T D X Energy, L.L.C. v. Chesapeake Operating, Inc.
857 F.3d 253, 2017 WL 1961008, 2017 U.S. App. LEXIS 8462 (2017)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under Louisiana's forced pooling statutes, an operator's duty to provide accounting reports to 'owners of unleased oil and gas interests' extends to lessees whose interests are not leased to the operator, and failure to provide such reports upon request results in forfeiture of the right to contribution for drilling costs. Additionally, under the controlling version of the statute, an operator could only impose a risk charge on a non-participating owner if it provided notice before the well was completed.
Facts:
- The Louisiana Commissioner of Conservation created the 'HA RA SUH' drilling unit and designated Chesapeake as the operator.
- At the time drilling began, the oil and gas rights for approximately 63 acres within the unit were not leased to Chesapeake or any other party.
- Chesapeake commenced drilling the unit well on February 5, 2011, and completed it on July 19, 2011.
- Before the well was completed, Touchstone Energy LLC acquired the mineral leases for the 63 acres, but the leases were not recorded in public records until after drilling was finished.
- Touchstone transferred these leases to TDX Energy LLC.
- In late 2011, TDX notified Chesapeake of its interest and formally requested an accounting of the well's costs and production pursuant to state law.
- Chesapeake did not provide the requested reports to TDX.
- Instead of providing reports, Chesapeake sent TDX a letter asking it to elect whether to participate in the well's risk, a request made months after the well was already completed.
Procedural Posture:
- TDX filed suit against Chesapeake in the U.S. District Court for the Western District of Louisiana, seeking its share of well revenues without deductions for drilling costs.
- Chesapeake filed a counterclaim seeking a declaration that it was entitled to recover TDX's share of drilling costs plus a 200% risk charge.
- On competing motions for summary judgment, the district court held that the cost-forfeiture statute did not apply to lessees like TDX, ruling in favor of Chesapeake on that issue.
- The district court also held that Chesapeake's notice for the risk charge was untimely because it was sent after the well was completed, ruling in favor of TDX on that issue.
- Both parties appealed the adverse portions of the district court's judgment to the U.S. Court of Appeals for the Fifth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the Louisiana statute (La. R.S. § 30:103.2) requiring a drilling operator to provide reports to 'owners of unleased oil and gas interests' or forfeit drilling costs apply to a lessee whose mineral interests are not leased to the operator?
Opinions:
Majority - Judge Gregg Costa
Yes, the statute's reporting requirement applies to lessees whose interests are not held by the operator. Louisiana statutes §§ 30:103.1 and 30:103.2 must be read together. Section 103.1 obligates an operator to issue reports for lands upon which 'the operator or producer has no valid' lease, and the forfeiture penalty in § 103.2 applies to the owners of 'said interests.' The court interprets 'said interests' to refer to any mineral interest on land not leased by the operator, which includes lessees like TDX. This reading is consistent with Louisiana appellate court precedent and aligns with the statute's purpose of correcting the information asymmetry between operators and non-operating interest holders. Because Chesapeake failed to provide the requested reports, it forfeited its right to demand contribution for drilling costs from TDX. The court also held that Chesapeake could not collect a risk charge because the applicable version of the statute, which referred to an owner 'drilling or intending to drill,' required notice to be sent before the well was completed; Chesapeake's notice was untimely.
Analysis:
This decision clarifies a significant ambiguity in Louisiana's oil and gas conservation laws, expanding the protections of the statutory accounting requirement to include non-operating lessees. By interpreting 'unleased' from the perspective of the operator, the ruling places a clear burden on operators in forced pooling units to be transparent with all interest holders with whom they have no contractual relationship. This precedent strengthens the position of non-operating working interest owners by giving them a powerful tool to compel disclosure or, alternatively, to avoid liability for drilling costs if the operator fails to comply. The decision underscores the judiciary's focus on statutory purpose—in this case, mitigating information imbalances—when interpreting ambiguous legislative text.
