Eads Operating Co., Inc. v. Thompson

• Decision Date: 20 December 1988
• Docket Number: Nos. 87,s. 87
• Citation: 537 So.2d 1187
• Parties: EADS OPERATING COMPANY, INC., et al. v. Honorable Herbert W. THOMPSON, Commissioner of Conservation of the State of Louisiana. (Two Cases) CA 1743, 88 CA 1007.
• Court: Court of Appeal of Louisiana — District of US

Page 1187

537 So.2d 1187

EADS OPERATING COMPANY, INC., et al. v. Honorable Herbert W. THOMPSON, Commissioner of Conservation of the State of Louisiana. (Two Cases)

Nos. 87 CA 1743, 88 CA 1007.

Court of Appeal of Louisiana First Circuit.

Dec. 20, 1988.

Writ Denied March 3, 1989.

Patrick S. Ottinger, Lafayette, for plaintiff-appellee Eads Operating Co., Inc., et al.

George Gibson and Darryl J. Hebert, Eunice, for defendant-2nd appellant Herbert W. Thompson.

John A. Gordon, New Orleans, for defendant-appellee Wainoco Oil and Gas Co., and Jones Exploration Co.

Minos D. Miller, III, Edwin Hunter, Lake Charles, for defendants intervenors 1st appellants.

Before CARTER, LANIER and LEBLANC, JJ.

CARTER, Judge.

This is an appeal from a trial court judgment granting a motion for summary judgment and determining the entitlement to production proceeds from a producing well known as the Roland Richard No. 1 Well.

Background

On March 19, 1948, owners of leases in the West Tepetate Field, Acadia and Jefferson Davis Parishes, Louisiana, entered into a field-wide unitization agreement. This private contractual agreement was entitled "Unit Operating Agreement" and covered the Miller No. 1 Zone and the Miller No. 3 Zone. ¹ The royalty owners in the field entered into a unitization agreement entitled "Royalty Owners Unitization Agreement" on April 1, 1948. The unit created by these agreements, collectively referred to as the "unitization agreements," sought to install and operate a pressure maintenance system for the two reservoirs to maximize production.

Barnsdall Oil Company, designated as operator of the "unit area," ² was to maintain reservoir pressure by injecting water and gas into the previously drilled dry holes or injection wells and to produce through whichever wells were most advantageous to the unit area. All leases in the unit area were pooled and unitized as though only one lease existed, and the unitization agreements provided for division of production according to the equity percentage assigned to each leased tract. ³ The equity percentage values were based upon a determination of the total volume of economically recoverable oil and gas in place in both zones as the zones underlay each leased tract. The unitization agreements also provided that the agreements would remain in full force and effect as long as production is or can be produced in paying quantities in the unit area or any part thereof and until all operations had been abandoned and all materials had been salvaged and divided among the parties in proportion to their interests.

Following lengthy hearings in 1948, the Commissioner of Conservation of the State of Louisiana (Commissioner) issued Order No. 97-A-1, dated May 17, 1948, which provided as follows:

1. That the Miller No. 1 Zone and the Miller No. 3 Zone in the Unit Area of the West Tepetate Field be developed and operated as units and that suitable and proper pressure maintenance operations in each of said pools as a unit be conducted by the operator of the Unit Area.

2. That all separate ownerships in the Miller No. 1 Zone and the Miller No. 3 Zone in the Unit Area of the West Tepetate Field, including perfect ownership, mineral interests, royalty interests, oil and gas leasehold interests, and all other interests relating to or carved out of any of the above are hereby pooled, integrated, and unitized.

3. That the Unit Operation Agreement for Miller No. 1 Zone and Miller No. 3 Zone, West Tepetate Field, dated March 19, 1948, as amended, and the operations and participations set forth in said agreement are hereby approved.

4. That the Royalty Owners Unitization Agreement for Miller No. 1 Zone and Miller No. 3 Zone, West Tepetate Field, dated April 1, 1948, the form of which has been introduced in evidence at this hearing of April 30, 1948, is hereby approved.

5. That operation of the Unit Area as a unit and participation therein as a unit shall be commenced on the 1st day of June, 1948.

6. That all production obtained from all wells in the Unit Area shall be shared by the parties owning interests in the Unit Area in proportion to their respective equity percentages in the Unit Area as set forth in Exhibit "C" attached hereto, incorporated herein, and made a part hereof; provided that as to each leased tract set forth in said exhibit the percentage attributed to said leased tract shall be shared by the owners within the leased tract on an acreage basis unless they shall agree unanimously on a different division of ownership as to said tract. That the allocation of production set forth above will result in the obtaining by each party owning an interest in the Unit Area of his just and equitable share of the oil and gas in place and that may be produced from the Unit Area.

7. That Barnsdall Oil Company is hereby named the Operator of the Unit Area of the West Tepetate Field.

8. That any party or parties owning an oil, gas and mineral lease, or any interest therein, or an unleased tract or an interest therein, within the Unit Area, who has not become a party to the Unit Operation Agreement of March 19, 1948 as amended, shall not be entitled to any portion of the production from the Unit Area until after the lessees who have executed said Unit Operation Agreement have received from the sale of the production from the Unit Area after the unitization herein provided, a sum equal to all costs incurred in drilling, equipping, and operating all wells, and incurred in the construction, equipment, and operation of the systems for pressure maintenance, plus five per cent (5%) per annum interest, after which such party shall be entitled to receive his proportionate part of the production allocated to the tract in which he owns an interest, after deducting therefrom his proportionate part of all costs incurred in the development, equipment, and operation of the Unit Area.

9. That any party that owns a royalty interest provided in an original lease within the Unit Area who does not execute the Royalty Owners Unitization Agreement of April 1, 1948, shall be entitled to his proportion of the royalties allocated to the leased tract in which he owns an interest and shall be paid in accordance with the terms and provisions of the lease covering the same, and the operator shall account to such party for his proportion of the production in accordance with such party's oil and gas lease contract.

In 1979, Mar-Low, then operator of the unit, discontinued production in the West Tepetate Field, plugged and abandoned the wells, and salvaged the equipment. Mar-Low then cancelled the leases affecting the property. Several months later, Eads Operating Company, Inc. (Eads) acquired mineral leases on lands contiguous to the unit area, affecting lands and minerals underlying a tract known as the Fuselier tract. The Fuselier tract comprised approximately thirty percent (30%) of the Miller No. 1 Zone unit. Eads also acquired other oil, gas, and mineral leases affecting an additional forty percent (40%) of the Miller No. 1 Zone unit.

Facts

In 1982, Eads, as mineral lessee, drilled a well known as the Roland Richard No. 1 Well (the Richard well), in the West Tepetate Field, Jefferson Davis Parish, Louisiana, on certain lands owned by Eads' lessors. The Richard well was drilled on a non-unitized, lease basis in a geological stratum which correlated to the geological stratum of the 1948 unitized well known as the Miller No. 1 Zone.

Upon learning that the Richard well was located within the unit boundaries and had been completed as a producing well in the Miller No. 1 Zone, the Millers ⁴ made demand upon Eads for their share of the production proceeds attributable to their interests in accordance with the unitizations agreements and the Commissioner's Order No. 97-A-1. The Millers own two tracts of land comprising approximately twenty-five percent (25%) of the lands and minerals affected by the 1948 agreements and order.

On August 7, 1985, Eads ⁵ filed a petition for declaratory judgment against the Commissioner, alleging among other things, that the unit created by Order No. 97-A-1 had terminated in 1979 or, alternatively, that the order had no force and effect because the order was issued without statutory authority. The Commissioner answered Eads' petition, denying the allegations. Thereafter, the Millers filed a petition of intervention, seeking to be joined as parties to the litigation. Eads later amended its petition and added numerous other defendants, including the Millers. In its petitions, Eads sought judgment declaring, in pertinent part:

(a) That the Subject [1948] Unit expired and terminated in 1979 and is of no force and effect whatsoever;

(b) That the Richard No. 1 Well has at all times produced and is presently producing on a "lease basis";

(c) That Petitioners are entitled to all production from the Richard No. 1 Well from date of first production and to the proceeds from the sale thereof, subject to the rights of their royalty and overriding royalty owners;

(d) In the alternative, that Order No. 97-A-1 was beyond the statutory or other legal authority of the Commissioner of Conservation and, therefore, illegal, null and void, or, in the further alternative, beyond the jurisdiction of the Commissioner;

(e) In the further alternative, that the Commissioner's Supplement to Order No. 97 dated March 28, 1980, effectively terminated the Subject Unit.

On June 4, 1987, Eads filed a Motion for Summary Judgment. ⁶ After a hearing based upon the pleadings, affidavits, and requests for admissions, the trial court rendered judgment on August 18, 1987, granting the motion for summary judgment. The trial court then rendered judgment in favor of Eads and against the Commissioner and the Millers, declaring the following:

(a) That each of (1) the Royalty Owners Unitization Agreement for Miller No. 1 Zone and Miller No. 3 Zone, West Tepetate Field, Acadia and Jefferson Davis Parish, Louisiana,...