from the United States District Court for the Western
District of Louisiana
PRADO, HIGGINSON, and COSTA, Circuit Judges.
COSTA, Circuit Judge
Anthony F. Lucas struck oil in the Spindletop salt dome in
Texas in 1901. A black oil plume erupted to twice the height
of the drilling derrick, and the well produced a record 800,
000 barrels of oil within nine days. Others rushed to seize a
share of the abundance. Wells were "drilled as close
together as physically possible"; "on occasion four
wells were drilled beneath one derrick
floor." In short order, there were 440 wells on
Spindletop's 125-acre hill. Another 600 were drilled
around the hill. This is how it looked:
a few years, most of the wells were dry. As Captain Lucas
remarked, the oil was "milked too hard" and
"not milked intelligently."
prevent this "tragedy of the commons, " states have
enacted regulations in the years since Spindletop.
Louisiana's "forced pooling" regime is the
subject of this case. It allows the government to authorize a
single operator to drill for oil and gas even when all
parties possessing oil and gas interests in the drilling area
have not agreed to go forward. The Louisiana statutory scheme
thus has to address a number of issues that contracts usually
decide, such as how to allocate costs and risk among those
holding interests in the oil and gas. We are presented with
questions of statutory interpretation about this scheme's
disclosure and risk-fee provisions.
Spindletop is an extreme example, similar wasteful
overproduction was once common. A cause was the "rule of
capture, " the common law doctrine initially used in
hunting disputes to determine ownership of wild animals
unconstrained by property borders. Rance L. Craft, Of
Reservoir Hogs and Pelt Fiction: Defending the Ferae Naturae
Analogy Between Petroleum and Wildlife, 44 Emory L.J.
697, 708-09 (1995). Taught during the first days of law
school, the doctrine says if you catch it first, it is yours.
See Pierson v. Post, 3 Cai. 175 (N.Y. Sup. Ct.
1805). Courts later applied the doctrine to oil and natural
gas, reasoning that they too cross property borders as they
seep and spill through crevices underground. See Brown v.
Spilman, 155 U.S. 665, 669-70 (1895). In that context,
the rule means a landowner has a property right in oil and
gas produced from wells on the owner's land, whether or
not it migrated from other lands. Id. at 670
("If an adjoining owner drills his own land, and taps a
deposit of oil or gas, extending under his neighbor's
field, so that it comes into his well, it becomes his
property."); Robert E. Hardwicke, The Rule of
Capture and Its Implications As Applied to Oil and Gas,
13 Texas L. Rev. 391, 393 (1935). So, under the common law,
one landowner could drain an entire reservoir through wells
on the landowner's property, even if the reservoir
extended under others' lands. Naturally, surrounding
owners usually would not sit idly by while valuable resources
drained out from under them; instead, they raced to produce
all the oil and gas they could through their own property,
often drilling multiple wells to extract resources as quickly
as possible. Frank Sylvester & Robert W. Malmsheimer,
Oil and Gas Spacing and Forced Pooling Requirements,
40 U. Dayton L. Rev. 47, 49 (2015). At Spindletop and
elsewhere, this drove up production costs, reduced oil and
gas market prices, and unnecessarily decimated the
intervened, creating often complex regimes to regulate
drilling. First, they created spacing laws, which prevent
wells from being drilled too close together. Id. at
47-48. Then, to protect landowners who, as a result of
spacing laws, were no longer able to drill on smaller tracts
of land, they created pooling laws, which allow owners of
adjacent tracts to combine their interests to form drilling
units that meet spacing requirements. Id. Many
states also have "forced pooling laws, " which
force unwilling owners to be part of a drilling unit in order
to protect their neighbors' rights to benefit from their
mineral rights and to promote states' interests in
preventing waste and promoting economic activity.
Id. at 48.
is one such state. Its Commissioner of Conservation
designates drilling units whenever necessary to prevent waste
or avoid needless drilling, even if owners of oil and gas
interests have not agreed to pool their interests. La. R.S.
§§ 30:9(B), 30:10(A)(1). Once a unit has been established, the
Commissioner may appoint an operator to extract oil and gas
from a reservoir. Hunt Oil Co.
v. Batchelor, 644 So.2d 191, 196 (La. 1994). The
operator is responsible for drilling within the unit but pays
a proportionate share of production to owners of oil and gas
interests for any acreage on which the operator does not have
an oil and gas lease. La. R.S. §
30:10(A)(1)(b); Amoco Prod. Co. v. Thompson, 516
So.2d 376, 392 (La.App. 1 Cir. 1987). If those other owners
have leased their mineral interests to another party,
operators often pay the lessee in kind and the lessee markets
and sells the oil or gas, then pays its lessor royalties; if
not, the operator often sells production and makes a cash
payment to the owner. King v. Strohe, 673 So.2d
1329, 1338-39 (La.App. 3 Cir. 1996); see also La.
R.S. § 30:10(A)(3).
corollary to this scheme for sharing the benefits of unit
production in the absence of a contract, Louisiana law
contains mechanisms for sharing drilling risks and costs.
See Sylvester & Malmsheimer, supra, at
62-67. Each oil and gas interest owner is responsible for a
share of development and operation costs. La. R.S. §
30:10(A)(2). To prevent free riding, the statute creates a
mechanism for sharing the risk that a well, once drilled,
will not produce enough to cover drilling costs. Id.
The operator gives notice to oil and gas interest owners
regarding the drilling of a well, allowing owners to elect to
participate in the risk by contributing to drilling costs up
front. Id. § 30:10(A)(2)(a)(i). If an owner
does not participate, and the well produces, the operator can
recover out of production the nonparticipating owner's
share of expenditures along with a risk charge of two hundred
percent of the owner's expenditure share. La. R.S. §
30:10(A)(2)(b)(i); see also Keith Hall,
Louisiana Oil and Gas Update, 19 Tex. Wesleyan L.
Rev. 361, 365-66 (2013).
also requires operators to share information about the costs
and production other owners share under this scheme. Section
103.1 of Title 30 creates an obligation for operators to
issue upon request reports containing sworn statements about
drilling and operating costs, amount of production, and the
price received for any sale of production. La. R.S. §
30:103.1. Section 103.2 provides that when an operator does
not provide this information within ninety days of completing
a well and thirty additional days of receiving notice of its
failure to comply with section 103.1, it cannot collect
drilling costs. La. R.S. § 30:103.2.
of this forced pooling regime, the Commissioner of
Conservation created an approximately 640-acre drilling unit
called "HA RA SUH" in DeSoto Parish. Chesapeake,
which held a number of oil and gas leases in this unit, was
named the operator. The unit well was "spud"
(drilling commenced) on February 5, 2011, and was completed
on July 19, 2011. When the well was spud, the oil and gas
rights for approximately 63 acres in the unit had not been
leased to Chesapeake or any other party (that is, the land
owners still held their mineral interests). Touchstone Energy
LLC acquired those rights through leases dated before
drilling was completed (July 15) but not recorded until after
drilling ended (between July 22 and September 14). Touchstone
later transferred these leases to TDX with an effective date
retroactive to the September 14th date of the final
2011, TDX notified Chesapeake of its interests and requested
an accounting in accordance with section 103.1. About six
weeks later, TDX followed up, telling Chesapeake that it was
failing to comply with the statute. Chesapeake did not
provide reports. Instead it sent TDX a letter asking TDX to
make an election whether to participate in the well's
risk under section 10(A). TDX responded that the notice was
untimely, so TDX was not required to make an election, and
Chesapeake could not collect a risk charge. Finally, TDX
wrote Chesapeake that by not providing the cost and
production data, Chesapeake had forfeited its right to
contribution for drilling costs.
filed suit seeking its share of revenues from the unit well
without deduction of drilling costs because Chesapeake did
not provide the requested reports. It also sought an order
directing Chesapeake to provide the reports. In addition to
disputing these claims, Chesapeake filed a counterclaim
seeking a declaration that it was entitled to recover
TDX's share of costs incurred in drilling, testing,
completing, equipping, and operating the well, plus a risk
charge of two hundred percent of TDX's share because TDX
did not elect to pay a risk fee.
competing motions for summary judgment, the district court
held: (1) section 103.2 was inapplicable because TDX was
leasing the oil and gas interests, so Chesapeake's
failure to provide the reports did not excuse TDX from paying
its share of drilling costs; and (2) section 10(A) did not
allow Chesapeake to collect a risk charge because it had not
provided TDX timely notice that it was drilling the unit
well. Each party appeals the adverse portion of the judgment.
We review these questions of statutory interpretation de
novo. Woodfield v. Bowman, 193 F.3d 354, 358
(5th Cir. 1999).
claims that Chesapeake cannot deduct drilling costs because
Chesapeake forfeited that right under section ...