Unitization Victory for E&P Companies at Louisiana Supreme Court

Yesterday, the Louisiana oil and gas industry achieved a major victory with the Louisiana Supreme Court’s ruling in Gatti et al. v. State of Louisiana, et al., No. 2014-C-863 (consolidated).

Gatti was a purported class action lawsuit by a group of north Louisiana landowners who challenged the regime of “unitization”–Louisiana’s term for forced pooling–established by the Louisiana Office of Conservation in the Haynesville shale.  The landowners sued the State, through the Office and Commissioner of Conservation, and practically every exploration and production company currently operating a “unit” well in north Louisiana.  The landowners contended that the units established in the Haynesville and other formations were invalid and should be retroactively dissolved.  They alleged that the leases purportedly held by production from these units should be canceled and that the past payments made in reliance on those units should be recalculated.

In a well-reasoned opinion, Judge Morvant of the 19th Judicial District Court in Baton Rouge ruled in favor of the State and E&P companies and dismissed all of the landowners’ claims on various grounds.  Essentially, Judge Morvant viewed the plaintiffs’ claims to be an improper end-run around well-established and exclusive administrative procedures for challenging unit orders of the Commissioner of Conservation.  However, the Louisiana First Circuit Court of Appeal reversed, reinstating the landowners’ claims and allowing the suit to go forward as pled.

The State and E&P companies applied to the Louisiana Supreme Court for writs.  The Supreme Court granted these writs.  More importantly, the Court also–without requiring further argument–entered a per curiam order reversing the First Circuit, reinstating the district court’s ruling and dismissing the landowners’ claims “as originally ordered by the district court.”

The Supreme Court’s decision was a major victory for the O&G industry, and the correct legal result.  Louisiana’s unitization process is legislatively established, comprehensive and administered by the Office of Conservation.  Under it, a unit is created by the Commissioner of Conservation only after public notice and a contradictory hearing.  At the hearing, which is open to the public and in which landowners can and often do participate, geological and engineering evidence in support of the unit is submitted.  A unit is created only if the Commissioner, in consultation with his staff of expert geologists and engineers, determines based on that evidence that a unit is warranted.  In that case, the Commissioner issues an order establishing the unit and providing factual findings supporting his determination.

This process has successfully regulated the development of Louisiana’s mineral resources for over 50 years.  E&P companies and landowners alike have benefited from it, including from the large sums invested, and paid to landowners, in reliance on the Commissioner’s orders.  To protect the finality and integrity of these orders, the Legislature included various procedural protections in the regime.  These procedural protections are essentially the same as any other administrative scheme and include requirements for the exhaustion of remedies and an exclusive mechanism–with mandatory time periods and evidentiary requirements for the submission of the administrative record–to appeal or challenge the Commissioner’s orders.

The landowners’ suit was an all-out assault on this regime.  The landowners had not participated in the administrative proceedings whose results they attempted to challenge, and their suit did not comply with the requirements for bringing such a challenge.  More pointedly, their suit challenged the factual findings of the Commissioner regarding the propriety of the units he had established.  It attempted to nullify over 800 unit orders en masse, without reference to the administrative record supporting each unit, and as a suit before a district judge who lacked the Commissioner’s expertise and expert staff and, respectfully, was neither equipped nor authorized to hear these challenges de novo.

In dismissing the landowners’ suit, the district court recognized these deficiencies.  The Supreme Court likewise affirmed the integrity of the administrative process by reversing the First Circuit and reinstating the district court’s decision.

Gordon Arata attorneys, including Bob Duplantis and Paul B. Simon from our Lafayette office and Scott O’Connor from our New Orleans office, collaborated with counsel for the State and E&P companies in defending the suit and preparing the writ applications granted by the Louisiana Supreme Court.  If you have any questions about this suit, or Louisiana unitization or litigation issues more generally, please do not hesitate to contact them.

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