On March 9, 2016, the Louisiana First Circuit Court of Appeal issued an important decision affirming the supremacy of state law, and of the decisions and action of the Commissioner of Conservation, in regulating oil and gas production in the State.  St. Tammany Parish Government v. Commissioner, 2015-CA-1152 (La. 1 App. Cir. 2016).

According to the facts accepted by the appellate court, the case arose from the Commissioner’s creation of a drilling and production unit, and issuance of a drilling permit for a well within that unit, in St. Tammany Parish in late 2014.  The proposed well would be produced using hydraulic fracturing methods.

The location of the well was in an area designated as “A-3 Suburban”.  This is a wholly residential zoning designation under the zoning ordinance and master plan St. Tammany Parish had adopted several years prior.  The well was also proposed to be drilled through the Southern Hills Aquifer, the sole source of drinking water in the area.  Nonetheless, there were no structures, residential or otherwise, within a one-mile radius of the proposed drilling site, and the property had been used as a pine tree farm for at least the past thirty years.

St. Tammany Parish and “Concerned Citizens of St. Tammany” (CCST), a local non-profit organization, participated in the proceedings before the Commissioner considering whether to grant this permit.  When the Commissioner decided to issue it, the Parish responded by appealing that decision to the 19th Judicial District Court in East Baton Rouge Parish, as required by La. R.S. § 30:12.  The appeal suit sought, among other things, declaratory relief declaring that the Parish’s zoning designation made the proposed use of the land for oil drilling illegal.

The Parish operates under a home rule charter, so its general authority to promulgate land use regulations was not at issue.

Helis Oil intervened in the case on behalf of the Commissioner, CCST on behalf of the Parish.  The parties all stipulated to the facts above and filed cross-motions for summary judgment.

The primary statute issue here states:

The issuance of the permit by the [C]ommissioner … shall be sufficient authorization to the holder of the permit to enter upon the property covered by the permit and to drill in search of minerals thereon.  No other agency or political subdivision of the [S]tate shall have the authority, and they are hereby expressly forbidden, to prohibit or in any way interfere with the drilling of a well or test well in search of minerals by the holder of such a permit.

La. R.S. 30:28F (emphasis added by the Court).  The appellate court here held that the emphasized language evinced the Legislature’s clear and manifest purpose to preempt local power in this area, and specifically local laws and rules which interfered with the drilling of wells pursuant to a permit issued by the commissioner.

That statute was enacted pursuant to Article IX, § 1 of the Louisiana Constitution, which provides that:

The natural resources of the [S]tate, including air and water, and the healthful, scenic, historic, and aesthetic qualify of the environment shall be protected, conserved, and replenished insofar as possible and consistent with the health, safety, and welfare of the people.  The legislature shall enact laws to implement this policy.

Pursuant to the mandate of that section, the legislature has enacted the Conservation Code, “an extensive body of law that addresses every phase of the oil and gas exploration process.”  It vests authority to regulate the State’s oil and gas resources pursuant to that Code in the Louisiana Office of Conservation, under the direction of the Commissioner of Conservation.  The statute at issue quoted above is part of the Conservation Code.

Finally, when the Commissioner acts, including in issuing drilling permits, it is an exercise of the State’s police powers.

St. Tammany Parish and CCST raised several challenges to the Commissioner’s issuance of this drilling permit.  Their primary argument was that Article VI, § 17 of the Louisiana Constitution vests authority to regulate local land use and zoning with the Parish, and a statutory provision passed by the Legislature could not displace that constitutional grant of authority.  The applicable Constitutional section they relied on provides that:

Subject to uniform procedures established by law, a local governmental subdivision may (1) adopt regulations for land use, zoning, and historic preservation, which authority is declared to be a public purpose; (2) create commissions and districts to implement those regulations; (3) review decisions of any such commission; and (4) adopt standards for us, construction, demolition, and modification of areas and structures.

The court rejected this argument.  It found the Legislature’s intent to preempt local laws interfering with permits issued by the Commissioner was not precluded by the Constitutional section relied on by the Parish.  That section made local government’s land-use regulations “[s]ubject to uniform procedures established by law,” and the Conservation Code was one such “law” to which the Parish’s regulations were subject, and would have to yield.

The court rejected another argument of the Parish, based on the provision of the Louisiana Constitution vesting powers in local governments under home rule charters, La. Const. Art. VI, § 5(E), for similar reasons.  That provision states a home rule charter may grant a local government powers and functions for certain purposes, “not denied by general law or inconsistent with this constitution.” (emphasis added by court).  As the court found the Conservation Code was such a “general law”, it held this provision could not preempt the Legislature’s express preemption of local government’s interference with oil and gas drilling.

The Parish and CCST further argued that the Commissioner’s exercise of the State’s police powers in issuing the permit was abridged by the Parish’s authority over local land use under Article VI, § 17.  The court disagreed.  It observed that § 9(B) of Article VI provides that “Notwithstanding any provision of this Article, the police power of the [S]tate shall never be abridged.” (emphasis added by court).  The section relied on by the Parish is within that Article VI.  So, the court held it may not abridge the State’s police powers, including in issuing oil and gas permits, as argued by the Parish.

CCST also argued that the mandate of Article IX, § 1, that the natural resources of the state, including its environment, “shall be protected”, gives concurrent power to the State and local governments to issues regulations for that purpose.  The court disposed of this argument by noting that the final sentence of that section provides that “[t]he legislature”, not local governments, “shall enact laws to implement this policy.”

Finally, a provision of state law arguably (the court did not reach the issue of whether it actually does or not) requires that the Commissioner, in making decisions and taking actions, “shall consider” a parish’s master plan, such as that adopted by St. Tammany governing its land use.  The Commissioner stated he did “consider” this plan in making the decisions at issue, which nonetheless went against that plan.  The Parish argued the word “consider” should be interested to mean “give heed to”, and as the Commissioner plainly did not follow the plan, its actions were illegal.  The court rejected this interpretation.  It found that, even if this requirement binds the Commissioner, the ordinary meaning of “consider” required only that the Commissioner have “examined, deliberated about, pondered over, and inspected” the plan, not ultimately followed it.

For these reasons, the appellate court affirmed the trial court’s rejection of the claims of St. Tammany Parish and CCST challenging the Commissioner’s creation of the unit and issuance of the permit in the case under the Louisiana Constitution and applicable statute.  Instead, it held that St. Tammany Parish’s land-use regulations were unconstitutional, and had to yield to state law, insofar as they prohibited or interfered with actions authorized by the Commissioner pursuant to the unit he created and permit he issued.

This decision was a resounding endorsement of the authority of the Commissioner.  The importance of this authority for the oil & gas industry is difficult to overstate.  Operators rely on the Commissioner’s judgment in creating units and issuing permits, as well as issuing allowables, conditional allowables, and other orders, to make the enormous investments required to develop the oil and gas resources of the State.  The complexity of these decisions, and the many factors which must be weighed in making them, is enormous.  Making them requires technical expertise, objectivity, and a perspective of what is beneficial for the State as a whole which the Commissioner and his staff, as designated by the Legislature, almost uniquely possess, and which, frankly, local governments almost inherently lack.

For this reason, this decision affirming the Commissioner’s authority is welcome for the State’s oil & gas industry.  It also contrasts with decisions from other states which adopted contrary rules, and therefore left the industry exposed to a patchwork of inconsistent, and often illogical, local rules and regulations.  Concretely, in Texas the courts rejected a similar argument made by the state’s conservation authority, upholding a local government ordinance banning hydraulic fracturing entirely in a certain town.  That decision recently was overturned by statute, which enacted express preemption language similar to that in the Louisiana statute quoted above.  Similar rulings rejecting preemption have been made, and, as of now not overruled, by courts in New York and Pennsylvania.  Courts in Ohio and West Virginia have come down the other way, adopting the rule of Louisiana here that local regulations are preempted by contrary orders of the state conservation authority.

It is good for Louisiana to be on the right side of this issue.  We welcome the First Circuit’s decision.