gated (Board of Water Control v. McKnight, 229 S. W. 301; Dockery v. State, 247 S. W. 408; City of San Antonio v. Zogrieb, 70 S. W. (2d) 333; c/f Panhandle Co. v. Highway Comm. 294 U. S. 613).

Because of the view we entertain and have expressed, that the commission is entirely without power under the act to prorate plaintiffs' production on a theory of correlative rights, and because there are no waste conditions in the sweet-gas area, it is equally without power to prorate it on the theory of waste, we find it unnecessary to consider or decide the subordinate questions complainants raise on the orders. On the view we take of the case before us the particular formulas the commission has now adopted, the particular bases it has assumed for its proration, are unimportant. The evidence makes out a case for relief because it is plain, so that all may see, that under the statute as it now exists there are no waste conditions in the sweet-gas area which the order is designed to or will remove or affect; but masked under the guise of regulation it is the exercise of coercion to take from one to give to another.

The force of government in America may not be exerted to bring about such partial, such unjust effects.

"Recognizing the difficulty in defining with exactness the phrase 'due process of law' it is certain that these words imply a conformity with natural and inherent principles of justice, and forbids that one man's property or right to property shall be taken for the benefit of another, or for the benefit of the State, without compensation." Holden v. Hardy (169 U. S. 390).

"Justice is the bond of men in States, and the administration of justice, which is the determination of what is just, is the principle of order in political society." The Politics of Aristotle (p. 5, World's Great Classics).

"Justice is the end of government; it is the end of civil society. It ever has been and ever will be pursued until it be obtained, or until liberty be lost in the pursuit." The Federalist, no. 50.

"Governments have in general but two means of overcoming the opposition of the people they govern, viz: The physical force which is at their disposal, and the moral force which they derive from the decisions of the courts of justice."

*

"The great end of justice is to substitute the notion of right for that of violence, and to place a legal barrier between the power of the government and the use of physical force." DeTocqueville, Democracy in America (p., 138). This is the principle of democracy in America: The spirit of its laws. The fifth and the fourteenth amendments to the Federal Constitution, and article I, section 17, of the Texas constitution are based upon a recognition of this principle. Because they are, though they do not operate to prevent the reasonable and just exercise of the police power of the State, they do limit its exertion within just and reasonable bounds.

"The police power of a State, while not susceptible of definition with circumstantial precision, must be exercised within a limited ambit and is subordinate to constitutional limitations. It springs from the obligation of the State to protect its citizens and provide for the safety and good order of society. Under it there is no unrestricted authority to accomplish whatever the public may presently desire. It is the governmental power of self-protection and permits reasonable regulation of rights and property in particulars essential to the preservation of the community from injury." Panhandle Company v. Highway Commission, 294 U. S. 613.

"Vague, shadowy, and shifting though the limits of this power sometimes appear to be, it is settled that in the exercise of the police power a State may take, damage, or destroy private property without compensation when the public necessity, the public health, or the public safety require it to be done. Because, however, these limits are shadowy, vague, and apparently shifting, it is in the last analysis for the courts to say whether questioned action has properly called into being the exercise of the power, and whether the power is being exercised reasonably and within the limits of public necessity. Spann v. City of Dallas, 11 Tex. 357; Peoples Petroleum Producers v. Sterling, 60 Fed. (2d) 1041; Pennsylvania Coal Co. v. Mahon, 260 U. S. 393." Hulen v. City of Corsicana, 65 Fed. (2d) 969.

This controversy has been long drawn out. In varying forms under different statutes, but always to the same purport and effect as to these complainants, order after order has been drawn, enjoined, and drawn again. This is the fifth time this court has written. Texoma Natural Gas Co. v. R. R. Comm., 59 Fed. (2d) 750; Texoma Natural Gas Co. v. Terrell, 2 Fed. Supp. 168; Canadian River Gas Co. v. Terrell, 4 Fed. Supp. 222; Texas Panhandle Gas Co. v. Thompson, 12 Fed. Supp. 462. From none of these decisions was an appeal taken.

If the principles on which we have proceeded have been wrongly taken, this should be determined by an appeal. Continued litigation of these questions in the trial court will not settle them. Contested matters of this kind should be settled, litigation should be brought to an end.

A decree for complainants in accordance with this opinion may be settled and filed.

The clerk will file this opinion and notify the attorneys.

MARCH 30, 1936.

MCMILLAN, Judge. Endorsed: In the District court of the United States for the Western District of Texas. Equity No. 539, Consolidated Gas Utilities Corporation, Complainant v. Ernest O. Thompson et al., defendants. Equity No. 550, Texoma Natural Gas Co., complainant v. Ernest O. Thompson et al., defendants. Opinion of the court. Filed: March 31, 1936, D. H. Hart, Clerk, by Joe Steiner, deputy.

In the District Court of the United States for the Western District of Texas, Austin Division-The Henderson Company v. Ernest O. Thompson et al., no. 535, in equity, and Portland Gasoline Company v. Ernest O. Thompson et al., no. 581, in equity

Before Hutcheson, Circuit Judge, and Kennerly and McMillan, District Judges. MCMILLAN, District Judge: These two cases are now before the court for final hearing on the merits. While there are slight variations in the facts with regard to the two complainants the general principles underlying the cases are the same, and the two cases while not consolidated, were tried together and may be disposed in the one opinion.

The Henderson case has been before this court before on application for preliminary injunction. Henderson Co. v. E. O. Thompson et al., Fed. Supp. 519. The Portland case has not heretofore been before the court on application for preliminary injunction, but the complainant, while continuing to press for temporary relief, has agreed, in open court, with respondents that the case will be considered as also finally submitted on its merits. The Henderson Co. is a Maine corporation and the Portland Co, is a Delaware corporation, and the court has jurisdiction in both cases, both because of diversity of citizenship and Federal question, coupled with the requisite amount in controversy. Jurisdiction in equity is also apparent on the face of the records.

Complainants assail House bill 266, chapter 20, passed by the forty-fourth legislature, regular session, 1935, and certain orders of the Railroad Commission purporting to have been made by virtue thereof. Their grievance against the statute lies in the restrictions which it places upon the use of sweet gas. Their attack against the orders of the commission is incidental inasmuch as these orders simply purport to carry out the mandate of the statute and classify certain of complainants' wells as sweet and sour. While the bills of complaint also attack the orders of the commission with regard to the proration features thereof, that phase of the matter has been expressly abandoned by the Henderson Co. insofar as this case is concerned by statements made in its briefs, and impliedly by the Portland Co. by its failure to press that contention, either in its evidence or its briefs.

Accordingly, the matter at issue narrows down to whether the action of the legislature in restricting the uses to which sweet gas may be put and in defining what constitutes sweet gas, is unconstitutional as applied to complainants. The statute insofar as it is called in question here will, for convenience, be footnoted in this opinion.1

1 (Acts 44 Leg., 1935.

Vernon's Ann. Civ. Stat. (Supp.) (Art. 6008)

SECTION 1. DECLARATION OF POLICY. In recognition of past, present, and imminent erils occurring in the production and use of natural gas, as a result of waste in the production and use thereof in the absence of correlative opportunities of owners of gas in a common reservoir to produce and use the same, this law is enacted for the protection of public and private interests against such evils by prohibiting waste and compelling ratable production.

Article 6008 (of the R. C. S. of Texas of 1925 as amended, etc.) is hereby amended so as to hereafter read as follows:

"SEC. 2. Unless the context otherwise requires, the words defined in this section shall have the following meaning when used in this article to wit:

"(g) The term 'sour gas' shall mean any natural gas containing more than 1% -grains of hydrogen sulphide per 100 cubic feet or more than 30 grains of total sulphur

Complainants either by contract or ownership have been taking gas from a great number of wells in the Panhandle field in Texas, and after stripping same for its gasoline content and using a part of the remainder for plant and lease purposes, delivering the residue by virtue of contract to certain carbon-black plants, where that gas is burned for the purpose of making carbon black without further use being made thereof. After the passage of the statute attacked the railroad commission conducted a series of tests and classified complainants' wells as sweet or sour. A great majority of the Henderson Co.'s wells have been classified as sweet and the allowable from its sour wells is insufficient to cover its requirements. Thirteen of the Portland Co.'s wells produce casinghead gas, which may be used for carbon-black manufacture, but the production from these wells, coupled with its allowable from its sour gas wells, is insufficient to meet its requirements.

The rub with regard to both complainants lies in the inhibition in the statute against the use of sweet gas for the manufacture of carbon black. If complainants were allowed to use the gas from their sweet wells to fulfill their contracts with the carbon-black companies, they would be without complaint so far as the present case is concerned. Accordingly, as indicated, the matter finally narrows down to the question whether the legislature was within the law in defining what constitutes sweet and sour gas and forbidding the use of sweet gas for the making of carbon black.

Complainants attack the statute on substantially three grounds, one of which divides itself into two propositions. First, they assert that the statute bears no reasonable relationship to the prevention of waste and, accordingly, is not a conservation of the natural resources of the State and constitutes an unreasonable interference with and confiscation of their property; second, they assert that the statute unlawfully discriminates between the owner of sweet and sour gas, and as a further proposition in this connection, they say that the definition of sour gas contained in subdivision (g) of section 2 is without basis or foundation in fact and accordingly void; third, they assert that the operation of the statute impairs the obligation of their contracts with the carbon-black companies in violation of the Constitution of the State of Texas.

The case has been thoroughly developed by experts' affidavits introduced by agreement of the parties, by oral testimony, and by numerous maps, exhibits, and much documentary evidence. It has been thoroughly argued and fully and carefully briefed by both sides. The evidence has taken a wide range, and it is impracticable to do more than summarize it and refer to it briefly in the course of this opinion.

The carbon-black industry has been nomadic, journeying from field to field ever in quest of cheap gas. For over 60 years it has existed in this country,

per 100 cubic feet, or gas which in its natural state is found by the Commission to be unfit for use in generating light or fuel for domestic purposes.

gas.'

"(h) The term 'sweet gas shall mean all natural gas except 'sour gas' and 'casinghead "(i) The term 'casinghead gas' shall mean any gas and/or vapor indigenous to an oil stratum and produced from such stratum with oil.

"(j) The term 'natural gasoline' shall apply to gasoline manufactured from casinghead or from any natural gas.

"SEC 3. The production, transportation, or use of natural gas in such manner, in such amount, or under such conditions as to constitute waste is hereby declared to be unlaw ful and is prohibited. The term 'waste', among other things, shall specifically include:

"(j) The use of sweet gas produced from a gas well for the manufacture of carbon black.

"SEC. 7. After the expiration of 10 days from the time of encountering gas in a gas well, no gas from such well shall be permitted to escape into the air, and all gas produced therefrom shall be utilized for the following purposes:

"(1) No sweet gas shall be utilized except for:

"(a) Light or fuel.

"(b) Efficient chemical manufacturing, other than the manufacture of carbon black. (c) Bona fide introduction of gas into oil, or gas bearing horizon, in order to maintain or increase the rock pressure or otherwise increase the ultimate recovery of oil or gas from such horizon.

"(d) The extraction of natural gasoline therefrom when the residue is returned to the horizon from which it is produced.

"(2) In addition to the purposes for which sweet gas produced from a gas well may be used, sour gas may be used for efficient chemical manufacturing purposes, including the manufacture of carbon black, provided it is utilized in a plant producing a recovery of not less than 1 pound of carbon black to each 1.000 cubic feet of gas; and provided further, that the gasoline content is removed and saved from such sour gas before the same is utilized for carbon black.

"(3) Casinghead gas gas may be used for any beneficial purpose, which includes the manufacture of natural gasoline."

moving generally westward, first in Pennsylvania, then in West Virginia, then Louisiana, then Kentucky, and latterly coming into Texas, Oklahoma, Utah, Montana, and Wyoming. As the various States tightened their regulations by statutes and orders, the industry moved on until now it is largely centered in the Panhandle field of Texas, and from that giant reservoir approximately 80 percent of the carbon black manufactured today is being derived. There have been few improvements made in the method of manufacturing since 1892, the one commonly employed, and employed by complainant, being the channel process. It is unnecessary to describe this process here, as it is fully described by the Supreme Court in Walls v. Midland Carbon Co. (254 U. S. 300). Either sweet or sour or casing-head gas may be used in its production, and from the burning of 1,000 cubic feet of gas approximately 11⁄2 pounds of carbon black is made. The gas is entirely used in the manufacture of carbon black, and there is no residue that can be devoted to any other useful purpose. Carbon black is worth about 4 cents a pound. From the gas before its ultimate burning there is stripped a fraction of a gallon of gasoline, which is worth from 2 to 3 cents. A producer of sweet gas who is able to market same for statutory purposes receives about 3 or 4 cents a thousand in the field. When delivered at the burner tips it sells for various greatly increased amounts. The producers of gas who sell to the companies that strip it and then burn it for carbon black receive less than a cent per thousand cubic feet. Sweet gas is available without treatment for fuel and light, but sour gas cannot be so used without being scrubbed or processed, as the hydrogen sulphide content makes it corrosive, thereby injuring the pipe lines, equipment, burners, and other mechanical appliances through which it has to pass. addition thereto, its odor and detrimental effect on the health of persons adjacent to it when burning renders it undesirable to use for fuel or light. There is evidence in the record to indicate that probably as much as 30 pounds of carbon can be removed from 1,000 cubic feet of gas by other processes than those used by complainants. The evidence would also indicate that this carbon so recovered is not what is commonly known as carbon black, inasmuch as it is coarser in its texture and not available for many of the uses to which carbon black is put. There is some indication that restriction upon the use of gas may cause advancement in the industry which will recover a greater yield of carbon black, but up to the present time there is no indication that any better methods have been developed than the channel process.

In

Carbon black has a wide range in its usefulness, it being used in the manufacture of printer's ink, automobile tires, rubber products, paint, varnish, typewriter ribbons, colored paper, lacquers, stove polish, shoe polish, bookbinders' board, crayons, golf balls, tarpaulins, insulating material, phonograph records, cement, tile, and artificial stone. So far as is known, it can only be manufactured from natural gas.

There are 29 carbon-black plants operating in the Panhandle field, with an average consumption of approximately 550,000,000 cubic feet per day. This amount is only slightly less than the average daily amount taken by all the pipe lines for fuel and light purposes. When the carbon-black industry first came into the Panhandle field, it practically used only casing-head gas, but afterward, by virtue of amended statutes and orders, it commenced to use, in addition thereto, both sweet and sour gas. The Panhandle field is the largest gas field known in the world today. It has a length of about 125 miles and varies in width from 10 to 40 miles. While the field is apparently a common reservoir, there is a line of demarcation which fairly separates the sour-gas area from the sweet-gas area. Along the sour-gas area are oil fields and in the past great waste of gas has taken place adjacent to those fields. Accordingly, as a general thing the pressures in the sour-gas area are lower than those in the sweet-gas area. Lowering the pressure tends to cause migration from higher-pressure areas to lower-pressure areas, but the length of time which it takes to accomplish this is not definitely known. Expert opinion, based upon substantial facts, sustains the view that there is enough sour gas in reserve in the Panhandle field to fulfill the world's requirements of carbon black for many years to come.

The statement of facts with regard to this vast field and the carbon-black industry might, on the record as it now stands, be protracted indefinitely. We consider it unnecessary to go into the matter any further for the purposes of this decision. The matters have been covered generally by this court in many other cases involving this same field.

In line with complainants' contentions, it is first necessary to consider whether the statute has any reasonable relationship to the conservation of

the natural resources of the State and the prevention of waste. We held on the application for preliminary injunction in the Henderson case that the mere legislative declaration of waste was not conclusive if facts could be adduced which clearly indicated the contrary. The constitution of the State of Texas delegates to the legislature the power to conserve the natural resources of the State, and that gas constitutes one of those natural resources is now too well settled to admit of further controversy.

Regulations looking to the conservation of gas and the prevention of its waste may be validly made, and if they have a reasonable relationship to those things it is immaterial that they interfere with the uses which the individual' may desire to make of his property. A Texas landowner owns the gas in place under his land, and he may withdraw the same by mining operations; and if in the course of so doing, part of his neighbor's gas migrates to his land,. he may withdraw that gas without liability. The statement of these facts, coupled with the known migratory character of gas, immediately makes it apparent that there must be some limitations upon these property rights which exist in the landowner. While he has the unquestioned right to withdraw his gas, and such gas as may migrate to his land, it is perfectly evident that if he does so in a wasteful manner or for a wasteful purpose he has exceeded any property right which he may have been thought to have had.

The migratory nature of gas distinguishes it from other minerals which are fixed. An owner of a coal mine or of a sulphur mine might withdraw his minerals and destroy them without injury to his neighbor, other than such injury as he sustains in common with the general public in that economic loss;: but the owner of a gas well, who, under the capture doctrine, withdraws gas which has theretofore been his neighbor's and uses it wastefully, thereby not only destroys a natural resource of the State but impinges upon the rights of others in the common reservoir.

These principles, so far as matters pertaining to underground waste per se,. such as operations which cause channeling, coning, entrapment, etc., are concerned, are now undisputed. There is no good reason why they should not equally apply to forbid the withdrawal of gas from a common reservoir to be wastefully used above the ground. The effect of the statute is in fact to regulate the gas in the reservoir by preventing its withdrawal for use in a wasteful manner.

It is thoroughly settled that the popping off of gas into the air is a wasteful practice which may be forbidden, that the production of an oil well with an inefficient gas-oil ratio may be stopped, that gas wells may under certain circumstances be ordered plugged, and the stripping of gas for the purpose of securing its gasoline content may be prohibited. (See Lindsley v. Natural Carbonic Co., 200 U. S. 61; Ohio Oil Co. v. Indiana, 177 U. S. 190; Bandini Petroleum Co. v. Superior Court, Los Angeles County, California, 284 U. S. 8; and F. C. Henderson, Inc., v. Railroad Commission, 56 Fed. (2) 218.)

If this be true, how can it be successfully argued that it lies beyond the power of the State to forbid the burning of sweet gas to manufacture carbon black. It is unquestionably true that carbon black is a useful product necessary to the commerce of the world, but the same can be said of gasoline. If the stripping of gas to obtain gasoline is held to be wasteful, as was done in the Henderson case, because of the disproportion between the large amount of gas used and the small amount of gasoline recovered, is there any legitimate reason why the same rule should not be applied to the manufacture of carbon black? Is the legislature not entitled to consider and determine whether the results obtained by destroying this natural resource are commensurate with the injury that is done?

The question of the value of the product obtained as compared to the value of the raw gas is not at all determinative of the matter. We are not convinced that complainants' method of approach—that is to say, the value of a pound of carbon black plus the gasoline stripped-as compared to the sale price in the field of a thousand cubic feet of gas is correct. Many contingencies enter into the value of these two commodities which are not covered by the simple statement of their market price in the field. However, regardless of that question, the matters of value are not controlling. The question of the utility of carbon black as against the utility of sweet gas for light and fuel does not finally determine the issue. As said by the Supreme Court in the Walls case in passing on that contention:

"The fact, however, is but of incidental importance. The determining consideration is the power of the State over, and its regulation of, a property in