
       Court of Appeals for the Fourth District of Texas
   ═══════════════════════════════════════

      JUSTICE YOUNG, joined by Justice Busby, dissenting.
      The Mineral Interest Pooling Act deprives the Railroad Commission
of authority to consider a forced-pooling application unless the applicant
first made “a fair and reasonable offer to pool voluntarily.” Tex. Nat. Res.
Code § 102.013(b). What constitutes a “fair and reasonable offer” is
therefore important to Texas law.        In my view, that issue is what
warranted granting Ammonite’s petition for review—specifically, whether
the court of appeals erred when it decided that Ammonite’s voluntary-
pooling offers were unfair and unreasonable because they included a 10%
risk-penalty term (or, as that court called it, a “charge for risk”). The
Court unanimously rejects the court of appeals’ conclusion. Because that
court mistakenly thought that the fair-and-reasonable-offer point
resolved the case, it did not proceed to review the Commission’s denial
of Ammonite’s applications on their merits under § 102.011 of the Act.
Rather than be the first court to consider the applications’ merits, we
should reverse and remand so that the court of appeals may do so.
      Instead, the Court affirms the court of appeals’ judgment under
both § 102.013(b) and, separately, under § 102.011—in both instances for
reasons that the court of appeals never considered and, unfortunately, for
reasons that are also wrong. The Court, embracing what it believes is
the Commission’s view, says that Ammonite’s failure to show “drainage”
rendered its voluntary-pooling offers unfair and unreasonable. Worse
yet, the Court holds that the same fact—no drainage—also supports the
Commission’s determination that forced pooling is not even an option
under § 102.011.
      Even if I thought it were proper to proceed to the legal questions
that the Court addresses, I would disagree with its approach and
conclusion for two principal reasons. First, the presence of drainage is
not dispositive of whether Ammonite made fair and reasonable voluntary-
pooling offers under § 102.013(b). It is at most relevant, and in this
context it is immaterial. Second, while drainage would be dispositive of
whether forced pooling could properly protect correlative rights,
Ammonite requests forced pooling (at least in part, if not wholly) for the
distinct § 102.011 “purpose” of “preventing waste”—not of minerals that
will be drained, but of minerals that will be stranded. The Commission
and this Court mistakenly treat Ammonite’s applications as resting solely
on “drainage” and “protecting correlative rights” when it is waste
through stranding that matters.




                                    2
      So here is my view. As a matter of law, Ammonite did make fair
and reasonable voluntary-pooling offers under § 102.013(b). If we do not
send the case back to the court of appeals, we should remand directly to
the Commission so that it can decide whether the forced pooling of
Ammonite’s mineral interest with EOG’s is proper under § 102.011 (an
issue the court of appeals did not reach and on which the Commission’s
explanation was conclusory at best, burdened as it was by a mistaken
understanding of the fair-and-reasonable-offer point). The Commission
should resolve any relevant and material factual disputes (such as the
feasibility of extending or reworking EOG’s wells, whether now or in the
future) and should exercise whatever discretion the law may give it based
on those findings. We should make sure that, when the Commission does
so, it does not rely on the erroneous impression that “no drainage” is alone
a sound basis to deny the pooling applications. The lack of drainage is
the very thing that allegedly makes the minerals here stranded. If they
are stranded, they constitute waste. And if there is waste, then pooling
is on the table and is sometimes mandatory. Drainage is not and never
has been required to establish “waste.”
      But the Court should not, as it unfortunately does, decide the
§ 102.011 issue in the first instance and purport to defer to the agency
when doing so. First, there is nothing for the Court to decide under
§ 102.011 because its § 102.013(b) holding (with which I disagree)
disposes of the case. Second, even so, there is nothing yet to which the
Court can defer under § 102.011 because the Commission did not
articulate why it could not order forced pooling to prevent wasting
Ammonite’s stranded minerals.        Texas administrative law requires




                                     3
sufficient explanations of administrative actions before courts can uphold
them. This requirement, which ensures that agencies’ actions are always
based on the law and the facts, protects both the agencies themselves and
the regulated public.
      In other words, “upholding” a Commission order on grounds that
the Commission never explained and may not even agree with hardly
reflects deference. If a hypothetical agency denies a permit because it
thinks that the law requires denial, for example, the denial might
actually be reluctant—the agency may well think that granting the
permit would be good policy. When freed from the legal misimpressions
that burdened this administrative proceeding, the Commission might
reach a different outcome—or perhaps the same outcome, but for wholly
different reasons, which a court may then review.
      A court likewise does no favor to the hypothetical agency by saying
“the law does not actually require denial of the permit in the way the
agency thought, but since the agency reached that result, albeit for
mistaken reasons, we have imagined a few other reasons that would
support that result, and so we uphold the denial of the permit. Case
closed.” The one thing courts may never assume is that an agency is hell-
bent on a particular result, whether the law and the facts allow it or not.
Insisting on actual reasons is how courts help prevent even the perception
of such a mentality—a mentality that would be arbitrary and capricious
and thus impermissible for an agency whose actions must be rational and
reasoned.
      With respect, therefore, I must dissent.




                                    4
                                      I

       Many points in the Court’s opinion are correct.            The Court
accurately states that “ ‘[s]tranded’ minerals are those that cannot be
extracted from a tract with usual production methods due to the tract’s
size, configuration, and location.” Ante at 3 (emphasis added). The
narrow, meandering riverbeds at issue here resemble such tracts, the
minerals beneath which are owned by the State—in this case, “the oil
and gas beneath a winding stretch of the Frio River . . . some 30 feet wide
and 7 miles long, about 21 acres in all.” Id. at 6. The lack of pooling
gives EOG no incentive to attempt to produce the minerals under the
river, and the Court correctly observes that pooling “incentivizes drilling
that does not leave the State’s minerals stranded.” Id. at 3. The Court
also recognizes that another prerequisite for pooling is that an interest
owner within the proposed pool (here, EOG) “has drilled or has proposed
to drill a well” in the unit. Id. at 5 (emphasis added) (quoting Tex. Nat.
Res. Code § 102.011).
       The Court correctly observes that Ammonite began its efforts to
negotiate with EOG once “EOG had permits for, and was somewhere in
the process of drilling, 16 wells” that went right up to the riverbed but
stopped just shy of it on both sides. Id. at 6. Likewise, the Court notes
that EOG chose to complete those wells as planned, rather than consider
extending them just a bit to reach the river, despite Ammonite’s pooling
efforts. Id. at 8 (“By the time of the hearing . . . , each well was completed,
and none was draining the riverbed tract.”). The Court further agrees
that the Commission did not (and in the Court’s view had no need to)
assess the “hotly contested” question of the wells’ “completion status . . .




                                      5
at the time [Ammonite’s] offers were made.” Id. at 18.
       This set of agreed premises, in my view, largely supports why it
is premature to resolve Ammonite’s applications under § 102.013(b). I
describe my reasoning in greater detail below, along with the points on
which I disagree with the Court.

                                        A

       The Commission cannot consider forced pooling unless the
applicant—here, Ammonite—discharges its statutory obligation to
pursue voluntary pooling. Ammonite had to make EOG “a fair and
reasonable offer to pool voluntarily” before it could turn to the
Commission. Tex. Nat. Res. Code § 102.013(b).1


       1 Historically, this mandate has triggered “jurisdictional review.” Carson

v. R.R. Comm’n, 

 (Tex. 1984). “If the commission finds that
the applicant did not make a qualifying offer, it lacks jurisdiction over the
petitioner’s application and must dismiss it.” R.R. Comm’n v. Pend Oreille Oil
& Gas Co., 

 (Tex. 1991) (citing Carson, 

).
        Happily, the Court today clarifies that § 102.013(b) is “not a prerequisite
to the Commission’s jurisdiction.” Ante at 13. This clarification fits alongside
many others in which this Court continually emphasizes that no statute should
be regarded as having “jurisdictional” force—in the sense of affecting authority
and risking collateral attack later—without text that makes that result
unmistakably clear, thus putting everyone on notice of it. See, e.g., Unity Nat’l
Bank v. Scroggins, 

, 679 n.5 (Tex. 2023) (Young, J., concurring
in denial of petitions) (“As the U.S. Supreme Court put it recently, even when
talking about a statute, ‘this Court will treat a procedural requirement as
jurisdictional only if Congress clearly states that it is.’ ” (quoting Wilkins v.
United States, 

 (2023))). Section 102.013(b) prescribes a basis
for the Commission to dismiss a forced-pooling application: the applicant’s
failure to have adequately attempted voluntary pooling by making an adequate
offer. The target of the pooling effort can preserve this ground as a basis for a
court to set aside a pooling order if the Commission does not dismiss on that
ground. But if the target never even contests that prerequisite, an eventual
order should not be subject to attack on that basis—and certainly not collateral




                                        6
      The question is therefore whether Ammonite’s offers were so poor
that the Commission should not even have considered the forced-pooling
applications. I think that, as a matter of law, Ammonite met its minimal
burden—at the very least, any failure to do so was not for a reason the
Commission expressed. Either way, we should remand.
      As a preliminary point, it should seem unlikely that Ammonite
could not get out of the gate by making sufficient offers. The Court notes
that Ammonite has made approximately 150 voluntary-pooling offers
across Texas to help develop the State’s minerals, and it “has worked out
voluntary pooling agreements in all but four cases.” Ante at 4. Those
agreements must generally have been regarded as “fair and reasonable”
by the other side of the transaction, given that recourse to the Commission
was hardly needed, if ever.       Yet despite such a successful record,
Ammonite here is accused not only of submitting applications that do not
warrant forced pooling, but of having failed even to make adequate
prerequisite offers for its applications to be considered on their merits.
Possibly—but unlikely, in the same way we might think it possible but
unlikely that a batter who could hit 146 straight home runs would then
strike out. The Court observes that it is unclear if any of these prior
“offers involved horizontal wells incapable of reaching riverbed minerals,
like EOG’s.” 

 at 18 n.42. But my point is that Ammonite is at least
deeply familiar with the prerequisites of the process. So, yes, maybe it
flubbed making “fair and reasonable” offers here—but, given Ammonite’s
track record, examining such a contention with skepticism is sensible.


attack. I agree with the Court that § 102.013(b) is “merely the first of two
hurdles an applicant must clear to obtain a forced-pooling order under MIPA.”
Ante at 13.




                                     7
       In my view, Ammonite satisfied § 102.013(b) by making fair and
reasonable voluntary-pooling offers to EOG. Each offer was a letter about
two pages long and accompanied by a plat depicting the proposed pooling
unit. EOG would serve as the operator of any wells within each proposed
unit. In return, Ammonite offered to pay its share of the drilling, operation,
rework, and plugging costs from its share of potential royalties, plus
Ammonite would self-impose a 10% risk penalty.2 Most of the letters
conclude by inviting EOG to meet and discuss the offers, presumably to
facilitate negotiation. This reflects a “bona fide attempt to reach a
contractual agreement.” Id. at 18 n.41 (quoting Carson v. R.R. Comm’n,

 (Tex. 1984)).
       EOG, by contrast, did not make a bona fide attempt. Instead, EOG
rejected Ammonite’s offers out of hand. It conducted no negotiations and
made no counteroffers.3 Although “MIPA does not require a counteroffer,
it is a factor to consider in determining whether an offer is fair and


       2 In the oil-and-gas industry, the term “risk penalty” is used
interchangeably with terms like “non-consent penalty” or “risk charges.” See
Valence Operating Co. v. Dorsett, 

 (Tex. 2005). As to what a
risk penalty is, see infra note 4 and accompanying text.
       3 Contrary    to the Court’s suggestion, ante at 18–19, EOG does not
portray itself as having “negotiated” with Ammonite about a potential
voluntary-pooling agreement. Here is how EOG describes (in its briefing to this
Court) its response to Ammonite’s offers: “EOG responded to the offer letters
through its counsel—rejecting the offers, stating its reasons for rejecting the
offers (including citations to relevant case law), and asking for proposed dates
for an evidentiary hearing before the Commission on Ammonite’s MIPA
applications.” EOG also acknowledges that it made no counteroffers: “The fact
that EOG did not make counteroffers to Ammonite’s offers is one factor for the
Commission to consider in determining whether an offer is fair and reasonable.”
(Internal quotation marks omitted.) Nor did the Commission find that EOG
negotiated with Ammonite. In short, EOG’s response was not “let’s talk” but
rather “pound sand.”




                                       8
reasonable.” R.R. Comm’n v. Pend Oreille Oil & Gas Co., 

 (Tex. 1991). This approach is consistent with the statutory text and
structure, given that “ ‘[t]he obvious intent of the legislature’ in crafting
MIPA was ‘to encourage voluntary pooling.’ ” Ante at 4 (quoting Pend
Oreille, 

).     EOG’s rejection without a counteroffer
suggests, at minimum, that § 102.013(b)’s threshold inquiry should be
resolved in Ammonite’s favor—even if Ammonite ultimately cannot
obtain forced pooling.
      The Court sees it otherwise, but I am not sure why. It correctly
observes that the “Commission did not explain why Ammonite’s pooling
offers were not fair and reasonable.” Id. at 14. Why not end there? The
unexplained basis of the § 102.013(b) conclusion justifies reversal and
remand on this point. See Tex. Gov’t Code § 2001.174(2)(F) (requiring
reversal of agency action that is “arbitrary or capricious or characterized
by abuse of discretion or clearly unwarranted exercise of discretion”). No
less for Texas than federal agencies, courts must “insist that an agency
examine the relevant data and articulate a satisfactory explanation for
its action.” FCC v. Fox Television Stations, Inc., 

 (2009)
(internal quotation marks omitted).
      Nor do any of the Commission’s findings plausibly fill this
explanatory gap. For its part, the court of appeals concluded that the
problem was Ammonite’s proposed 10% risk penalty, a conclusion that—
although wrong—was at least based on the Commission’s express
findings. To explain why the court of appeals’ rationale is wrong, I briefly
discuss what risk penalties are, because they help explain how
Ammonite’s offers were more rather than less fair and reasonable.




                                     9
       As our sister high court explained it, “[a] 200 percent risk penalty
means the nonconsenting owner will relinquish his or her right to receive
his or her share of production revenue until the consenting parties recover
two times the nonconsenting owner’s share of the expenses.” Gadeco,
LLC v. Indus. Comm’n of N.D., 

 (N.D. 2012). A risk
penalty helps “ensure that the economic risk assumed by the operator in
drilling and completing a well is reasonably shared by all who stand to
benefit.” Ante at 7. It “is designed to allow reasonable compensation for
working interest owners who undertake the risk of developing new
wells.” Valence Operating Co. v. Dorsett, 

 (Tex. 2005);
see also Application of Kohlman, 

 (S.D. 1978)
(explaining that a “risk penalty” serves to “provide extra compensation
from production (if oil is found) to the drilling party”).4
       Even though Ammonite offered this extra compensation, the court
of appeals concluded that “there is a reasonable basis for the


       4 In discussing the backdrop of its statutory risk-penalty provisions, the

North Dakota Supreme Court explained how such penalties make pooling
outcomes more reasonable and fair:
       Courts and state governments recognized that it is unfair for a
       nonconsenting owner or nondriller lessee to be relieved of the
       costs and risks associated with drilling a producing well, but at
       the same time reap the benefits of another’s efforts in extracting
       oil or gas from beneath his or her land. In an effort to ensure that
       nonparticipating owners do not benefit from the successful
       outcome of risks they do not take, states have authorized
       penalties typically called a “nonconsent penalty” or “risk penalty”
       to be imposed on nonconsenting working interest owners as a
       reasonable way to allocate risks and balance the diverse interests
       involved in the pooling of oil and gas interests.
Gadeco, 812 N.W.2d at 407–08 (internal citations and quotation marks
omitted) (discussing 

).




                                       10
Commission’s fact finding and conclusion that Ammonite’s voluntary
pooling offers were not fair and reasonable based on a 10% charge for risk
being unreasonably low according to Smith’s uncontroverted testimony.”

, 41 (Tex. App.—San Antonio 2021) (referencing Finding
No. 8 and EOG’s expert witness Tim Smith). As the Court notes today—
another point on which we agree—risk penalties are not even required to
be offered at all, see ante at 7 & n.17, and the statute caps the maximum
possible risk penalty at 100%, 

 at 7 & n.16 (quoting Tex. Nat. Res. Code
§ 102.052(a)). Ten percent was a starting offer, and Ammonite made clear
that there was room to grow.
       Ammonite told EOG all along that it would accept whatever risk
penalty the Commission might prescribe, including the 100% statutory
maximum. EOG even acknowledges in its briefing to this Court that its
own “petroleum engineer expert witness Tim Smith testified that a 100%
risk penalty would be reasonable.”5 (Emphasis added.) But instead of
negotiating for something higher than 10%, or even demanding 100%,
EOG refused to negotiate at all. See supra note 3.


       5 EOG’s acknowledgement undermines the Court’s assertion that “[a]

100% risk penalty would not have made Ammonite’s offers reasonable.” Ante
at 20 n.43. Also undermining the Court’s assertion is the hearing examiners’
recommendation of a risk penalty half that size: “In order to balance this
conflicting evidence and the other factors, it is recommended that a 50% charge
for risk based on the facts of this case, is fair and reasonable as is required by
§ 102.017 of the MIPA.” See also Tex. Nat. Res. Code § 102.017(a) (“After notice
and hearing, all orders effecting the pooling shall be made on terms and
conditions that are fair and reasonable and will afford the owner or owners of
each tract or interest in the unit the opportunity to produce or receive his fair
share.”). The hearing examiners are not the Commission, obviously, but my
point is that everyone has well understood Ammonite’s flexible offer, and the
hearing examiners did not even think going past 50% was necessary, so offering
even more than that is highly unlikely to be an insufficient offer.




                                       11
       In any event, the Court—again, correctly—observes that “[t]here
is no evidence that EOG rejected Ammonite’s pooling offers because of the
proposed risk penalty.” Ante at 15. EOG identified two reasons for why
Ammonite’s offers would be “unreasonable” no matter what those terms
were: (1) there was no indication EOG’s existing wells were draining
Ammonite’s minerals (see infra Part I.C) and (2) EOG’s leases otherwise
prevented it from accepting any voluntary-pooling offers, no matter how
fair and reasonable.6 The court of appeals relied on the supposedly
inadequate risk-penalty offer, which the Court today unanimously
rejects. Ante at 15–16.

                                       B

       The Court could therefore remand to the court of appeals, which
has not considered anything beyond its erroneous risk-penalty conclusion.
The Court instead stretches to find a basis to sustain the threshold
determination that Ammonite failed to make a fair and reasonable offer,
and this is where I must part ways with the Court.
       The Court expresses the desire to defer to the Commission. I agree
that our precedent indeed recognizes the Commission’s authority under
§ 102.013(b): “The commission’s application of the statutory term to the
facts in each case is conclusive, unless it is unreasonable.” Pend Oreille,

. But the Commission’s “application” here is, at best,
wholly unexplained and thus unsustainable as a matter of law. Without


       6 The Court “assume[s] without deciding” that such a contractual artifice

could not avoid forced pooling altogether. Ante at 8 n.18. What is to decide?
It seems self-evident that if “forced” pooling was off the table merely because a
lessor and lessee agreed by contract not to voluntarily pool with others, then
there would be no such thing as forced pooling—anyone could avoid it at will.




                                       12
knowing anything more than the bottom-line conclusion, it is anyone’s
guess whether that bottom-line conclusion is “reasonable.” The result is
conclusory, not “conclusive.”
      The best way to show why is to start with the Commission’s
factual findings that are at least plausibly linked to its conclusion that
Ammonite’s pooling offers were unfair or unreasonable. It made only
eleven such findings, which fit on a single page. Five factual findings
could (possibly) relate to the “fair and reasonable offer” conclusion:
      6. Ammonite did not provide survey data or a metes and
      bounds description of the riverbed to establish the precise
      acreage to be force pooled into any of the sixteen (16) wells.
      7. None of the sixteen (16) wells produce hydrocarbons from
      or drain the adjacent riverbed tracts.
      8. At the hearing, Ammonite agreed with a greater charge
      for risk than the 10% listed in its voluntary pooling offer
      for each of the sixteen (16) wells if the Commission
      recommended same.
      9. Formation of the proposed MIPA units for the sixteen
      (16) existing wells will not access or produce any of the
      hydrocarbon reserves under Ammonite’s adjacent riverbed
      tracts.
      ....
      11. Compulsory pooling will not prevent waste, protect
      Ammonite’s correlative rights, or prevent the drilling of
      unnecessary wells. . . .
      I am willing to take these findings as true, but doing so does not
support, much less establish, that Ammonite’s offers were unfair or
unreasonable. Finding No. 8, as I have explained, affirmatively supports
Ammonite. And Finding No. 6 describes a circumstance (omitting survey
data or a metes-and-bounds description) that at most might render




                                    13
Ammonite’s offers unclear but, absent further explanation, not unfair or
unreasonable. I agree with the Court that Finding No. 6 is irrelevant and
that Ammonite provided enough information for anyone to discern the
pool’s exact contours. See ante at 14–15.
      Three Findings remain: Nos. 7, 9, and 11. They are relevant but
are of no greater help to the § 102.013(b) conclusion. Those three findings
concern the fact that EOG’s wells currently do not produce or “drain”
minerals from Ammonite’s riverbed acreage. This ground is the one that
EOG pressed and that the Court today embraces, so I address in greater
detail why it cannot do the trick either. According to EOG, the “no
drainage” fact means any offer from Ammonite would be inherently
“unfair and unreasonable” and the Commission could do nothing but
dismiss under § 102.013(b). After all, the argument goes, EOG’s wells do
not drain Ammonite’s minerals, so Ammonite would receive payments
from EOG’s production without contributing to that production (unless
EOG extended its wells, at least, because of the lack of drainage).
      But the Court is not quite right to describe as “undisputed” that
Ammonite’s pooling offers would, if accepted, give Ammonite “a share of
EOG’s production without Ammonite’s contributing any minerals of its
own.” Ante at 16 (emphasis added). To the contrary, this assertion is
disputed. Pooling would authorize EOG to produce Ammonite’s riverbed
minerals, thereby “de-stranding” them so that they are not wasted.
That is the nature of pooling.7 Any future production from Ammonite’s


      7 Ammonite explained in its briefing to this Court that pooling “would

enable EOG’s ‘current or future wells to produce from such undrained acreage,
both on EOG’s acreage and the Frio Riverbed tracts.’ ” Ammonite added at oral




                                     14
minerals, moreover, would primarily benefit EOG, not Ammonite. All
the pools would be proportional to the parties’ contributed acreage—as
a result, Ammonite’s interest in the pooled units would be less than 1%
to EOG’s 99%. So if Ammonite’s minerals were produced, EOG would
receive 99% of that production (after benefiting from the potential 100%
risk penalty, too). In other words, Ammonite is indeed “contributing . . .
minerals of its own” to the pool.
      EOG cannot dispute—at the § 102.013(b) stage—its ability to
produce those minerals (and then keep 99% of them). Some of its key
arguments against pooling here have been predicated on the notion that
Ammonite’s scanty acreage presumably can be developed in the future—
the minerals are not going anywhere and development is not impossible.
Had Ammonite and EOG reached a pooling agreement, or if the
Commission had imposed one, then Ammonite says EOG “could have
reached and produced” the riverbed and, “[i]n fact, it could still reach and
produce those minerals even today.” (Emphasis omitted.) EOG claims
that the ability to produce the riverbed minerals in the future means
there is no real need for pooling today. But it also means that if the
acreage is pooled today, then EOG will get the production benefit
tomorrow (or whenever it decides to produce). That right surely is a good
incentive for EOG to do what it can to develop those minerals, which
otherwise are apparently stranded and thus wasted. Forced pooling aims
to eliminate such waste. EOG could get the benefit of the pool whenever
it wants. Thus, only for now, and only for as long as EOG wishes, would



argument, “EOG has the right, once there’s pooling, to access those minerals
itself.”




                                    15
Ammonite be a net winner (and, even now, Ammonite’s winnings could
be significantly reduced by the self-imposed risk penalty).
       Of course, producing the riverbed—by extending EOG’s existing
wells or completing new ones to reach the riverbed—may turn out to be
technologically or commercially impractical. But that is putting the cart
before the horse. The Court observes that Ammonite’s offer letters did
“not mention the possibility of extending any well” into the riverbed, as if
the State and Ammonite would pursue pooling and then try to deny access
to the pooled minerals. Ante at 18.8 Ammonite did not have to prove that
it was possible or practical to drill or extend wells into the riverbed to
proceed past § 102.013(b).9 Presumably it was and remains practical and
possible, in the same way the Court believes it is practical or possible for
Ammonite to drill the riverbed by itself in a future technological or
economic climate. See id. at 11, 25. In any event, EOG did not reject
Ammonite’s offers based on impracticability or impossibility. Nor did the
Commission make a finding or conclusion on these grounds. Neither
should we—and certainly not at this stage.


       8 It seems implied that, upon pooling, EOG would have the authority to

reach the riverbed either by extending existing wells or drilling new ones. See
also supra note 7. To the extent this was unclear, the offers were likewise
unclear. But lack of clarity would not render them inherently unfair or
unreasonable, particularly when no effort to seek clarity was found because no
negotiation was undertaken. In any event, it seems unlikely that Ammonite
(or its lessor, the State) planned to stop production of the minerals they seek to
pool—and if that was their plan, it would seem to be a rather easy basis for the
Commission to deny their applications.
       9 The Court references my “share[d] . . . doubt” regarding Ammonite’s

carrying its “burden of proof.” Ante at 23 n.50. To be clear, I share that doubt
with respect to the second issue regarding § 102.011, not with respect to the first
issue regarding § 102.013(b). I discuss the concern in Part II below.




                                        16
                                      C

       “No drainage,” in short, does not warrant the dispositive weight
that the Court gives it.
       The Court does not say that drainage is essential to showing waste,
but it does say that the lack of drainage is a “critical factor” in determining
not just whether Ammonite’s applications should succeed under
§ 102.011, but whether Ammonite’s voluntary-pooling offers were fair and
reasonable under § 102.013(b). See id. at 17 (quoting R.R. Comm’n v.
Broussard, 

 (Tex. App.—Austin 1988, writ denied)).
       As used here, at least, this “no drainage” theory does not truly probe
§ 102.013(b) inasmuch as it relies on forced-pooling assumptions under
§ 102.011. It relates to whether, despite Ammonite making a fair and
reasonable offer, the Commission might nonetheless decline to compel
pooling for some other collateral reason. After all, Ammonite’s theory is
that, without pooling, its riverbed minerals are “stranded” and thus
“wasted.” If so, Ammonite’s pooling applications ought to be addressed
under § 102.011, not dismissed under § 102.013(b) for a suspiciously
§ 102.011-like reason. Otherwise, applications like these suffer from an
incurable threshold defect—Ammonite could never invoke the
Commission’s authority to enter a forced-pooling order under § 102.011
because, as a matter of law, “no drainage” would preclude the existence
of a fair and reasonable pooling offer under § 102.013(b). That odd result
would be true regardless of the offer’s terms, any bona fide attempt at
contracting, or whether the wells could be made to drain in the future.
       Such an approach improperly shifts § 102.013(b)’s focus away from
facts showing whether there is “a fair and reasonable offer to pool




                                      17
voluntarily” (e.g., how the offeror proposes that operation costs and
production revenue within the proposed unit be shared) and toward facts
showing whether forced pooling is warranted (e.g., facts like “no drainage”
and “stranding”).10 The § 102.011 merits inquiry would subsume the
§ 102.013(b) threshold inquiry, essentially wiping away the modest
opening question that is simply there to ensure that, before the
Commission considers pooling, the parties have been incentivized to work
together. Merging the two statutes as the Court does today can only
achieve the exact opposite result.
       Of course, I do not suggest that “no drainage” is wholly irrelevant
at the threshold stage. But it would matter in a way that informs that
threshold inquiry without being an automatic bar to proceeding beyond it.
For example, “no drainage” may affect the respective bargaining power of
the parties contemplating a voluntary-pooling agreement. Cf. Carson, 

 (“those relevant facts, existing at the time of the offer, which
would be considered important by a reasonable person in entering into a
voluntary agreement concerning oil and gas properties”). Here, “no
drainage” weakens Ammonite’s bargaining power by reducing the
likelihood that the Commission would grant Ammonite a forced-pooling
order under § 102.011. EOG could legitimately leverage this fact in


       10 The presence of drainage is a very different matter.   If a well drains
from other acreage, that can be probative of whether forced pooling is necessary
to protect correlative rights. See Texaco Producing, Inc. v. Fortson Oil Co., 

 (Tex. App.—Austin 1990, no writ) (“A producer who
demonstrates that reserves underlying his land are being drained, and that he
does not have an opportunity to offset that drainage, establishes injury to
correlative rights as a matter of law.”), cited with approval in R.R. Comm’n v.
Lone Star Gas Co., 

, 683 n.2 (Tex. 1992). “Stranding,” as I discuss
below, is probative of whether forced pooling is necessary to prevent waste.




                                       18
attempting to obtain the best terms or even to reject voluntary pooling—
but not to block § 102.011 review automatically. A fair and reasonable
offer in this context might factor in any unlikelihood that Ammonite would
obtain an eventual forced-pooling order—hence, no doubt, Ammonite’s
willingness to go up to the statutory maximum for risk penalties.
      But by the same token, EOG’s leverage would diminish if
Ammonite’s (or any offeror’s) request for pooling has merit—say, because
their minerals are “stranded” and thus wasted absent pooling.             A
reasonable offeree would consider the threat of an eventual government-
issued forced-pooling order if the offeree could not negotiate a voluntary-
pooling agreement with the offeror.
      None of this, however, should be resolved as a prerequisite when a
plausible offer is made, particularly when no negotiation ensues. The “no
drainage” and “stranding” contentions are merely offsetting facts for
§ 102.013(b)’s purposes; if a voluntary arrangement proves elusive despite
an offer like Ammonite’s, the matter should move to the § 102.011 stage.
      The Court’s primary authority for allowing “no drainage” such
weight is a 1988 writ-denied case from the Austin Court of Appeals,
Railroad Commission v. Broussard. See ante at 17–18, 24. The Court
emphasizes that Broussard “is one of the only published judicial decisions
in Texas—maybe the only one—involving comparable facts.” Id. at 17
n.40. It is cited “to show that the Commission’s position here is consistent
with the position it took four decades ago.” Id. Our judicial review does
not hinge on whether an agency’s “position” is consistent with one it took
decades ago.    Our priority should be whether the agency properly
exercised the discretion the legislature bestowed upon it. It should be




                                    19
alarming that the non-binding Broussard is the only authority involving
supposedly “comparable” facts that the Court can scavenge from the
depths of our dusty law library.
       More importantly, the Court’s premise is incorrect. Broussard
does not involve “comparable” facts. It involved a “no drainage” fact
pattern—not a “no drainage” and “stranding” pattern. Unlike here, there
it was “undisputed that, for the [offeror’s] offer to be determined to be fair
and reasonable, one of the wells belonging to [offeree] must have been
draining gas from under [offeror’s] property.” Broussard, 

 (emphasis added). But here, Ammonite concedes its acreage is not
being drained. That is the point: unlike the Broussard offeror, Ammonite
invokes MIPA to prevent stranding (and thus prevent waste), not to
remedy drainage (and thus protect correlative rights).            Those are
fundamentally different grounds for ordering forced pooling.
       Broussard also provides no detail regarding the actual offer terms
being scrutinized for their fairness and reasonableness (e.g., risk penalty,
cost sharing, etc.). Surely a § 102.013(b) analysis must begin and end
with the terms of the offer at issue. In between lies the context: the facts
and circumstances of a given case (like “no drainage” and “stranding,” or
unique geology, or anything else that sets the parties’ respective
bargaining power), and then the offeror’s willingness, or not, to put
enticing terms like a substantial risk penalty on the table.11 Even if
Broussard were a precedent of this Court, I doubt it should play anything
like the role it does in the Court’s analysis today.

       11 The Court, by contrast, ends its analysis with the context of “no
drainage” rather than the offers’ terms: “we do not end our analysis with the
terms of Ammonite’s offers.” Ante at 20. In my view, that approach is wrong.




                                     20
                            * * *
       I would hold that all the Commission’s findings—however
supported they may be—cannot establish its legal conclusion that
Ammonite’s pooling offers were unfair or unreasonable under
§ 102.013(b). Ammonite made offers consistent with MIPA’s purpose of
encouraging voluntary pooling. Ammonite would pay its fair share of
costs plus a self-imposed risk penalty.          If this was unsatisfactory,
Ammonite was willing to negotiate. EOG rejected Ammonite’s offers—
without making any counteroffers—on grounds of “no drainage.”
Rejecting the offers to voluntarily pool was, of course, EOG’s prerogative.
But as a result, it became Ammonite’s prerogative to submit forced-
pooling applications for review on their merits under § 102.011.

                                       II

       The Court’s (mistaken) holding that Ammonite made no fair and
reasonable offers means that the Commission itself could go no further
into the merits of those offers, so on its own reasoning, the Court should
not reach § 102.011.12 Indeed, the court of appeals affirmed solely on the
first issue regarding § 102.013(b), so (properly, based on its holding) it did


       12 Under the Court’s own theory that Ammonite did not make a fair and

reasonable voluntary-pooling offer, the Court should affirm and say no more.
Section 102.013(b) forecloses any basis upon which Ammonite could receive forced
pooling absent having made a fair and reasonable voluntary-pooling offer. Yet the
Court proceeds to state that “[t]he Commission’s conclusion that forced pooling
would not prevent waste or protect correlative rights is not unreasonable” under
§ 102.011—as if the Commission could order forced pooling notwithstanding
Ammonite’s failure to make a fair and reasonable offer. Ante at 25. That
implication is incorrect and the Court’s statement predicated on it is thus not
remotely necessary to its disposition. If I agreed with the Court that Ammonite
failed to make a fair and reasonable voluntary-pooling offer, then I would still
oppose the Court’s decision to make an additional holding under § 102.011.




                                       21
not reach the second issue regarding § 102.011. On the assumption that
some court should be examining § 102.011, therefore, the Court could
reverse and remand for the court of appeals to do so in the first instance
rather than doing so ourselves. This Court should typically be the last
court rather than the first court to address legal issues. See In re Troy S.
Poe Tr., 

, 780 (Tex. 2022) (“As a court of last resort, it is
not our ordinary practice to be the first forum to resolve novel questions,
particularly ones of widespread import.”).         If we wish to make an
exception to the principle that this Court is a court of review, not of first
view, we ought to do so only for an urgent reason. Nothing urgently
requires this Court to be the first to resolve issues about this particular
refusal to force the pooling of this particular acreage.
       Yet the Court marches onward, so I do too. In doing so, I conclude
that the Commission also erred in making its § 102.011 determination.
So if § 102.011 matters (and I do not see how it could matter to the Court
if there was no fair and reasonable offer from Ammonite), then we should
remand to the agency. See Tex. Gov’t Code § 2001.174(2). The following
analysis, in other words, relies on the dubious assumption that addressing
§ 102.011 is necessary.
       Section 102.011 mandates forced pooling “for the purpose of . . .
preventing waste.” It is undisputed that, at least in theory, stranding
minerals can constitute “waste.”13 The statute, as the Court notes, ante



       13 At oral argument, EOG’s counsel clarified: “Stranding can be waste,

absolutely. Stranding can be waste, but that’s not the question for this Court.
The question for this Court is whether the MIPA forced pooling order would
prevent that waste.” Similarly, the Commission’s counsel stated: “The Railroad
Commission understands that stranded minerals can constitute waste.”




                                      22
at 21, defines “waste” to include “loss incident to or resulting from . . .
locating, spacing, or operating a well or wells in a manner that reduces or
tends to reduce the total ultimate recovery of oil . . . from any pool,” Tex.
Nat. Res. Code § 85.046(a)(6) (emphasis added). Stranding minerals so
that they remain in place while all the nearby ones are extracted surely
can “tend[] to reduce” the “ultimate recovery” of the stranded minerals—
it is speculative whether or when they will be recovered. The very act of
stranding can make any future recovery far harder.
       Recognizing stranded minerals as waste makes sense, given that
Texas policy “is to encourage the recovery of minerals.” Key Operating &
Equip., Inc. v. Hegar, 

 (Tex. 2014). Ammonite’s
minerals appear stranded beneath the riverbed, and thus at least
potentially wasted, absent pooling. (Recall, too, that the State leased its
minerals to Ammonite. Ante at 3–4.14) EOG’s expert Tim Smith testified
that it would be impossible for Ammonite to drill a commercially viable,
horizontal well solely within the riverbed acreage. Ammonite would need
at least some access to EOG’s adjacent acreage to produce the riverbed.
       In concluding that forced pooling would not prevent waste,
however, the Commission made no findings or conclusions regarding
Ammonite’s minerals being “stranded.”            Instead, its most pertinent


       14 I refer to the State here, and below, because today’s decision affects it

and not just Ammonite. See ante at 3 (“The State owns the minerals beneath its
more than 80,000 miles of navigable rivers and waterways.”). If the law, when
accurately stated, disproportionately harms the interests of the State, so be it;
no one is seeking special treatment for the State. But the significant interests
at issue surely warrant more analysis and explanation from the Commission up
front and less from the Court today, given the posture of the case. Even worse,
though, the Court’s premature decision is erroneous, and its error unjustifiably
leads to adverse consequences mostly on the State.




                                       23
findings focused on the “no drainage” facts:
      7. None of the sixteen (16) wells produce hydrocarbons from
      or drain the adjacent riverbed tracts.
      ....
      9. Formation of the proposed MIPA units for the sixteen (16)
      existing wells will not access or produce any of the
      hydrocarbon reserves under Ammonite’s adjacent riverbed
      tracts.
      10. Ammonite offered no expert witnesses or evidence of
      drainage areas of any wells.
      11. Compulsory pooling will not prevent waste, protect
      Ammonite’s correlative rights, or prevent the drilling of
      unnecessary wells. The applicant failed to meet its burden
      of proof to prove that the granting of the application is
      necessary to prevent waste, protect correlative rights, or
      avoid the unnecessary drilling of wells. In the record, there
      is simply no evidence showing that forced pooling these
      wells will prevent waste or protect correlative rights – the
      wells have been drilled and are producing; they do not and
      will not produce riverbed minerals.
      The “no drainage” facts are undisputed and are properly
emphasized in the § 102.011 context. Consequently, pooling to protect
Ammonite’s correlative rights may be unlikely because EOG’s operations
do not drain Ammonite’s minerals. See supra note 10. But the “novel
question” in this case, see Troy S. Poe Tr., 646 S.W.3d at 780, is whether
Ammonite’s minerals are “stranded” (everyone seems to agree that they
are) and, if so, how that finding would interplay (if at all) with the “no
drainage” findings in making the ultimate conclusion on ordering pooling
to prevent “waste.”
      These points remain unresolved and should be remanded to the
Commission to provide clarity. Maybe “stranding” would compel a forced-




                                   24
pooling order in light of the policy favoring mineral recovery (including
the State’s own minerals, which have been leased to Ammonite). Maybe
“stranding” would not compel a forced-pooling order, if producing the
riverbed minerals is speculative. This Court cannot be sure because the
Commission made no findings on whether, for example, EOG could
practicably extend existing wells or drill new ones to recover the riverbed
upon pooling. For a similar reason, I am unpersuaded by the Court’s
reasoning that forced pooling (a) “could not, at the time the Commission
reached its decision, have prevented waste” (b) “because, as the
Commission’s order states, ‘the wells have been drilled and are producing;
they do not and will not produce riverbed minerals.’ ” Ante at 22.
      Just because EOG’s wells may “have been drilled” does not bar
forced pooling.    As the Court acknowledges, § 102.011 expressly
contemplates pooling in just this situation—where an owner like EOG
“has drilled” (i.e., already) on the proposed unit. Id. at 5 (quoting Tex.
Nat. Res. Code § 102.011). Nor does the analysis turn on whether the
Commission’s order would assuredly or without any doubt “prevent
waste.” Section 102.011 authorizes forced pooling “for the purpose of . . .
preventing waste.” Id. (emphasis added) (quoting Tex. Nat. Res. Code
§ 102.011); see also Tex. Nat. Res. Code § 102.017(a) (pooling orders
shall afford owners “the opportunity” to produce their fair share). A
Commission order might serve the purpose of preventing waste if the
order could reasonably incentivize producing the riverbed.
      The § 102.011 inquiry here should instead focus first on whether
Ammonite’s minerals are “stranded.” If so, then they were (and remain)
wasted. “Pooling is one method to prevent waste.” Key Operating, 435




                                    25
S.W.3d at 798. The next question might be whether, upon pooling, EOG
could practicably extend its existing wells (or complete new ones) to
recover Ammonite’s minerals from the riverbed. Assuming EOG could,
then Ammonite’s minerals could be produced and would no longer be
stranded, with the net effect from a pooling order possibly being that EOG
and Ammonite (and by extension, the State and the public fisc) each get
increased proceeds from production. In the words of Ammonite’s counsel
at oral argument: “Huzzah—everybody gets paid.”15
       The Court identifies a fair counterpoint to this hypothetical,
namely that “Ammonite, as the MIPA applicant, had the burden of proof
to demonstrate to the Commission the technological and economic
feasibility of reworking EOG’s wells to reach the riverbed.” Ante at 24.
I share the Court’s doubt about whether Ammonite carried its burden of
proving how its minerals would be produced and de-stranded if the
Commission granted forced pooling. I also have doubt, however, about
why EOG rushed to complete wells that comply with its leases—no
voluntary pooling allowed!—rather than proactively work with
Ammonite to avoid stranding and wasting the riverbed minerals in the
first place.   But resolving any such doubts at this point, or even
determining how to resolve them, is not the answer.
       Here is why. The Commission made no findings on whether



       15 In full, counsel explained: “Once you pool it, then everybody shares. . . .

There is a recovery by the people in the pool. EOG teamed with Ammonite.
So, at that point, if you ultimately get recovery, huzzah—everybody gets paid.
There’s no double recovery by Ammonite. There’s increased recovery by
everybody, which is what’s contemplated.” See also supra note 7 and
accompanying text.




                                        26
Ammonite proved its minerals were stranded and thus wasted,16 nor did
the Commission say anything about the feasibility of EOG de-stranding
the minerals. The Commission found only that “Ammonite offered no
expert witnesses or evidence of drainage areas of any wells.” (Emphasis
added.) Omitting any discussion of Ammonite’s minerals being stranded
is noteworthy given that stranding—not drainage—was the most viable
basis for Ammonite’s MIPA applications and that there is at least some
evidence of stranding.17
       The omission is “arbitrary” and “capricious” and reflects an “abuse
of discretion.” See Tex. Gov’t Code § 2001.174(2)(F).18 An “agency’s
decision is arbitrary or results from an abuse of discretion if the
agency . . . failed to consider a factor the legislature directs it to consider.”
City of El Paso v. Pub. Util. Comm’n, 

 (Tex. 1994).

       16 “In this Court, the Commission assumes Ammonite’s minerals are

stranded . . . .” Ante at 21.
       17 The  Court again uses Broussard to support the conclusion that
dismissal is proper where, as here, no minerals are being drained. See ante at 24
(quoting Broussard, 

). Broussard deserves no consideration
here. It addressed whether there was a fair and reasonable voluntary-pooling
offer under § 102.013(b). The court of appeals there did not reach the merits of
the forced-pooling application, and there was no argument regarding minerals
being “stranded” and thus “wasted” under § 102.011. See supra Part I.C
(discussing Broussard).
       18 The   Court focuses exclusively on “substantial evidence” in its two
citations of § 2001.174. See ante at 5–6 & n.15, 14 & n.31. But § 2001.174
provides for far more scrutiny than that—it expressly directs courts to remand
when an agency’s “findings, inferences, conclusions, or decisions are” “in
violation of a constitutional or statutory provision,” “affected by other error of
law,” or “arbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion.” Tex. Gov’t Code § 2001.174(2)(A), (D), (F).
Suggesting that “substantial evidence” is all that matters is inconsistent with
the governing statute. And here, the order must be set aside under § 2001.174(2)
for reasons that have nothing to do with “substantial evidence.”




                                        27
The Commission’s order fails to consider whether Ammonite’s minerals
were wasted (because of stranding) and, if so, whether forced pooling
could be ordered to prevent their stranding. Instead, the order reflects
the Commission’s erroneous belief that Ammonite had to prove drainage
to obtain pooling, even for the purposes of preventing waste. That belief
conflates the relationship between drainage (and protecting correlative
rights) with stranding (and preventing waste). See Tex. Gov’t Code
§ 2001.174(2)(D). So no matter how supported the Commission’s factual
findings may be, they do not support its legal conclusion that forced
pooling was improper for purposes of preventing waste under § 102.011.
                                * * *
      I would therefore reverse and remand either to the court of appeals
(to consider § 102.011 in the first instance, with attention to “stranding”
and “waste”) or, if we must address § 102.011 ourselves first, then to the
Commission (to reconsider and articulate clearer explanations of its
§ 102.013(b) and § 102.011 conclusions). It may very well be that, upon
further proceedings, Ammonite’s MIPA applications would still fall short.
But because the Commission’s order and the record before us do not yet
support that conclusion, I must respectfully dissent.



                                         Evan A. Young
                                         Justice
OPINION FILED: June 28, 2024




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