Ohio Oil Company v. Indiana

Background

A person who had bored for oil and gas in Indiana challenged a state law, arguing that enforcing the law against them took private property without fair compensation under the Fourteenth Amendment. The record shows oil and gas sit together in a common underground reservoir that can flow from place to place, so any well that taps the reservoir can reduce the overall supply available to other surface owners.

Reasoning

The Court considered whether the special nature of oil and gas — their mobility and lack of a fixed location below one owner’s land — makes them different from other minerals. The Court explained that ownership in oil and gas does not arise until they are actually brought to the surface. Surface owners have the exclusive right to try to obtain them, but one owner’s drilling or waste can injure the rights of others. Because the resource is shared and subject to waste, the State may lawfully regulate how oil and gas are taken to protect all owners. The Court concluded the Indiana statute is a proper state regulation to prevent waste and does not amount to an unconstitutional taking of private property.

Real world impact

The decision means Indiana may enforce rules that prevent burning off or allowing natural gas to escape and may limit drilling methods that would waste a common supply. Landowners and operators in a gas field must follow state conservation rules and cannot automatically claim compensation when the State limits wasteful extraction. The Court left questions of policy and the wisdom of particular rules to state lawmakers.