Loading...

Follow Liskow & Lewis - The Energy Law Blog | Oil and .. on Feedspot

Continue with Google
Continue with Facebook
or

Valid

Last week the Texas Supreme Court granted review in Energy Transfer Partners, L.P. v. Enterprise Products Partners, L.P., a case concerning Texas partnership law.  Energy Transfer Partners has garnered significant amicus support on both sides of the “v.” and has been closely followed by the energy industry.

The dispute between ETP and Enterprise began in 2011, when Enterprise approached ETP about potentially building a crude oil pipeline together.  Before beginning work, the parties signed three agreements—a confidentiality agreement, a letter agreement with a term sheet, and a reimbursement agreement.  All three indicated that the proposed project was still in a preliminary phase, and all contained provisions purporting to limit the parties’ obligations to one another.  The letter agreement further provided that no binding or enforceable obligations would exist between the two companies until (i) their respective boards had approved the transaction; and (ii) both companies had negotiated and executed the terms and conditions of the transaction.  Months later, with these conditions precedent unmet, Enterprise terminated its participation in the project with ETP and instead partnered with Enbridge Inc. for the construction of the pipeline.

ETP sued Enterprise for breach of joint enterprise and breach of fiduciary duty in the 298th District Court.  At the end of a four-week trial held in 2014, the jury found that ETP and Enterprise created a partnership to market and pursue a pipeline project and that Enterprise had failed to prove that it complied with its duty of loyalty.  It awarded ETP approximately $500 million in damages.  In 2017, the Fifth Court of Appeals (Dallas) reversed the most significant jury finding: it rejected ETP’s argument that a partnership with Enterprise was formed through conduct and held instead that no partnership existed because the conditions precedent in the letter agreement were unmet and ETP did not request a jury finding that they had been waived.

Oral argument before the Texas Supreme Court is scheduled for October 8, 2019.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Today the United States Supreme Court issued its decision in this landmark case concerning punitive damages.  The six justices in the majority opinion reversed the Ninth Circuit and resolved a circuit split on this issue.  The question presented was whether punitive damages may be awarded to a Jones Act seaman in a personal injury suit alleging a breach of the general maritime duty to provide a seaworthy vessel.  Justice Alito wrote the majority opinion, joined by Chief Justice Roberts, Justices Thomas, Kagan, Gorsuch, and Kavanaugh.  Justice Ginsberg dissented, joined by Justices Breyer and Sotomayor.

The plaintiff, a Jones Act seaman employed by Dutra Group, was injured on the defendant’s dredge vessel on the West Coast.  A hatch blew open and crushed his hand. The district court denied the defendant’s motion to strike the punitive damages claim; the Ninth Circuit affirmed.  This decision set up a split in the circuits, because three years earlier the en banc Fifth Circuit in McBride v. Estis Well Service, 768 F.3d 382 (5th Cir. 2014) held that punitive damages were not available under the rationale of an earlier Supreme Court case, Miles v. Apex Marine, 498 U.S. 19 (1990).

Justice Alito’s opinion focused on an historical approach that found an absence of punitive damage awards in unseaworthiness cases.  Accordingly, the opinion notes that once the Jones Act was passed by Congress in 1920, legislative remedial schemes for seamen should be the watchword for courts sitting in admiralty.  The Jones Act negligence action allows only compensatory damages; its twin, general maritime law’s unseaworthiness cause of action, should not overstep legislative limitations.  Thus, the uniformity principle expressed in Miles prevailed with its admonition that courts should not exceed legislative limits.  The opinion distinguishes the Atlantic Sounding v. Townsend case, in which a 5-4 majority opinion (written by Justice Thomas) ruled that punitive damages were available to a Jones Act seaman whose employer arbitrarily and capriciously fails to pay the injured or ill seaman maintenance and cure.  In contrast to unseaworthiness, there was an historical record of punitive damage awards in the maintenance and cure context.  Finally, Justice Alito noted that policy considerations disfavor allowing punitive damages for unseaworthiness, because many competitor shipping nations do not have punitive damages.  Affirmance of the Ninth Circuit view would harm American shipping interests.

In dissent, Justice Ginsberg wrote that Atlantic Sounding controlled, because there was a long history of punitive damages awards as part of the general maritime law, albeit a paucity in the specific context of unseaworthiness. While the Jones Act provided a new negligence cause of action, Congress did not curtail preexisting remedies, including punitive damages.  Statutory and historical analysis contains “not a hint” that the Jones Act limited seamen’s remedies already in place.  In her policy analysis, Justice Ginsberg countered that punitive damages’ availability in maintenance and cure actions has not created a “tidal wave” of such actions; instead, she writes, punitive damages for wanton and willful creation of an unseaworthy condition in a vessel will deter such conduct.

Click here to view the opinion. Don Haycraft and Jacques Mestayer submitted an amicus curiae brief to the Supreme Court on behalf of Waterways Council, Inc.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

In a decision that could have far-reaching implications, the United States Supreme Court issued a June 10 opinion holding that California’s wage-and-hour laws do not apply to workers on oil and gas platforms located in open water on the Outer Continental Shelf. The plaintiffs in Parker Drilling Management Services, Ltd. v. Newton, were offshore rig workers who filed a class action asserting that their employer violated California’s minimum wage and overtime laws by failing to pay them for stand-by time while they were on the drilling platform. Both parties agreed that the platforms were governed by the Outer Continental Shelf Lands Act (“OCSLA”), but they disagreed regarding whether the California’s wage-and-hour laws were incorporated into OCSLA and therefore applicable to workers on the platform.

OCSLA provides that federal law governs the Outer Continental Shelf, but also states that an adjacent state’s laws are deemed to be incorporated into federal law “to the extent they are applicable and not inconsistent with other federal law.” In this case, the employer argued that because the federal Fair Labor Standards Act (FLSA) addressed minimum wage and overtime, California’s state laws on those issues were necessarily inconsistent with federal law and could not apply. In opposition, the employees argued that the FLSA and California laws were not incompatible under any ordinary preemption analysis, and therefore California law, which is more generous to employees than the FLSA, should apply.

The district court relied on Fifth Circuit precedent and dismissed the employees’ claims, holding that the FLSA was a comprehensive wage-and-hour scheme such that there is no gap in federal law that would make California state law applicable under OCSLA. The Ninth Circuit reversed, holding that California’s laws were applicable to the issue and not inconsistent or incompatible with the FLSA, so they must also apply.

A unanimous Supreme Court reversed the Ninth Circuit, explaining that the statutory scheme of OCSLA and previous Supreme Court precedent make clear that OCSLA is to be interpreted under the “federal enclave model,” meaning that federal law is exclusive and state law only applies where there “is a gap in federal law’s coverage.” Accordingly, the Court held that under OCSLA, “where federal law addresses the relevant issue, state law is not adopted as surrogate law on the [Outer Continental Shelf].” In other words, for purposes of determining whether a state law would apply under OCSLA, “the question is whether federal law has already addressed the relevant issue; if so, state law addressing the same issue would necessarily be inconsistent with existing federal law and cannot be adopted as surrogate federal law.” Here, because the FLSA establishes rules regarding payment for stand-by time and a minimum wage, there is no gap or void in federal law for the California wage-and-hour laws to fill with respect to those issues.

In addition to providing a measure of certainty to employers in the wage payment context, the Court’s straightforward analysis of OCSLA will have applicability to all manner of legal issues arising on the Outer Continental Shelf. Companies operating offshore should pay particular attention to this precedent and how it may affect the application of other state laws to offshore work, on platforms or otherwise.  Your Liskow & Lewis attorneys can assist with this analysis.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

On May 28, 2019, United States District Judge Martin Feldman issued a sixty-four page Order and Reasons which granted motions to remand filed by Plaquemines Parish and the State of Louisiana in The Parish of Plaquemines v. Riverwood Production Co., et al.  That case is one of forty-two Coastal Zone Management Act (“CZMA”) cases that were removed to Federal court in May 2018.  Those cases generally allege that more than 200 oil and gas companies violated Louisiana’s State and Local Coastal Resources Management Act of 1978 (“SLCRMA”) by either failing to obtain or violating state coastal use permits.  The cases were removed to Federal court by Defendants pursuant to 28 U.S.C. § 1442 (the federal officer removal statute) and 28 U.S.C. § 1331 (the federal question statute) on the basis that Plaintiffs’ claims (1) implicate wartime and national emergency activities undertaken at the direction of federal officers, and (2) necessarily require resolution of substantial, disputed questions of federal law.  In response, Plaintiffs filed motions to remand.  In those motions, Plaintiffs argued that (1) the removal was not timely because Defendants had notice of the grounds alleged in the removal notice more than thirty days before the cases were removed, (2) the Defendants could not satisfy the elements of the jurisdictional test for “federal officer” removal jurisdiction, and (3) Defendants could not satisfy the test for substantial federal question jurisdiction set forth by the United States Supreme Court.

In granting Plaintiffs’ motion to remand, the Court first found that Defendants’ removal, which was predicated on allegations made in Plaintiffs’ April 30, 2018 expert report (“Rozel Report”), was “simply too late.”  The Court’s conclusion was based on its determination that Plaintiffs previously placed at issue whether the defendants’ activities were lawfully commenced prior to the enactment of SLCRMA.  Instead of being triggered by the allegations in the Rozel Report, as Defendants argued, the Court found that the 30-day “other paper” removal period was triggered on April 13, 2017 (at the latest) by allegations contained in Plaintiffs’ memorandum in support of Plaintiffs’ motion to compel production of pre-SLCRMA documents.  Thus, the Court concluded, removal predicated on the April 30, 2018 Rozel Report was untimely.  Second, the Court determined that the Defendants failed to establish the “acting under” and “causal nexus” elements required for “federal officer” removal jurisdiction.[1]  With regard to the “acting under” requirement, the Court found that “the defendants at most demonstrate extensive but mere oversight regulation” which was insufficient to support a finding that Defendants were “acting under” the direction of a federal officer.  In analyzing the “causal nexus” requirement, the Court concluded that the government did not, in fact, exercise sufficient control over the oil and gas industry during World War II to establish a causal nexus between Defendants’ actions and Plaintiffs’ claims.  Lastly, the Court found that the Defendants did not establish federal question jurisdiction because Defendants did not sufficiently identify “necessary” or “substantial” federal issues raised by Plaintiffs’ claims.

At the end of the opinion, the Court recognized the Defendants’ right to appeal the Court’s remand order as it pertains to Defendants’ “federal officer” predicate for removal.  In addition, the Court granted Defendants’ request to certify for interlocutory appeal the federal question predicate for removal pursuant to 28 U.S.C. § 1292(b).

In response to the Court’s Order and Reasons, Defendants filed a Motion to Stay Remand Order Pending Appeal and a Motion for Expedited Consideration of the Motion to Stay on May 28, 2019.  The Motion for Expedited Consideration notes that the parties have agreed to the following proposed briefing schedule (1) Plaintiffs’ Opposition to Defendants’ Motion to Stay shall be filed by June 5, 2019, (2) Defendants’ Reply shall be filed by June 10, 2019, and (3) Defendants’ Motion to Stay shall be submitted for decision as of June 10, 2019.

[1] The Court did not address whether the defendants asserted colorable federal defenses, which is another required element for “federal officer” removal jurisdiction.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

In a victory for the oil and gas industry, the Third Circuit rendered a decision rejecting attempts by the Louisiana Department of Revenue to impose severance taxes on crude oil production based on index pricing.  The Third Circuit reaffirmed that severance taxes should be based on the “gross proceeds” obtained in an arm’s length sale at the lease.  The Department had sought additional severance taxes from numerous Louisiana producers that sold crude oil in arm’s length sales at the lease. The contracts provided that the sales price of the crude oil was based on index pricing, less an amount sometimes designated as a “transportation differential” or simply as a deduction. The Department argued that this “differential” or deduction must be “disallowed” when computing severance taxes, effectively imposing severance taxes on the index pricing.  The Louisiana Board of Tax Appeals, faced with numerous cases raising this same issue, heard a “test case” involving Avanti Exploration, LLC. The BTA held that the Department’s theories were invalid, and severance tax properly was based on the actual “gross receipts” received by the producer in an arm’s length sale.  In a decision issued on April 17, 2019, the Louisiana Third Circuit Court of Appeal affirmed, holding that, pursuant to the Louisiana Constitution, the severance tax statutes, and the Department regulations, in the absence of any “posted field price,” severance taxes must be based on the actual “gross receipts” received by the producer in an arm’s length sale at the lease.

The decision can be found here.

The attorneys involved in Avanti case are Cheryl Kornick, James Exnicios, Robert Angelico, and R.J. Marse.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

On March 29, 2019, Alaska Federal District Court Judge Sharon Gleason granted summary judgment in favor of plaintiff environmental groups in League of Conservation Voters v. Trump, 3:17-00101.  The case stems from Executive Orders issued under the Obama Administration in 2015 and 2016 which withdrew certain areas in the Arctic and Atlantic regions from exploration and development under the offshore oil and gas leasing program.  President Trump issued an Executive Order in 2017 which revoked the Obama withdrawals.  The Court’s summary judgment ruling vacated certain portions of the 2017 Trump Executive Order and concluded that the prior Obama Orders would remain in place.  In effect, the ruling removes the areas in the Arctic and the Atlantic covered in the Obama Orders from the five-year leasing program proposed by the Trump Administration. 

The Court found that President Trump’s Executive Order exceeded the President’s authority under Section 12(a) of the Outer Continental Shelf Lands Act.  In particular, analyzing the text of OCSLA Section 12(a), the legislative history, and the purpose of OCSLA, the Court reasoned that, while Section 12(a) allows a President to withdraw lands from oil and gas development, it does not authorize a President to revoke a prior withdrawal.  Instead, such revocation remains vested with Congress.

An appeal of the ruling would be filed in the Ninth Circuit Court of Appeals.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

On Friday, March 29, 2019, the City of New Orleans filed a lawsuit in Civil District Court against eleven oil and gas companies seeking damages for alleged harm to Louisiana’s coastal wetlands. Introducing its lawsuit with statements that “New Orleans is imperiled” and its “people are in danger,” the City contends that the defendants’ failure to maintain access canals, spoil banks, and earthen pits created in the course of exploration and production has destroyed the coastal zone. The City’s allegations mirror those levied in recent years by the parishes of Plaquemines, Jefferson, and St. Bernard, among others: that the defendants’ activities constitute coastal “uses” under the Louisiana State and Local Coastal Resources Management Act (“SLCRMA”) and that they violate coastal use permits issued pursuant to that statute. The City has requested a trial by jury, from which it seeks damages, “restoration costs,” restoration of “disturbed areas,” sanctions, costs, attorneys’ fees, and/or declaratory and injunctive relief.

On the heels of Friday’s filing, the Louisiana Oil & Gas Association and the Louisiana Mid-Continent Oil and Gas Association issued statements decrying the lawsuit as sending a message to the oil and gas industry that the City is closed for business.  Gifford Briggs, LOGA President, commented, “There is no reason why Louisiana should be outsourcing the protection of its coast to a few lawyers whose only interest is in padding their bank accounts.  It is long past time that the litigation is put on the back burner and state government take back the responsibility it is granted in the Coastal Zone Program.” LMOGA President Tyler Gray added, “Unnecessary legal tactics threaten the community investment and cultural support the industry has provided for over a century, which they can now potentially lose, as they wait for several years, as other parishes in the state have, for this to work its way through the judicial process. LMOGA vehemently disagrees with the decision to outsource responsibility for enforcing state and local permitting laws to private lawyers.”

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

On March 21, 2019, the U.S. District Court for the Western District of Louisiana held that a unit operator may not recover post-production costs from an unleased mineral owner’s share of production proceeds in Allen Johnson, et al. v. Chesapeake Louisiana, LP.[1]  The dispute in Johnson involved a group of unleased mineral owners (“UMOs”) who filed suit against a unit operator for deducting a litany of post-production costs against their share of production proceeds from an oil and gas unit in the Haynesville Shale.[2]

The UMOs argued that La. R.S. 30:10 governed whether a unit operator may deduct post-production costs against UMO’s share of production proceeds.[3] The argument, however, was one of exclusion. The UMOs argued that La. R.S. 30:10 contains the exclusive list of any costs that could be properly charged against a UMO’s share of production proceeds. Therefore, because post-production costs were not expressly listed in La. R.S. 30:10(A)(3), the UMOs argued that such expenses were not recoverable from a UMO’s share of production.[4] In opposition, the unit operator contended that La. R.S. 30:10 was inapplicable to the case because the costs outlined in the statute comprised only pre-production and production costs. The operator argued the statute was never intended to address  post-production costs.[5] As a result, the unit operator claimed that the statute did not forbid deductions for post-production costs against a UMO, but instead those costs were properly authorized under the general principles of unjust enrichment and co-ownership.[6]

The statute at the center of Johnson is La. R.S. 30:10, which governs agreements for drilling units and pooling interests in Louisiana.[7] La. R.S. 30:10(A)(2) provides that the costs of development and operation of a unit well are chargeable to the “owners” within a unit, and La. R.S. 30:8 includes UMOs as “owners” against whom development and operational costs are chargeable.[8] However, La. R.S. 30:10(A)(3) provides an additional provision related to UMOs that states:

If there is included in any unit created by the commissioner of conservation one or more unleased interests for which the party or parties entitled to market production therefrom have not made arrangements to separately dispose of the share of such production attributable to such tract, and the unit operator proceeds with the sale of unit production, then the unit operator shall pay to such party or parties such tract’s pro rata share of the proceeds of the sale of production within one hundred eighty days of such sale.[9]

The Court described the question before it as an issue of first impression and focused on the language of La. R.S. 30:10(A)(3) to find that a unit operator may not deduct post-production costs from a UMO’s share of production proceeds.[10] In its analysis, the Court first looked to the statutory language of La. R.S. 30:10(A)(3) and recognized that the statute required an UMO to receive its “pro rata share of the proceeds of the sale of production.”[11] The Court reasoned that this provision did not authorize post-production cost deductions against UMOs and stated that the Legislature could have phrased La. R.S. 30:10(A)(3) differently had it intended to authorize such deductions.[12] While the unit operator argued that La. R.S. 30:10(A)(3) was merely a provision directing the time period within which operators must pay UMOs, the Court disagreed and found that the section not only addressed when the UMO is to be paid but what it is to paid.[13]

The Court also reasoned that the differing treatment of UMOs and non-participating working interest owners (i.e., mineral lessees not electing to participate in a well under La. R.S. 30:10) throughout La. R.S. 30:10 as a whole further supported its conclusion.[14] First, the Court noted that La. R.S. 30:10(A)(2), which directs that development and operation costs be charged against owners within a unit, was broad in its application and applicable to all owners, including UMOs.[15] The Court contrasted this provision with La. R.S. 30:10(A)(3) and found that Section 10(A)(3): (1) was narrowly tailored to only include UMOs, and (2) did not include an enumerated list of costs that may be charged against UMOs.[16] Second, the Court recognized other situations in which UMOs were treated differently than non-participating working interest owners by referencing the exemption of UMOs from the risk charge under La. R.S. 30:10(A)(2)(e).[17]

After its review of the statutory language of La. R.S. 30:10, the Court refused to find that its statutory interpretation would lead to absurd results.[18] In support of its conclusion, the Court cited and appeared to rely on the UMO’s briefing, which stated:

The unleased owner involuntarily loses all of his rights to explore — or not explore — his own property. He must still pay all development and operations costs if he is to see economic benefit from the compulsory pooling to which he is subject. A strict construction of [La. R.S.30:10] simply means that, for all of this, he is given the equivalent of a “no cost” royalty clause on production proceeds. This is hardly unjust.[19]

In addition, the Court referenced the Fifth Circuit’s opinion in Adams v. Chesapeake Operating, Inc. for the position that La. R.S. 30:10(A)(3) provides alternative actions available to UMOs.[20] While the Court did not provide any background into the Adams case, one can infer that the Court cited this provision to support the idea that there are differing actions and remedies available to different owners within a unit. For these reasons, the Court found that the idea that the Legislature would treat UMOs differently and that such treatment would be reflected in La. R.S. 30:10(A)(3) is not absurd.[21]

Although the Johnson case provides one federal district court’s interpretation on an issue of first impression, it raises more unanswered questions for unit operators in Louisiana. The practical reality is the industry practice stands in stark contrast to this result. It should be noted that this decision is not final and may be appealed to the United States Fifth Circuit and/or certified to the Louisiana Supreme Court. In the meantime, unit operators should be aware of the risk posed should this decision become final in Louisiana.

If you would like additional information on this case and its potential implications, please contact Brittan J. Bush (bjbush@liskow.com), April L. Rolen-Ogden (arolen-ogden@liskow.com), and Jeff Lieberman (jdlieberman@liskow.com).

* Brittan J. Bush is an Associate in Liskow & Lewis’ Lafayette, Louisiana office. April L. Rolen-Ogden and Jeff Lieberman are Shareholders in Liskow & Lewis’s Lafayette, Louisiana, office. Any views expressed herein are those of the authors and do not necessarily reflect the views of Liskow & Lewis and/or its clients. Furthermore, it is the authors’ intention to provide the information contained herein in an objective fashion that presents the practical effects of particular legal decisions without any commentary as to whether a particular decision is legally correct or sound policy.

[1] See 2019 WL 1301985 (W.D. La. Mar. 31, 2019). As of the posting of this blog entry, the delays for appeal have yet to expire.

[2] See id. at 1.

[3] See id.

[4] See id.

[5] See id.

[6] See id.

[7] See id. at 2.

[8] Id. (citing La. Rev. Stat. § 30:10(A)(2))

[9] Id. (citing La. Rev. Stat § 30:10(A)(3))

[10] See id. at 3-5.

[11] Id. at 4.

[12] See id.

[13] See id.

[14] See id. at 4-5.

[15] See id. at 4.

[16] See id.

[17] See id.

[18] See id. at 4-5.

[19] Id. at 4-5.

[20] See id. at 5 (citing Adams v. Chesapeake Operating, Inc., 561 Fed. App’x 322 (5th Cir. 2014).

[21] See id. at 5.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

In August 2018, dry natural gas production from the Haynesville shale averaged 6.774 billion cubic feet per day, which is the highest daily Haynesville production average since September 2012 when production averaged 6.962 billion cubic feet per day.  August 2018 was not an anomaly.  Instead, this year, the Haynesville has seen steady increases in production since January when production averaged 5.293 billion cubic feet per day.  Although the recent Haynesville production increases are a positive sign for the Louisiana energy industry, the August 2018 daily production average is still below the previous Haynesville peak production average, which was 7.403 billion cubic feet per day in January 2012.  However, if the current trend continues, the Haynesville could approach its prior peak production average in early 2019.

The chart below depicts Haynesville shale dry natural gas production averages from January 2009 to August 2018 in billion cubic feet per day.  As you can see, there have been two major increases in Haynesville production over the last ten years.  The first began in early 2009 with average daily Haynesville production surpassing 1 billion cubic feet per day for the first time in June of that year.  The second major increase began in early 2017 and continues through today.

With the first major Haynesville production increase, the Louisiana energy industry also experienced an increase in Haynesville-related litigation.  For example, in Alyce Gaines Johnson Special Trust v. El Paso E & P Co., the plaintiff-lessor brought a declaratory judgment action against the defendant-lessee seeking a determination that a 60-year-old, all-depths lease did not include rights to explore the Haynesville shale.  Alyce Gaines Johnson Special Trust v. El Paso E & P Co., 773 F. Supp. 2d 640, 641-43 (W.D. La. Feb. 24, 2011).  Seeming to suggest Plaintiff’s motivation, the Court noted that Plaintiff filed its action after receiving “offers from numerous third parties to lease the mineral formation known as the Haynesville Shale . . . for a one-fourth (1/4) mineral royalty and as much as ten thousand ($10,000) dollars per acre bonus royalty.”  Id. at 642.  In support of its position, Plaintiff argued that its predecessor did not intend to lease the depths at which the Haynesville shale is found.  Id. at 646.  However, finding the lease “broad and unambiguous,” the Court refused to look to the intent of the parties, and instead, held that the lease included rights to the Haynesville shale.  Id.

Cascio v. Twin Cities Development, where the plaintiff-lessors filed suit seeking to rescind a mineral lease because they did not know at the time they granted the lease that the Haynesville shale extended beneath their property, provides another example. Cascio v. Twin Cities Dev., 45,634 (La. App. 2 Cir. 9/22/10); 48 So. 3d 341, 342-43. In that case, the plaintiff-lessors argued, the lease should be rescinded based on their error.  Id.  However, the Second Circuit rejected their argument noting the “particularly speculative nature of mineral exploration and production.”  Id.

The timing of these cases and the historical production trend shown above demonstrate that Haynesville shale gas production increases can lead to an increase in Haynesville-related litigation.  Therefore, if the current Haynesville shale gas production increase continues, the industry should beware of an increase in Haynesville-related litigation, too.

Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.

Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the SafeUnsubscribe® link located at the bottom of every email that you receive.

  • Show original
  • .
  • Share
  • .
  • Favorite
  • .
  • Email
  • .
  • Add Tags 

Separate tags by commas
To access this feature, please upgrade your account.
Start your free month
Free Preview