Self v. BPX Operating Co. & Post-Production Costs in Louisiana

Self v. BPX Operating Co. &  Post-Production Costs in Louisiana

 

Depending on the state, post-production costs are either deducted “at the wellhead” or when the product has been placed in “marketable condition.”  In Louisiana, the minerals are not owned by the landowner, but that person does have the right to explore for minerals, which can be leased.  Because of this, the ownership of minerals does not occur until they are reduced to possession, which occurs “at the wellhead.”  Thus, Louisiana determines royalties “at the well” rather than when they reach a “marketable condition.”

In the recent case of Self v. BPX Operating Co,[1] the United States Fifth Circuit Court of Appeals certified a question for the Louisiana Supreme Court to address whether La. Civ. Code art. 2292 applies to unit operators selling production in accordance with La. R.S. 30:10(A)(3).[2] The facts, in this case, include the plaintiffs, the Selfs, who filed suit as “unleased mineral owners whose interests are situated within forced drilling units formed by the Louisiana Office of Conservation and operated by BPX.”  The unit operator can sell the unleased mineral owner’s shares in the unit production if they do not make other arrangements to sell their shares, but the operator must pay the owners a pro rata share of the proceeds.[3]

There has been some dispute as to whether operators can deduct post-production costs from the unleased mineral owner’s share.  Here, BPX withheld post-production costs for transporting, gathering, marketing, treating, and compressing produced minerals along with amounts related to minimum volume commitments or capacity reservation fees.  Plaintiffs contend that BPX is not allowed to deduct post-production costs from their share of production.  The trial court disagreed with the plaintiffs’ contention and held that “the Louisiana Civil Code doctrine of negotiorum gestio provides a mechanism for unit operators to be reimbursed for post-production costs not otherwise covered by specific statutes.”[4]

The Louisiana Supreme Court has previously held that the relationship between the unit operator and the unleased mineral interest owner with whom the operator has not entered into contract creates a quasi-contractual relationship between the parties.[5]  In La. Civ. Code art. 2292, the doctrine of negotiorum gestio is set forth. “Under this doctrine, a proposed “gestor” must act 1) voluntarily and without authority, 2) to protect the interests of another, and 3) in the reasonable belief that the owner would approve of the action if made aware of the circumstances.”[6]  If this doctrine is applicable, “Louisiana Civil Code Article 2297 requires “[t]he owner whose affair has been managed [to] . . . fulfill the obligations that the manager has undertaken as a prudent administrator and to reimburse the manager for all necessary and useful expenses.”[7]  Further, BPX contends that it is a gestor because it is dealing with an unleased mineral owner, but there is no Louisiana jurisprudence directly on point.

Because this is an unresolved issue of state law, the federal court of appeal has certified a question for the Louisiana Supreme Court to resolve this dispute.  The official question certified reads “Does La. Civ. Code art. 2292 apply to unit operators selling production in accordance with La. R.S. 30:10(A)(3)?”  The outcome of this case will affect whether operator’s have the authority to deduct post-production costs from an unleased mineral owner’s pro rata share of production.

The dissenting opinion written by Dennis, Circuit Judge, argues that negotiorum gestio, codified in La. Civ. Code art. 2292, and La. R.S. 30:10(A)(3) are “distinct legal regimes with different requirements and duties, they are necessarily incompatible.”[8]  Further, Dennis argues that a “unit operator who sells an owner’s production under the statutory authority of La. R.S. 30:10(A)(3) cannot be a gestor as defined in article 2292, because a gestor, as the codal article provides, is one who acts “without authority.”’[9]  La. R.S. 30:10 authorizes a unit operator, when dealing with an unleased owner, to sell the share of production owed to the unleased owner and provide the owner the proceeds within 180 days.  Additionally, there is a duty imposed on operators to report information to unleased owners when requested.[10]

Negotiorum gestio, or management of affairs, “is a typically civilian institution that derives from the Romanist tradition and is found in all civil codes.”[11]  This doctrine applies when a gestor acts “1) without authority, 2) to protect the interests of another, and 3) in the reasonable belief that the owner would approve of the action if made aware of the circumstances.”[12]  Additionally, the gestor must have “undertake[n] the management with the ‘benefit’ of the owner in mind” and not have “act[ed] in [its] own interest or contrary to the actual or presumed intention of the owner.”[13]  Further, the purpose of this doctrine is to “encourage people to assist friends and neighbors in need.”[14]

Dennis also argues that the majority’s interpretation goes against the rules of statutory interpretation.  “The general rule of statutory construction is that a specific statute controls over a broader, more general statute.”[15]  This rule has been applied in the context of “Louisiana’s oil and gas conservation law, modern statutes intended to alter and override general legal principles that were inadequate for mineral production and conservation.”[16]  In one case, the court held “that the more recent legislative enactments of Title 30 and Title 31 supercede in part La.Civ.Code Ann. art. 490‘s general concept of ownership of the subsurface by the surface owner of land.”[17]  The court in that case also recognized the same quasi-contractual relation that is evidenced in this case.

In 1995, the legislature revised the civil code articles governing negotiorum gestio.  Specifically, the previous version of the article required that the gestor act “on his own accord” and was updated to the current requirement that the gestor act “without authority.”  This revision expresses that the requirement is not merely voluntariness, but “an absence of authority altogether.”[18]  Dennis further argues that the operator here is not acting without authority because he is “specifically authorized to sell an unleased mineral owner’s share of production under La. R.S. 30:10(A)(3).”[19]  Thus, the requirement of acting “without authority” cannot be met, so negotiorum gestio cannot be applied in the context of La. R.S. 30:10(A)(3), and to do so would violate the rules of statutory interpretation according to Dennis’s dissenting opinion.

In the meantime, we must now wait for clarification from the Louisiana Supreme Court as to whether operators can deduct post-production costs from the unleased mineral owner’s share in the form of an answer to the official question certified by the United States Fifth Circuit Court of Appeals of “Does La. Civ. Code art. 2292 apply to unit operators selling production in accordance with La. R.S. 30:10(A)(3)?”.

Authored by Patrick Schenkel and Kate Brasseux

 

[1] 2023 U.S. App. LEXIS 23969. This case was consolidated for oral argument with Johnson v. Chesapeake Louisiana, No. 22-30302.

[2] Id. at 8.

[3] La. Stat. Ann. § 30:10(A)(3).

[4] Self, 2023 U.S. App. LEXIS 23969 at 2.

[5] Wells v. Zadeck, 89 So. 3d 1145, 1149 (La. 2012).

[6] Self, 2023 U.S. App. LEXIS 23969 at 5.

[7] La. Civ. Code art. 2297.

[8] Self, 2023 U.S. App. LEXIS 23969 at 8.

[9] Id.

[10] B.A. Kelly, 25 F.4th at 375-76 (citing La. R.S. § 30:103.1).

[11] La. Civ. Code art. 2292 cmt. (a).

[12] La. Civ. Code art. 2292.

[13] Id. cmts. (c)-(d).

[14] Cheryl L. Martin, Louisiana State Law Institute Proposes Revision of Negotiorum Gestio and Codification of Unjust Enrichment, 69 Tul. L. Rev. 181, 186-87, 193 (1994).

[15] Burge v. Louisiana, 2010-2229,p. 5 (La. 2/11/11), 54 So. 3d 1110, 1113

[16] Self, 2023 U.S. App. LEXIS 23969 at 14. See Nunez v. Wainoco Oil & Gas Co., 488 So. 2d 955 (La. 1986).

[17] Nunez v. Wainoco Oil & Gas Co., 488 So. 2d 955, 964 (La. 1986).

[18] Self, 2023 U.S. App. LEXIS 23969 at 18.

[19] Id. at 19.

Patrick represents clients on acquisitions and divestitures, complex mineral titles, pooling issues, lease analysis, joint operating agreements, surface use issues and title curative.

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