Employing a Reservoir Community Analysis to Define and Marshal Correlative Rights in the Oil and Gas Reservoir

Author:David E. Pierce
Position:Director, Washburn Oil and Gas Law Center. Norman R. Pozez Chair in Business and Transactional Law at Washburn University School of Law, Topeka, Kansas.
Pages:787-807
 
FREE EXCERPT
Employing a Reservoir Community Analysis to
Define and Marshal Correlative Rights in the Oil and
Gas Reservoir
David E. Pierce*
TABLE OF CONTENTS
Introduction .................................................................................. 787
I. The Ad Coelum Doctrine .............................................................. 789
II. The Rule of Capture ..................................................................... 790
III. Conservation Regulation and Correlative Rights ......................... 792
IV. Intra-Reservoir Conflicts and the “Property Line” Analysis ........ 795
A. Garza: A Weak and Incorrect Analysis ................................. 796
B. Stone: A Strong but Equally Incorrect Analysis .................... 797
V. The Reservoir “Neighborhood” Analysis ..................................... 799
A. Correlative Rights .................................................................. 800
1. Negative Rights and Fear of “Fair Share” Allocation ..... 800
2. The First Gas Balancing Case: Hague v. Wheeler ........... 801
B. Professor Kuntz’s “Special Community” ............................... 803
C. A “Reservoir Community” Analysis ...................................... 804
1. Define Community Membership ..................................... 804
2. Define the Physical Attributes of the Reservoir
Community ...................................................................... 804
3. Evaluate the Activity Impacting the Reservoir
Community ...................................................................... 805
Conclusion .................................................................................... 806
INTRODUCTION
The Louisiana Mineral Code has much to offer common law jurisdictions
that seek to more completely define the oil and gas property interest. As
Copyright 2016, by DAVID E. PIERCE.
* Director, Washburn Oil and Gas Law Center. Norman R. Pozez Chair in
Business and Transactional Law at Washburn University School of Law, Topeka,
Kansas.
788 LOUISIANA LAW REVIEW [Vol. 76
common law courts grapple with cross-boundary intra-reservoir conflicts,
such as hydraulic fracturing (“frac”) fissures that cross subterranean
property lines, the Louisiana Civil Code provides useful guidance on how
to be “neighborly”1 while the Mineral Code reminds us that reservoir
rights are “correlative.”2 These Code provisions provide accurate and
useful reminders about the scope of “ownership” within an oil and gas
reservoir.3 As is often the case, the Code provisions also provide guidance
for how common law jurisdictions might better address oil and gas issues.4
In typical elegant fashion, the Mineral Code states: “Landowners and
others with rights in a common reservoir or deposit of minerals have
correlative rights and duties with respect to one another in the development
and production of the common source of minerals.”5 In the past, most of the
focus has been on “rights and duties” that place limitations on what an owner
can do within the reservoir: negative rights.6 This Article explores the
1. LA. CIV. CODE art. 667 (2015) (“Although a proprietor may do with his
estate whatever he pleases, still he cannot make any work on it, which may deprive
his neighbor of the liberty of enjoying his own, or which may be the cause of any
damage to him.”); see also L
A. REV. STAT. ANN. § 31:10 & cmt (2000)
(describing Article 10 as “a limited restatement of the obligation of good
neighborhood contained in Article 667 of Louisiana Civil Code”). Article 2 of the
Mineral Code explains the relationship between the Mineral Code and the Civil
Code by providing that in the event of a conflict regarding a mineral law issue the
Mineral Code “shall prevail.” LA. REV. STAT. ANN. § 31:2. Otherwise, the
Mineral Code is “supplementary” to the Civil Code. Id.
2. LA. REV. STAT. ANN. § 31:9.
3. As used in this Article, the term “reservoir” has the same meaning as the
term “pool” that Louisiana law defines as “an underground reservoir containing a
common accumulation of crude petroleum oil or natural gas or both.” LA. REV.
STAT. ANN. § 30:3(6) (2007); see also LA. REV. STAT. ANN. § 31:213(3) (2000)
(adopting same definition).
4. The best examples of common law states seeking to mimic Louisiana law
to address nagging oil and gas problems are the “Dormant Mineral” and “Mineral
Lapse” acts designed to impose a “use” requirement to perpetuate a severed
mineral interest beyond a stated statutory period. See generally Texaco, Inc. v.
Short, 454 U.S. 516 (1982) (upholding the Indiana dormant mineral act designed
to terminate a “mineral interest” if not “used” for 20 years and the owner fails to
file a statement of claim); Scully v. Overall, 840 P.2d 1211, 1214 (Kan. Ct. App.
1992) (distinguishing terms of the Kansas mineral lapse act from the Indiana act).
Title examiners across the nation are envious of Louisiana’s mineral servitude
doctrine that avoids the myriad perpetual estates in minerals that exist under the
common law system.
5. LA. REV. STAT. ANN. § 31:9 (emphasis added).
6. See, e.g., Elliff v. Texon Drilling Co., 210 S.W.2d 558, 559 (Tex. 1948)
(negligent operations resulting in blowout and damage to the reservoir). This
concept is articulated in Article 10 of the Mineral Code: “A person with rights in
a common reservoir or deposit of minerals may not make works, operate, or
otherwise use his righ ts so as to deprive another intentiona lly or negligently of the
liberty of enjoying his rights, or that may intentionally or negligently cause

To continue reading

FREE SIGN UP