Recent Development by M.V. Massengale
The Davis Oil Company and the Steamboat Petroleum Corporation held separate mineral leases on adjacent properties in Calcasieu Parish, Louisiana. On March 28, 1984, Davis Oil applied to the Louisiana Commissioner of Conservation for a public hearing to consider its unitization plan for creating drilling units on its leased properties. The proposed plan did not include land leased by Steamboat. Steamboat subsequently filed a counterplan with the Commissioner, arguing that Davis Oil's plan was improper and suggesting new boundaries for the drilling units. In response, the Commissioner issued a compromise unitization plan, to become effective May 15, 1984. The plan included land on which both companies held leases and authorized three drilling unit wells, one of which had commenced production before the order became effective. Under the Commissioner's plan, Steamboat contributed 14.9949 acres (comprising 4.6859 percent of the tract) to one unit and 8.2858 acres (comprising 2.58931 percent of the tract) to the other unit. Davis Oil was appointed as the operator of the units and thus was authorized to drill the unit-wells. Although Steamboat was invited to participate in the drilling of each well on the basis of its interest, it declined to participate in the plan. Subsequently, both wells resulted in dry holes, and Davis Oil submitted invoices to Steamboat for its proportionate share of the costs: $90,567.31 for one well and $186,409.13 for the other. Steamboat refused to pay, claiming that Davis Oil's sole remedy for cost recovery would be reimbursement from Steamboat's share of production proceeds. Davis Oil filed suit, seeking cash payments from Steamboat for its proportionate share of the well costs. The Louisiana District Court of Jefferson Parish granted summary judgment for Steamboat and dismissed Davis Oil's claims, holding that a nondrilling co-owner may be required to pay its proportionate share of well costs in cash only if it has demanded the unitization. The Louisiana Court of Appeal for the Fifth Circuit reversed, reasoning that although Steamboat had not initiated the unitization proceedings, it had actively “sought to become part of the enterprise” and thus should “assume the risks associated with production from that unit.” The Louisiana Supreme Court reversed the court of appeal and reinstated the trial court's judgment, dismissing Davis Oil's claims with prejudice. The court found that Steamboat, as a nonoperating lessee, had filed the counterplan prior to the drilling of the dry holes only to prevent the uncompensated drainage of its land. Because Steamboat had neither expressly nor implicitly consented to Davis Oil's operations, the court held that Steamboat's liability for development and operations costs was limited to its share of production proceeds. Davis Oil Co. v. Steamboat Petroleum Corp., 583 So. 2d 1139 (La. 1991).
About the Author
M.V. Massengale.
Citation
66 Tul. L. Rev. 1067 (1992)