Knighton v. Texaco Producing, Inc.
1991 U.S. Dist. LEXIS 4763, 117 Oil & Gas Rep. 49, 762 F. Supp. 686 (1991)
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Rule of Law:
Under Louisiana law, a Commissioner of Conservation order that establishes a unit for mineral recovery does not create a forced-pooled unit unless it contains explicit language mandating the pooling of interests and the sharing of production.
Facts:
- Lodwick Lumber Company originally owned a 640-acre tract of land in Bossier Parish, Louisiana.
- In 1934, Lodwick sold one-half of the mineral rights in the tract to the predecessors of Commercial National Bank (CNB).
- Lodwick and CNB's predecessors then granted a single mineral lease over the entire 640-acre tract to an oil company that was a predecessor to Texaco Exploration & Production, Inc.
- Over time, ownership of the mineral interests in the 640-acre tract became divided among several parties into four distinct tracts (Tract 1, 2, 3, and 4), owned by the Travis Group, the Lodwick Group, and CNB.
- The oil beneath the tract was highly viscous, like vaseline, and required a special 'fire flood' or thermal recovery method for extraction.
- In 1970, the Louisiana Commissioner of Conservation issued Order 196-C, which created a 'thermal recovery unit' covering the tracts at issue to regulate this secondary recovery method.
- Order 196-C did not contain any language expressly requiring the pooling of interests or the sharing of production among the mineral owners within the unit.
- Texaco drilled numerous producing wells on Tract 1, which was owned by the Travis Group, but the plaintiffs (Lodwick Group and CNB) owned interests in other tracts within the unit that were not productive.
Procedural Posture:
- Commercial National Bank (CNB), the Knighton Group, and Margaret M. Wilhelm (collectively, the plaintiffs) sued Texaco Exploration & Production, Inc. in federal court.
- The Lodwick Group plaintiffs also asserted a cross-claim against the Travis Group defendants.
- The separate cases were removed to federal court based on diversity jurisdiction and were consolidated for trial.
- The case proceeded to a five-day bench trial in the United States District Court for the Western District of Louisiana.
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Issue:
Does a Louisiana Commissioner of Conservation order that creates a 'thermal recovery unit' but lacks explicit language requiring forced pooling, nevertheless create a forced-pooled drilling unit entitling all mineral owners within the unit to share in production from any well inside the unit?
Opinions:
Majority - Little, District Judge.
No. A Commissioner of Conservation order does not implicitly create a forced-pooled unit; it must contain explicit language to that effect. The court held that Order 196-C did not establish a forced-pooled drilling unit because it lacked any specific language mandating the sharing of production among mineral owners. The court's reasoning was based on several points: First, the order's plain language was unambiguous and simply created 'thermal recovery units' without mentioning pooling. Second, the court rejected the plaintiffs' reliance on older cases, noting that those cases involved orders that, unlike Order 196-C, contained explicit pooling provisions. Third, expert testimony established that since at least the 1960s, the industry custom and administrative practice in Louisiana has been to include clear and explicit pooling language in any order intended to have that effect. Finally, the order was issued under the Commissioner's authority to regulate secondary recovery methods (La.Rev.Stat.Ann. 30:4), not the specific authority to create drilling units and compel pooling to prevent waste (La.Rev.Stat.Ann. 30:9(B)).
Analysis:
This decision solidifies the principle that forced pooling in Louisiana is a function of explicit administrative command, not implication. It clarifies that the creation of a 'unit' by the Commissioner of Conservation does not automatically trigger production sharing rights for all owners within that unit. The ruling emphasizes the importance of reading the 'four corners' of a conservation order and highlights the distinction between different statutory authorities under which the Commissioner operates. This provides greater certainty to mineral operators and lessors, as it prevents courts from retroactively imposing pooling obligations where an order is silent, thereby reinforcing the need for precise language in administrative orders affecting property rights.
