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

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