La. R.S. 30:103.1 requires operators or producers of oil and gas units created by the Louisiana Commissioner of Conservation to provide reports containing information related to well costs and production to owners of “unleased oil and gas interests” (referred to herein as “103.1 report(s)”). If an operator does not provide the information required under the statute in a manner that is sufficiently detailed after receiving a proper request, the operator or producer “shall forfeit his right to demand contribution from the owner or owners of the unleased oil and gas interests for the costs of the drilling operations of the well” under La. R.S. 30:103.2.

While almost the entirety of Louisiana jurisprudence involving La. R.S. 30:103.1 involves reporting to unleased mineral owners, Louisiana’s federal and state  courts have recently become divided as to whether unit operators must provide 103.1 reports to not only unleased mineral owners but also non-operating working interest owners with an oil, gas and mineral lease within the confines of the unit at issue. This division arose as a result over the interpretation of what constitutes an “owner of an unleased oil and gas interest.”[1]

In XXI Oil & Gas v. Hilcorp I, the Louisiana Third Circuit Court of Appeal found that a unit operator was subject to La. R.S. 30:103.2’s penalty provision when it failed to provide a 103.1 report to a non-operating working interest owner who held oil, gas and mineral leases within the unit at issue.[2] In its decision, the Third Circuit did not examine the question of whether La. R.S. 30:103.1 was meant to require reporting to non-operating working interest owners or simply unleased mineral owners within a Commissioner’s Unit.[3] Instead, the Third Circuit’s opinion assumed that non-operating working interest owners are entitled to 103.1 reports.[4]

Subsequently, the U.S. District Court for the Western District of Louisiana came to a different conclusion as to what parties are entitled to reporting under La. R.S. 30:103.1 in TDX Energy, LLC v. Chesapeake Operating, Inc.[5] Similar to XXI Oil & Gas I, TDX Energy involved a claim by a non-operating working interest owner that it was entitled to 103.1 reports from a unit operator.[6] In response, the unit operator argued that the non-operating working interest owner was not afforded a remedy under La. R.S. 30:103.1-2, because it was not an unleased mineral owner.[7] The non-operating working interest owner responded to this argument by contending that “the phrase ‘owner or owners of unleased oil and gas interests’ [was] a shorthand method of referring to the owner of oil and gas interests within a unit that are unleased by the unit operator” as opposed to mineral interests that are unleased at all.[8] The Western District rejected the non-operating working interest owner’s argument and held that the phrase “owner or owners of unleased oil and gas interests” refers to “oil and gas interests that are not leased at all.”[9]

In support of its conclusion, the Western District stated that “[i]f the legislature had intended the statute to benefit ‘owners of oil and gas interests unleased by the operator,’ it should have so stated.”[10] In addition, the Western District noted that such a conclusion does not lead to absurd consequences under the clear and unambiguous language of La. R.S. 30:103.2.[11] Furthermore, the Court examined the language of Mineral Code article 111 and La. R.S. 30:10 to show that the term “unleased mineral owner” refers to the owner of mineral interests that are not leased by any party.[12] Finally the Court stated that “[t]he legislature well may have intended to provide greater protections for landowners who typically are not as sophisticated as, or have the available resources of, individuals or entities that procure mineral leases.”[13]

On September 28, 2016, the Louisiana Third Circuit issued another opinion in XXI Oil & Gas v. Hilcorp II.[14] Despite the fact that the Third Circuit did not examine whether or not La. R.S. 30:103.1-2 applied to unleased mineral owners and non-participating working interest owners in XXI Oil & Gas I, the Third Circuit’s recent opinion did address this question in light of the Western District’s decision in TDX Energy. In its decision, the Third Circuit explicitly rejected the Western District’s holding in TDX Energy and stated:

[W]hile decisions of federal courts are considered persuasive, especially cases concerning federal law, they are not binding on the courts of the State of Louisiana, especially on matters concerning the interpretation of state law which have been ruled upon.

We maintain our position that when an owner or operator drills a well, and that owner or operator has no valid oil, gas, or mineral lease on a portion of that land, the mineral lessee of those portions not leased by the operator or producer of the well has a claim to demand an accounting pursuant to La. R.S. 30:103.1, as an owner of a valid oil, gas, or mineral lease.[15]

The Third Circuit’s recent decision in XXI Oil & Gas II clearly conflicts with the Western District’s ruling in TDX Energy. As a result, operators or producers of Commissioner’s units face uncertainty as to what parties are entitled to 103.1 reports. With this in mind, it is important to note that TDX Energy is currently on appeal to the U.S. Fifth Circuit, and the parties in XXI Oil & Gas II may still apply for writs to the Louisiana Supreme Court. Therefore, until the conflict between Louisiana’s federal and state courts is resolved as to the proper interpretation of La. R.S. 30:103.1-2, unit operators should exercise caution in situations where a non-operating working interest owner with mineral leases in a Commissioner’s unit requests 103.1 reports.

* Associate, Liskow & Lewis, B.A., University of Georgia, 2009. J.D., Paul M. Hebert Law Center, Louisiana State University, 2012.

[1] See TDX Energy, LLC v. Chesapeake Operating, Inc., 2016 WL 1179206 (W.D. La 2016) (finding that only unleased mineral owners are entitled to 103.1 reports from a unit operator or producer), but see XXI Oil & Gas, LLC v. Hilcorp Energy Co., 13-410 (La. App. 3 Cir. 2013), 124 So. 3d 530 (hereinafter referred to “XXI Oil & Gas I”);  XXI Oil & Gas, LLC v. Hilcorp Energy Co., 16-269 (La. App. 3 Cir. 9/28/2016), 2016 WL 5404650 (hereinafter referred to as “XXI Oil & Gas II”).

[2] XXI Oil & Gas I, 124 So. 3d at 534-35.

[3] See id.

[4] See id.

[5] TDX Energy, 2016 WL 1179206 at p. 5-7.

[6] Id. at 1.

[7] See id. at p. 5-7.

[8] Id. at p. 5 (emphasis added).

[9] Id. (emphasis added).

[10] Id.

[11] See id. at p. 6-7.

[12] See id. at 7.

[13] Id. at 6.

[14] XXI Oil & Gas, LLC v. Hilcorp Energy Co., 16-269 (La. App. 3 Cir. 9/28/2016), 2016 WL 5404650.

[15] Id. at p. 3-4.

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