Energy Law

U.S. Fifth Circuit Finds Contractual Claim Under JOA Not Impermissible "Collateral Attack"

By Robert Theriot

By Robert L. Theriot

In EOG Resources Inc. v. Chesapeake Energy Corp., No. 09-30362, __ F.3d __ (5th Cir. 4/29/10), the Fifth Circuit reinstated EOG's contractual claim against Chesapeake under the parties' joint operating agreement (JOA).  EOG claimed that Chesapeake had unilaterally drilled three wells in the parties' pooled mineral leases in Bossier Parish, Louisiana, without first obtaining EOG's written consent as required by their JOA.  The trial court dismissed EOG's claim, finding the contractual claim was barred as an impermissible "collateral attack" on the orders of the Louisiana Commissioner of Conservation, because the Commissioner had approved Chesapeake's application to drill the wells as alternative unit wells for the pooled zones.  On appeal, the Fifth Circuit reversed and vacated.  It found that EOG's contractual claim was not barred as a collateral attack on the Commissioner's orders and remanded for a determination of EOG's claims.  The author represented EOG in the trial court and on appeal.

The Fifth Circuit found that there was no collateral attack on the Commissioner's orders on three grounds:  First, EOG was not seeking any relief that was contrary to the orders.  The Commissioner's orders approved the well applications, but they did not compel Chesapeake to drill the wells, nor did EOG seek to enjoin the wells from being drilled.  Second, EOG did not challenge any of the factual findings of the Commissioner.  Third, the Court concluded that only the courts, and not the Commissioner, had the authority to resolve EOG's contractual claims under the JOA or its request for relief through an accounting.  In deciding these issues, the Court clarified the line between the Commissioner's authority to impose forced pooling under Louisiana's unitization statute and its lack of authority to modify, limit, or determine contractual rights under a voluntary pooling or operating agreement.

Full post as published by The Energy Law Blog on May 04, 2010 (boomark / email).