Monsanto Chemical Co. v. Southern Natural Gas Co.

• Citation: 234 La. 939,102 So.2d 223
• Decision Date: 21 April 1958
• Docket Number: No. 43467,43467
• Parties: MONSANTO CHEMICAL COMPANY v. SOUTHERN NATURAL GAS COMPANY et al.
• Court: Louisiana Supreme Court

Page 223

102 So.2d 223

234 La. 939

MONSANTO CHEMICAL COMPANY v. SOUTHERN NATURAL GAS COMPANY et al.

No. 43467.

Supreme Court of Louisiana.

April 21, 1958.

Thompson, Thompson & Sparks, Monroe, Morgan, Baker, Skeels, Middleton & Coleman, Shreveport, for defendants-appellants.

Blanchard, Goldstein, Walker & O'Quin, Shreveport, for plaintiff-appellee.

FOURNET, Chief Justice.

The plaintiff-appellee, formerly Lion Oil Company, now merged into Monsanto Chemical Company and continuing in that name, and defendants-appellants, Southern Natural Gas Company et al., ¹ as owners of oil and gas leases covering the whole of Section 31, T. 17 N., R. 5 W., Bienville Parish, which is a 640 acre unit in the Bear Creek gas field designated the N. A. Culbertson Unit No. 1, entered into agreements on December 6, 1947, and February 10, 1948, integrating their interests in this section 'for the discovery and production of gas from any and all horizons, formations or zones.' In the contract it is stipulated that 'The leasehold estates consisting of said Section 31 * * * shall be owned, operated and developed as to all gas and distillate production from any one or more horizons, formations or zones, under the terms of this contract, for the joint benefit of Crow, Southern and Lion Oil Company, or their assigns, and all liability, costs and expenses incurred therewith shall be borne by Crow in the proportion of 18.75 per cent, by Southern in the proportion of 70.10 per cent, and by Lion in the proportion of 11.15 per cent, and they shall severally own the working interest in the gas distillate that may be produced from the premises covered by this agreement.' It is further stipulated that 'this agreement is to remain in full force and effect so long as said Section 31 * * * constitutes a unit for the development and production of gas from any horizon, formation or zone, whether under the terms of pooling and unitization agreements, or orders of the Department of Conservation of the State of Louisiana covering said unit, or any extension or renewal thereof, by production or otherwise.' In accordance with the agreement a well was drilled and completed in the Hosston formation of the unit. It is still a commercial producer.

Subsequently, in March of 1955, the Conservation Commissioner issued Order No. 78-F by which 126.4 acres were severed from the southern part of the Culbertson unit in Section 31 and, for the purpose of developing the Pettit formation of the Bear Creek Field, added to a 640 acre unit designated as the Hodge-Hunt Pettit Production Unit No. C-1 that, up until then, had comprized only Section 6 of T. 16 N., R. 5 W. The area thus severed is not affected by any of plaintiff's leases that were pooled in the 1947 and 1948 agreements, but is covered by the leases held by defendants.

Pursuant to the 1947 and 1948 agreements above referred to, Southern Natural Gas Company, as the operator of the Hodge-Hunt unit, is withholding from the proceeds realized in the sale of the production from the well brought in in the Pettit formation of this unit, which well is located in Section 6, that portion allocated under the Commissioner's order to the 126.4 acres severed from Section 31. The plaintiff, availing itself of the provisions of Louisiana's Uniform Declaratory Judgments Act (R.S. 13:4231--4246) instituted this suit to secure a judgment declaring it to be entitled to its proportionate share, under the 1947 and 1948 agreements, of the amounts thus realized from the Hodge-Hunt unit well that are attributable to this acreage in Section 31. The defendants prosecute this appeal from such a judgment.

Defendants contend, first, that the suit cannot be maintained as the plaintiff does not question the legality of Order No. 78-F and has not exhausted the administrative remedy afforded it under the provisions of R.S. 30:12, ² and, second, that the operating agreements on which plaintiff places reliance are inconsistent with, and therefore superseded by, this order in so far as it has reference to the development of the Pettit formation underlying the 126.4 acre tract.

The trial judge, in an able and well-considered opinion, answers both of these contentions adversely to the cause of the defendants, and, we think, correctly so, as demonstrated by his reasons for judgment, from which we quote the following pertinent observations:

'We do not understand that this suit is an attack on Order No. 78-F in any respect. Plaintiff, through its counsel, disavows any such intention. As we construe the plaintiff's contention in this case, it is merely asking for a judicial declaration of its contractual rights contained in the conventional agreements made between it, Southern, and Crow, and particularly the specific portions thereof hereinabove quoted. ³ A judicial determination of these rights in this case will have no effect whatever upon the order. * * * All that plaintiff in the case at bar is asking is that the court declare whether or not it has any interest, under its conventional agreements with Southern and Crow, in that portion of the production from the Pettit well in the Hodge-Hunt unit in Section 6 which the Commissioner's order allocates to that 126.4 acres in Section 31. In other words, plaintiff is not attacking the Commissioner's order. It is, rather, affirming it and asserting rights under its conventional agreements, which the Commissioner's order did not affect nor intend to affect. As we see it, plaintiff's position in this case on this precise point is identical with the position of the defendants in the case of Arkansas-Louisiana Gas Company v. Southwest Natural Production Company, 221 La. 608, 60 So.2d 9. The Supreme Court * * * there stated that contention to be that the unitization of several tracts under lease, pursuant to valid orders of the Commissioner, has no other effect than to allocate to each tract its pro rata share of the production from the entire unit, based on the proportion the acres contained in the individual tract bears to the total number of acres in the unit. The Supreme Court sustained this contention as valid and correct. So does the plaintiff in the case at bar accept the Commissioner's order in this case as valid and as having the effect of allocating to the 126.4 acres in Section 31 a certain portion of production. It would be beyond the function and powers of the Commissioner to say whether or not alleged contractual rights under the conventional agreements between Lion, Southern, and Crow with respect to their leasehold rights were recast and affected by the order. That is clearly a function of the courts.'

On the merits the trial judge, continuing, says: 'We agree with plaintiff's counsel that in light of this statutory provision ⁴ the effect of Order No. 78-F is that that part of the production from the Hodge-Hunt unit allocated to the 126.4 acre tract in Section 31 is considered as if it had been...