### INTHE UNI TED S TATESCOU RT OFAPPEALS FORTHE FIFTH CIRCU IT

N o. 09- 30363

E O G R E S O U R C E S IN C
. , P l a i n tiff — A p p ell a n t v. CHESA PE AKE ENERGY CORP ; CHES AP EAKE OP ERAT I NG I NC; CH ESAPEAK E LOU I SIAN A LP, D efen da n t s — A pp el l ees

A pp ealf

rom t h e U n i t ed S t ates D i st ri ctC ou rt f o rt he W e s t e r n Di s t r i c to f Lo ui s i ana
B ef ore R E AV L E Y , C L E M E N T , an d S O U T H W IC K , C i rcui tJu dg es . E D ITH B R O W N C L E M E N T , C i rcui tJu dg e: A ppel l antE O G R es our c es , I nc. (“ E O G ” ) and A p p ell ee s (c ol l ec t ively,

“ C h esapea ke”) ow n m i n erall eases i n a un i t i zed poo l o f n a t u ralgas i n B ossi er Par i sh, L ou i s i ana . I n 2 00 6, Ches ap e ak e dr i l l e d t hr e e w e l l s w i t ho uto bt ai ni ng EO G ’ s pe r m i s s i o n, i n al l e ge d vi o l at i o n o f an O pe r at i ng Agr e e m e nt be t w e e n t he t w o. E O G f

i l ed su it f

or breach of

contr act
. C h esapea ke argu ed that i tdi d n ot b r e a c h th e O p e r a tin gA g r e e m e n t a n d t h a t t h e s u it w a s a n im p e r m is s ib le
c o lla te r a l a tt a c k o n o r d e r s o f th e L o u is ia n a C o m m is s io n e r o f C o n s e r v a tio n . W e r e v e r s e th e ju d g m e n t o f th e d is tr ic t c o u r t t h a t t h e s u itw a s a n im p e r m is s ib le United States Court of App eals

Fifth Circuit 

### F I L E D April29, 2010 Lyle W . Cayce Clerk Case: 09-30363 Document: 00511095981 Page: 1 Date Filed: 04/29/2010N o. 09- 30363

2 c o l l at e r ala t t ac k, v ac at e t he di s t r i c tc o ur t ’ s f i ndi ng as t o b r e ac h o f c o nt r ac t , a nd
rem an d f

or f u rt h er proc eedi n gs.

F A CT S A ND P ROC E E DI NGS E O G an d C h esapea ke each ow n m in e ra l lea ses i n Secti on 18 of B ossi er Par i s h, Lo us i anaa nd a r e s uc c e s s o r s i n i nt e r e s tt o a 195 7 O pe r at i ng Agr e e m e nt t hatf or m ed a j oi nt uni tf

ordev el opm entof

t he t w o l eas es . B eneat h Sect i on 18
a re th ree n a tu ra lga s zon es, a s ex p l a i n ed bythe distri ct cou rt:

T h e H osst on (T ravi s Pea k) Z on e i nt h e Sli go F i el d, B ossi er P ari sh, L ou isi an a, w as def i n ed i n t h e L ou i si an a O f f i ce of C ons ervat i on O r derN o. 8- B , ef fec t ive Septem b er 1, 1956. Th at order, as am en ded an d s u pp l em en t ed by t h e 8- B S eri es of O rders, e s t ab l i s he d r ul e s and r e gul at i o ns and c r e at e d dr i l l i n g and pr o duc t i o n unit s f

o r t he e xp l o r at i o n f

o r andpr o duc t i o n o f g as a nd c o nde ns at e f

r o m t he H o s s t o n (Tr av i s Pea k) Zo ne i n t he Sl i go Fi e l d, B o s s ie rP a r is h , L o u i s ia n a . O n e s u c h u n it w a s a6 4 0 -a c r e u n it des i gnat ed as H O SS TP SU R c om pri se d ent i r ely o f Sec t i on 18. The Cot t o n Val l e y “ D ” Zone i n t he Sl i go Fi e l d, Bos s i e rPar i s h, L ou i si an a, w as def

i n ed i n t h e L ou i si an a O f f i ce of C on servat i on O rder N o. 8- B , e f

fect ive S eptem ber 1, 195 6. T h at or der, as am en ded an d su pp l em en t ed byt h e 8- B S e ri es of O rders, est abli shedrul es andr e gul at i o n s and c r e at e d d r i l l i ng andpr o duc t i o n unit s f o rt he e xp l orat i o n f

o ra nd p r o duc t i o n o f g as a nd c o nde ns at e f r o m t he Cot t o n Val l e y “ D ” Zo ne i n t he Sl i go Fi e l d, Bos s i e rPar i s h, Lo u i s i a n a . On e s u c h un i tw a s a 6 4 0

- a c r e un i tde s i g n a t e da s CV D SU AAc om pri se d ent i r ely o f Sec t i on 18. Th e L ow er C ot t on V al l ey Zone, R es ervoirA , i n t he Sl i go Fi e l d, Bos s i e rPar i s h, Lo ui s i anaw as def i ne d i n t he Lo ui s i ana O f f i c e of C on se r vat i on O r derN o. 8- K , ef fec t ive O c t obe r16, 1990. T h at or der, as am en ded an d s u p pl em en t ed byt h e 8- KSeri es of O r de r s , e s t ab l i s he d r ul e s a nd r e gul at i o ns a nd c r e at e d d r i l l i ng and pr o duc t i o n unit s f

o rt he e xp l o r at i o n f

o r and pr o duc t i o n o f

g as a nd c o nde ns at e f

r o m t he Lower Cot t o n Val l e y Zo ne , Res e r vo i rA, i n t he S l i go F i el d, B ossi er Pa ri sh, L ou i si an a. O n e suc h u n i tw as a 640

- acre un itdesi gn ated as L C VR ASU B com pri sed en t i rely of Sec t i on 18. Case: 09-30363 Document: 00511095981 Page: 2 Date Filed: 04/29/2010N o. 09- 30363

3 E O G R e s ., In c . v . Ch e s a p e a k eL a ., N o. 07- 1246, 2009 W L 891891, at*1 (W
. D
. La. M a r. 3 1 , 2 009)

. Th e O per at i ng A gr ee m entc ove r s and af fec t s t he par t i es ’“ gas an d ga s r i gh t s” i n th e firstan d second zones, bu tnot t h e t h i rd. C h esapea ke,
w hi c h ho l ds a6 2. 5 pe r c e nts har e o f t he z o ne s , w as na m e d “ O per at o r” o f t he A greem en t , w i t h au t h ori t y t o “ m an age, devel op, an d op erat e sai d l eases” subj ect t o t h e O perati n g A greem en t
. T h e O perati n g A greem en t contai n s a p ro vi si on req u i ri n g th e O p era tor to ob tain th e con sen t of E O G , th e N on -O p era tor, p ri or to dril l i ng: N o a ddit i o nalw e l ls hallb e dr i l l e d b y O peratorf o rt he J o i nt Acc o unt unl e s s and unt i lm ut uall y ag r e e d up o n i n writ i ng byt he par t i es her et o, and no e xpendi t ure s hal lbe m ade b y O per at oras t o a ny o ne pr oj ectori t e m i n e xc e s s o f t he s um o f

Five Tho us and ($ 5 0 0 0 .0 0 ) w ith o u t t h e w r itt e n co n s e n t o f th e N o n -O p e r a to r. . . . T h e O perati n g A greem en tdef i n es “Joi n tA ccoun t” a s “t h e com bi n ed i n t erestof th e p a rti es” i n the u n i t. Th e O p era ti n g A gr ee m en t gov ern ed the pa rti es’de ve l op m en t of Sec t i on 18 f or 50 years. I n 2 0 0 6 , C h esapea ke f i l ed ap pl i cat i on s w i t h t h e L ou i si an a O f f i ce of C on servat i on seeki n g t o desi gn ate al t erna t e u n i t w el l s f or, am on g ot h er un i t s, t h e H O S S T P S U R , the C VD S U AA , a n d t h e L C VR ASU B
. T h e C om m i ssi on er o f C o n s e r v a tio n h e ldh e a r in g s o n th e p r o p o s e da lte r n a te w e lls in 2 0 0 6 . E O G d id
no ta t t e nd t he he ar i ngs de s pi t e r e c e ivi n g n ot i c e . Af t e rt he he ar i ngs , t he C o m m is s io n e ri ssu edsev era lord ers p e r m itt in gth e d r illin go f th e a lte r n a te w e lls at i ssue. T h ese orders w ere each “ i ssuedan d p rom u l gated by the C om m i ssi on er

. . . as bei n g reasona bl y n ecess ary t o conserve t h e n aturalresou rces of t h e State, t o preven tw aste
. . . , t o avoid t h e dri l l i n g of un n ecess ary w el l s, an d otherw i se t o carr you t” t h e l aw s of t h e State. Th e Com m i ss i onerf ound t hati tw as “r e a s o n a b le a n din th e in te r e s t o f c o n s e r v a tio n to p e r m it [C h e s a p e a k e ] to d r ill, d e s ig n a te a n du tiliz e ” t h e p r o p o s e da lte r n a te w e lls
. T h e C om m iss ioner al so Case: 09-30363 Document: 00511095981 Page: 3 Date Filed: 04/29/2010N o. 09- 30363

4 f o und t hatt he w el l s wer e “ ne c e s s ar y andi n t he i nt e r e s to f c o ns e r va t i o n” a nd
w ou l deff

i ci en tly d ra i n the releva n t un i t. M ean w h i l e, C h esapea ke sent t h ree l et t ers t o E O G proposi n g t o dri l lt h ree a lter n a te w e ll s p u rs u a n t to th e O p e ra tin gA g re e m e n t: th e C h a tm a n 1 8 -5 A lter n a te W e ll , th e R .O
. R o y1 8 -8 A lter n a te W e ll , a n dth e R .O
. R o y1 8 -9 A l tern a te W ell
. T h ese w ell s w ere alll oca tedi n S ection 18 a n d w e r e altern a te
we l l s s l a t e dt o p r o d u c e g a s f r o m a l lt h r e e o f

t h e z o n e s d e s c r ib e da b o v e . E OG
n ever provi ded w ri t t en consent f or t h e t h ree w el l s, bu t t h ere i s som e i n di cat i on in th e re c o r dth a t e m p lo y e e s o f E O G ra is e do bje c tio n s o n its b e h a lf in
c o nve r s at i o ns w i t h Ches ap e ak e r e pr e s e nt at ive s . O n M ay1 4, 2 00 7, Ches ap e ak e w i t hdr e w i t s pr o po s al s t o dr i l l t he w e l l s pur s uant t o t he O pe r at i ng Agr e e m e nt and re

- pro pos ed dr i l l i ng t he w el l s i n ac c or dance w i t h pro vi si ons of T i tl e 3 0, Se c t i o n 1 0 o f

t he Lo ui s i anaRev i s e d St at ut e s . EO G o bj e c t e d b y l e t t e ri n J une 200 7. N on et h el ess, C h esapea ke dri l l ed and com pl et ed t h e t h ree w el l s. A l lt h ree w e r e dr i l l e d t o t he de pt h o f t he Lo w e rCot t o n Val l e y z o ne a nd c o m pl e t e d i n t he H osst on (T ravi s Pea k) an d C ot t on V al l ey “ D ” zones. Ches ap e ak e s us pe nde d EO G ’ s s har e o f r e ve nue s f

r o m t he s e ne w w e l l s a nd of fsetE O G ’ s po r t i o n o f t he dr i l l i ng andc o m pl e t i o n c o s t s . I n a ddit i o n, C h e s a p e a k e o ffs e t a n a d d itio n a l 1 0 0 p e r c e n t r is k fe e a t t r ib u ta b le to th e w e lls
a n dc o m p l e t i o n c o s t s a l l o c a b l e t o t h e L o we rCo t t o n Va l l e yZ o n e , R e s e r vo i rA,
w h i ch i s not sub j ectt o t h e O perati n g A greem en t
. T h i s su i tfol l ow ed. E O G argu es t h a ti t s a g r e e m e n tt o p a yc o s t s i s l i m i t e db yt h e p r o v i s i o n s o f t h e Op e r a t i ng A g r e e m e n t, in c lu d in gth e c o n s e n t r e q u ir e m e n t, a n dt h a t h a v in gb r e a c h e dth is p r o v i s i o n , C h e s a p e a k ec a n n o te n f o r c e i t s r i g h tt o c o l l e c td e v e l o p me n tc o s t s . E OG
s e e ks a d ecl ar at o r y j udg m e ntt hatChes ap e ak e b r e ac he d t he O pe r at i ng Agr e e m e nta nd wr o ngf ul l y w i t hhe l d it s 3 7. 5 pe r c e nts har e o f de ve l o pm e nt pr o c e e d s . Ch e s a p e a k e a r g u e s t h a ti td i dn o tb r e a c h t h e Op e r a t i n gAg r e e m e nt Case: 09-30363 Document: 00511095981 Page: 4 Date Filed: 04/29/2010N o. 09- 30363

5 an d t h at E O G ’ s su i tcon st i t u t es an i m perm i ssibl e coll ater alatt ack on orders of t he Com m i s s i o ne ro f Cons e r va t i o n. T h e d is tr ic t c o u r t d e fe r r e dcr o s s -m o tio n s fo rs u m m a r yju d g m e n t a n dh e ld
a o ne- day benc h t r i al
. A t t he c l os e o f E O G ’ s c as e, C hes apeake m ove d f orand w as g ra n ted a J u dg m en ton P art i alF i n di n gs pu rsuan tt o R u l e 52(c)

. T h e di st ri ct
c o ur ti s s ue d a M e m o r and um Rul i ng c o nt ai ni ng f i ndi ngs o f

fac ta nd c o nc l us i o ns o f l aw, a nd t hi s a ppe alf o l l o w e d. S TA NDARD OF RE VI EW O n a p p e a l o f a j u d g m e n t e n te r e dp u r s u a n t t o F e d e r a l R u le o f C iv il P rocedure 52(c) , f

i n di n gs of

facta re revi ew ed f

or c l ear err or and concl u si on s of l a w de no vo . Se eSam s o n v . Apo l lo Res
. , I nc . , 24 2 F. 3d 62 9, 63 2- 33 ( 5t h C i r. 20 01 )

. The i nt e r pr e t at i o n o f ac o nt r acti s am at t e ro f l aw r e vi e w e d de no vo . Huggs , I

nc . v . LPCEne rgy, I nc ., 8 8 9 F .2 d6 4 9 , 6 5 1 (5 th C ir . 1 9 8 9 ). In th is d iv e r s i t yc a s e we a p p l yL o u i s i a n a l a w. DI S CU S S I ON A . C ol l ater alA t t ack Loui si ana R evi se d St at ut es §§ 30: 1 e t s e q . creat e a C om m i ssi on er of Cons e r va t i o n t o pr e ve ntt he w as t e o f t he St at e’ s o i la nd g as r e s o ur c e s . The C om m i ssi on er has “ au t h ori t y over a l lpersons an d p ropert y n ecess ary t o enfor ce e f fec t ive l y t he pr o vi s i o ns o f t hi s Chapt e ra nd a l lo t he rl aws r e l at i ng t o t he
c ons ervat i on of oilor ga s. ” I d
. § 30: 4(A)

. P ri or t o dri l l i n g, a t ractow n er m u st obtai n a determ i n ati on f rom t h e C om m i ssi on er t h at a proposed w el l w i llnot
w a s te o il a n dg a s re s e r v e s . S ee Nu n ez v. W ainoco O i l & G as Co. , 488 So. 2d 955 , 9 6 1 (L a . 1 9 8 6 ), cer t
. den i ed , 4 7 9 U .S
. 9 2 5 ( 1 9 8 6 ) (d e s c r ib in gt h e C o m m is s io n e r ’s pow ers)

. T h e C om m i ssi on er has speci f i c pow ers t o m ak e such i n qu i ri es as h e t h i n ks proper t o deter m i n e w h et h er or no tw as t e [ o f

o i la nd g as ] e xi s t s o ri s i m m i ne nt
. . . [ and ] t he au t h ori t y t o coll ectdata; t o m ak e i n vest i gati on s and i n spect i on s; to ex a m i n e p rop erties, l ea ses , pa p ers, boo k s, an dreco rd s; to Case: 09-30363 Document: 00511095981 Page: 5 Date Filed: 04/29/2010N o. 09- 30363

Since the time of the events giving ri se to this suit, the statutory Ri sk Fee has been 1 increa se d to2 0 0p ercent of develop ment co st s.

6 exam i n e, survey, check, t est , an d ga u g e oi lan d ga s w el l s, t an ks, refi n eries, an dm od es o f tran sp orta ti on ; to h old h ea ri n gs ; to p r o v id e for th e k ee p i n g o f reco rd s an dthe m a k i n g o f rep orts; to requ i re t h e subm i ssi on of an em ergency p h on e nu m ber by w h i ch t he o pe r at o rm ayb e c o nt ac t e d i n c as e o f a n e m e r ge nc y; a nd t o t ak e a n ya ctio n [to e n for ce h is p o w e rs ]. L A
. R EV . S TAT
. A NN . § 30: 4( B )

. A f t ernot i c e a nd he ar i ng, t he C om m i ss i onerc an is s u e ab r o a dra n g e o f o r d e r s a n dre g u la tio n s a im e da t p r e v e n tin gw a s te
. I d. § 3 0 .4(C ). The C o m m i s s i o ne rha s t he o bl i ga t i o n t o de c l ar e dr i l l i ng uni t s i n o i la nd ga s fie ld s , i.e ., th e m a x im u m a r e a th a t c a n b e e ffic ie n tlya n de c o n o m ic a lly d r a in e d b yo n e w e ll. Id
. § 30: 9( B)

. W e l l s m ayo nl y be dr i l l e d wi t hi n t he dr i l l i ng u n it a t th e s ite d e s ig n a te db yt h e C o m m is s io n e r . Id
. § 30 : 9( C)

. I f m o r e t han o ne o w n e rh o ld s am in e r a l in te r e s t in ad r illin gu n it, th o s e o w n e r s m a yp o o l th e ir
resources to d evel op the u n i t , subj ectt o t h e gen eralpow er of t h e C om m i ssi on er to re g u la te e x tr a c tio n s o a s to p r e v e n t w a s te
. Id
. § 30 : 1 0 (A). B u t w h en sep a ra te
ow n ers ina u n i t “h a ve n ot ag ree dto po ol t h eir i n teres ts, ” aft er a p p rop ri a te
no t i c e a nd h e ar i ng “ t he c o m m i s s i o ne rs hallr e quir e t he m t o do s o . . . i f he f i nds i t t o b e n ece ssa ryto pre ve n t w a ste. ” I d. § 3 0 :1 0 (A)(1 ). C a lle d“fo r c e dp o o lin g ,” t h i s act i on sup ersedes i n divi du al property r i gh t s t o est abli sh a com m on i n t erest in t h e r e s e r v o iro f n a tu r a l re s o u r c e s b e n e a th a dja c e n t t r a c ts
. Nu n ez , 488 So. 2d at9 63

- 64
. Abs e nta n a gr e e m e ntbe t w e e n t r ac to w ne r s a l l o c at i ng c o s t s a nd pr o c e e ds , they a r e a l l o c at e d b y s t at ut o r y f o r m ul a pe r m i t t i ng t he de ve l o pi ng pa r t y t o r e c o up it s e xp e ns e s f r o m o t he runi to w ne r s o r , fail i ng t he i rpr o m pt pa ym en tof exp en ses, t o receive f rom t h e n on - dev el opi n g pa rt y a “ ri sk fee” on t op o f d r illin gco s ts e q u a l to 1 0 0 p e r c e n t o f th o s e co s ts . L A
. R EV . S TAT
. A NN . § 30
. 10 (A) ( 2 ) (b ) (h e r e i n a f t e r t h e “ Ri s k- Fee St at ut e ” )

. H o w e ve r , t he 1 Case: 09-30363 Document: 00511095981 Page: 6 Date Filed: 04/29/2010N o. 09- 30363

7 C o m m is s io n e r ’ s p ow er of f orce dpo o lin ga n dth e s ta tu to r ya llo c a tio n o f c o s ts s h a ll not“have t he e f

fect of e nl ar gi ng, di spl ac i ng, var yi ng, al t er i ng, ori n any w ay w h atsoeverm o d ifyin g or c h an gi n g t h e ri gh t s and obl i gati on s of t h e parti es th e r e to u n d e ra n yco n tr a c t b e tw e e n o ra m o n go w n e r s h a v in gatr a c t o rtr a c ts in th e u n i t. ” I

d. § 3 0 :1 0 (A)(2 )(g); seealso G u yE . W a ll, Jo i ntO i landG asO pe r at i o ns i n Lo ui s i ana , 5 3 L A
. L. R EV . 79, 90 ( 199 2) (R i sk F ee Statute “ ap pl i es i n t he
a b se n ce of a co n tra ct b e tw e e n o w n e r s h a v in gtr a c ts in th e u n it” (e m p h a s is
a d d e d )). Sui t s c hall e ngi ng an o r de ro f th eCo m m i s s i o ne rm ayo nl y be b r o ugh ti n t he st ate di st ri ctcourt i n E ast B aton R ou ge P ari sh, w h ere t h e C om m i ssi on er’ s of f i ce is lo c a te d . L A
. R EV . S TAT
. A NN . § 30: 12(A) ( 2)

. T h i s r u l e i s j u ri sdi ct i on ali n na t u re, s t r i ppi ng ot h er co ur t s o f t he po w e rt o he arc o l l at e r ala t t ac ks o n t he C o m m is s io n e r ’ s o r d e r s . See, e . g. , S an d ersv. G ary , 65 7 S o. 2 d10 8 5 , 1 0 8 7 (L a . C t. App. 1 99 5) (no t i ng t hatt he r ul e “ve s t s e xc l us ive j ur i sdi c t i o n t o c hall e nge t he i s s uanc e o f

adr i l l i ng pe r m i tw i t h t he N i ne t e e nt h Judi c i alD i s t r i c tCour tf o rt he P a r is h o f E a s t B a to n R ou g e ”); Ph i l l i ps Pet roleum Co. v. B atc h elor , 560 So. 2d 461, 4 6 4 ( L a . C t . A p p . 1 9 9 0 ) (n o tin gth a t t h e ru le “is aju r is d ic tio n a l p r o v is io n ”); S. Nat ur alG asCo. v. Po land , 4 06 So
. 2 d 6 57 , 6 61 (La. Ct
. App. 1 98 1) (“ The l eg i slatu re sim p l y h a s n ot give n . . . th is c o u r t th e j u ri sd i cti on a lau th ority to
a dju d g e in v a lida n o r d e ro f th e C o m m is s io n e ro f C o n s e r v a tio n .”); B r ow n v. A l i ce- S i d n ey O i lCo. , 3 4 3 S o .2 d 7 4 5 , 7 4 8 (L a . C t. A p p . 1 9 7 7 ) (n o tin gth a t t h e ru le is “ju r is d ic tio n a l in n a tu r e ”); Vi nc e ntv . Hunt , 2 21 So
. 2d 57 7, 58 2 (La. Ct
. App. 1 9 6 9 ) (n o tin gth a t E a s t B a to n R o u g e P a r is h is th e n o n w a iv a b le “‘ju r is d ic tio n a l’ venue” i n sui t s att ac ki ng C om m i ss i oner ’ s or der s)

. Th e r ul e a gai nstc ol l at er al att acks i s not l i m i t ed to sui t s s eeking a j u dg m en tt h at w o u l d “di rect l y af fect
ac t uale nf

o r c e m e nto f, o rc o m pl i anc e w i t h, t he C om m i s s i o ne r ’ s o r de r , ” b ut extend s broadl y t o “ sui t s betw een p rivate p art i es i n w h i ch a pa rt i cul ar ord er of t h e Co m m i s s i o n e r i s a n o p e r a t iv e fa c t u p o n wh i c h t h e d e t e r m i n a t i o n o f t he Case: 09-30363 Document: 00511095981 Page: 7 Date Filed: 04/29/2010N o. 09- 30363

8 p a rti es’ resp ective righ ts directl y d ep en d s. ” Trah an v. S u peri or O i lCo. , 700 F. 2d 1 0 0 4 , 1 0 0 5 (5 th C ir . 1 9 8 3 ). Ches ap e ak e a r gue s t hat , r e ga r dl e s s o f w he t he r i t br e ac he d t he O pe r at i ng A greem en t(w h i ch i td en i es) , E O G ’ s s u i ti s an i m perm i ssibl e coll ater alatt ack on t he C om m i ss i oner ’ s or der s per m i t t i ng dril l i ng. C our t s have c ons i der ed s eve r al fa c t o r s i n d e t e r m i ni ng whe t he r a s uit b r o ught i n a v e nu e o t he rt han t hat p r e s c r ib e db y§ 3 0 :1 2 (A)( 2 ) c h a ll e n g e s a n “ o p e r a t iv e fa c t” o f t h e C o m m is s io n e r ’s
o r de rs uc h t hati ti s a n i m pe r m i s s ibl e c o l l at e r ala t t ac k: 1. D o e s t he pl ai nt i f

f s e e k r e l i e f

t hatw o ul d r e quir e t he de fe nda nt t ovi o l ate t h e C om m i ssi on er’ s or der? Tr aha n , 70 0 F
. 2 dat 1015- 1 6 ; c. f

. Un i t ed G as P i

pe L i n e Co. v. W

ats on O i lCorp . , 306 So. 2d7 31 , 7 36 ( L a. 1 97 5) (t he Com m i s s i o ne r ’ s o r de r s s upe r s e de contract u ald u ties w h en t h e contr actrequi res act i on or in a c tio n o ffe n s iv e to th e C o m m is s io n e r ’ s o r d e r). 2. W ou l d resol u t i on of t h e cl a im requi re t h e courtt o rec on si der t h e C om m i ssi on er’ s fact u alf i n di n gs? Se eTr aha n , 700 F. 2d at 1 0 1 6 -17 (c i t i ng S avoy v. Ti d ew ate r O i lCo. , 218 F. Supp. 607 (W
. D
. La. 1963) (f

i ndi ng a c ol l at er alat t ac k w her e c hal l enge im p lic a te dC o m m is s io n e r ’ s fin d in g s o f g e o lo g ic a l fa c ts ); Mayer v. Ti d ew ate r O i lCo. , 2 1 8 F
. S u p p . 6 1 1 (W .D
. L a . 1 9 6 3 ) ( sa m e )). 3. W o ul d t he Com m i s s i o ne rhave had t he aut ho r i t y t o gr antt he r el i ef r eques t ed by pl ai nt i f f i f t he c l ai m had bee n pre se nt ed at t h e hea ri n g? Se eTr aha n , 700 F. 2d a t 1019 (c i t i ng Pi e r c ev. G o l dki ng Pr o

ps . , I nc . , 3 96 So
. 2 d 5 28 , 5 34

- 35 (La

. Ct
. App. 1 9 8 1 ) (fin d in gaco lla te r a l a tt a c k w h e r e th e re lie f s o u g h t c o u ld h a v e b e e n g ra n te db yth e C o m m iss ion e r)). W e ho l d t hatE O G ’ s s ui tdo e s no tc hall e nge a n “ o pe r at ive fac t” o f t he Co mm i s s i o n e r ’ s o r d e r s a n dt h u s i s n o ta c o l l a t e r a la t t a c k o n t h e m. F i r s t , E OG d o e s n o ts e e kre li e f th a t w o u ldr e q u ir e C h e s a p e a k e to v io la t e th e C o m m is s io n e r ’s
or der s. Th e o r der s give “ per m i ss i on t o d r i l l” and t he C om m i ss i onerf ound t hat i tw o ul d b e “ r e as o nab l e a nd i n t he i nt e r e s to f c o ns e r va t i o n t o pe r m i t” t he dr i l l i ng of al t erna t e w el lsit es. T h ese or ders w ere perm i ssive, not c om pu l sor y— th ey Case: 09-30363 Document: 00511095981 Page: 8 Date Filed: 04/29/2010N o. 09- 30363

Inits Memoran dum Ruling, the di strict court stated: “E OG maint ain s that it di d not 2 consent to the drilling of the wells under the OperatingAgre ementbecau se the wells were unnecessary and would be drilled too closeto alreadyexisting wells. S ucha contention is in direct conflict withthe orderso f the C ommissioner, and constitute s animpermissible coll ateral attack.” EOG Res

. , 20 09 WL 891 891 , at*8(citations omitte d). For this proposition , the di strict court cit ed thefactual his tory rec ount ed in EOG ’s sum mary judgmentmotion. In the same motion , however , E OG noted that it di d not “chall en gea nyorder of the Commissioner—neitherthe orders approving the units nor the orders approving the wells in que stion .” Its praye rf or relief sou ght an accounting of the procee ds of the well and a declaration that, b ecau se Chesapeake breached the OperatingAgre ement , it was not entitle d to recoup it s drilling costs. In neither its summary ju dgment motion nor at trial did EOG seek tob lockdrilling . 9 a ll o w e d bu tdi d n otrequi re C h esapea ke to dril lt h e proposed w el l s. T h e use of t he w or d “nec es sa r y” i n t he o r der s i s nott o t he c ont r ar y; t her e i s no c l ause t hat
w ou l d su bj ectC h esapea ke to any p en al t y f or n o t dr i l l i ng t he w e l l s . N o r w e r e t he
or der s an exe r c i se of t he C om m i ss i oner ’ s “ f or c ed po ol i ng” p ow er, w hi c h w as u n n e c e s s a r y b e c a u s e E O G a n d C h e s a p e a k e h a dp r e v io u s lya g r e e dto p o o l th e ir
r e s o u r c e s to d e v e lo p th e u n i tb ye x e c u tin gth e O p e r a tin gA g r e e m e n t. S ee A lex a n d erv. Ho lt , 1 16 So
. 2 d 532, 5 34

- 36 (La. Ct
. App. 1 95 9) ( di s t i ngu i s hi ng b etw ee n ord ers th a t pe rm i t dril l i n g a n dtho se th a t com p el poo l i n g). Inan y e ve n t, wh e t h e rt h e C o mm i s s i o n e r ’ s o r d e r s r e q u i r e do rm e r e l yp e r mi t t e dd r i l l i n g , E OG does n ota sk t h e courtt o enj oi n C h esapea ke f rom f u rt h er operat i on of

t h e w el l s. Rat he r , EOG s e e k s a n a c c o u n t i n g o f t h e p r o c e e d s o f t h e we l l s p u r s u a n t t o t he O perati n g A greem en t , w i t h ou tded u ct i on f or C h esapea ke’ s w el lexpen ses or ap pl i cat i on of

t h e R i sk F ee Statute. 2 Sec ond , E O G d oe s notc hal l enge any of t he C om m i ss i oner ’ s fac t ual fin d in g s . Thi r d, t h e C om m i s s i o ne rw o ul d ha ve b e e n wi t ho utpo w e rt o g r antt he
r e l i e f r e que s t e d b y EO G : a n a c c o unti ng o f t he pr o c e e ds o f

t he w e l l s . The C om m ission er h a s th e p ow er to a l l oca te d ev elop m en t an dpr od u cti on costs
am on g t ractow n ers i n a un i t , bu tonl y af t er h e h as ex erci sed h i s pow er of f orced p o o lin g , w h ic h w a s n o t t h e ca s e h e r e . L A
. R EV . S TAT
. A NN . § 3 0 :1 0 (A)(2)(b ). Case: 09-30363 Document: 00511095981 Page: 9 Date Filed: 04/29/2010N o. 09- 30363

10 O th e rw ise , th e C o m m iss ion e r h a s n o p o w e r to “en la rg [e ], d isp la c[e ], v a ry [], al t e r [] , ori n any w ayw hat s o e ve rm o dif y[] o rc hang [ e ] t he r i ght s a nd o bl i ga t i o ns of t h e p a rti es.” Id
. § 3 0 :1 0 (A)(2 )(g); s e eals o Mag no l i a Co alTe r m i nalv . Phi l l i ps O i lCo. , 5 7 6 S o . 2 d4 7 5 , 4 8 4 (L a . 1 9 9 1 ) (“B r e a c h o f aco n tr a c tu a l o b lig a tio n . . . is n o t w ith in th e ju r is d ic tio n o f th e co m m is s io n e ro f c o n s e r v a tio n .”); Uni t e d Gas P i pe L i n e Co. , 3 0 6 S o . 2 da t 7 3 6 ; S u peri or O i lCo. v. Hu m ble O i l& R ef i n i ng Co. , 24 1 So
. 2 d 9 11 , 9 12 (La. 1 97 0) (“ [ T ] h i s i s , t hus , ac o nt r ac tdi s put e pur e a nd
s im p le w h ic h th e C o m m is s io n e rca n n o t r e s o lv e . . . .”); Mo ns a nt o Che m . Co

. v . S. Na tura lG as Co. , 1 02 So
. 2 d 2 23 , 2 25 (La. 1 95 8) (“ I tw o ul d b e b e yo nd t he f u n ct i on an d p ow ers of t h e C om m i ssi on er to say w h et h er ornot al l eged
c ont r ac t ualr i ght s . . . w er e re c as tand af fec t ed byt he o r der
. Th ati s c l ear l y a fu n ctio n of th e co u rts .”)

. T h i s hol di n g i s not contrary to t h e L ou i si an a S u prem e C ou rt ’ s l an dm ark Nu n ez c as e , w hi c h t he di s t r i c tc o ur tc i t e d e xt e ns ive l y. I n Nu n ez , th e co u r t h e ld t h at t h e C om m i ssi on er’ s un i t i zati on pow er s u perseded t radi t i on alsubsu rface prop e rty r ights. 488 So. 2d at 962. A ccor di n gl y, an operatordi d n ott respass w hen i t s w el lc r os se d t h e su b sur fac e b oundary ont o t he pl ai nt i f f ’ s pro per t y, w h i ch w as part of

t h e dri l l i n g u n i t
. T h e cou rtrej ect ed t h e pl ai n t i f f ’ s dem an d f

or a n inju n c tio n o r d e r in gt h e o p e r a to rto re m o v e th e w e ll. Id
. at 964. I n so r ul i ng, t h e courtob served t h at “[u ] n i t i zati on . . . creates ri gh t s an d i n t erest s i n a pool
o f hy dr o c arbo ns b e yo nd t he t r ad i t i o nalpr o pe r t y l i ne s [ and ] e f fe c t ive l y am e nds

. . . p r iv a te p r o p e rty law s. ” Id
. a t 96 3
. Inthis case , E O G do es n ot see k to vi n di cat e a property r i gh t , bu trat h er a c on t ract u al ri gh t t h at t h e C om m i ssi on er is w ith o u t p o w e rto m o d ify . L A
. R EV . S TAT
. A NN . § 3 0 :10 (A)(2)(g). C on si deri n g t h e f

oregoi n g, w e revers e t h e j u dg m en tof t h e di st ri ctcourt t h at t h i s s u i ti s a c ol l ater alatt a ck o n th e orders of t h e C om m i ssi on er of Cons e r va t i o n. Case: 09-30363 Document: 00511095981 Page: 10 Date Filed: 04/29/2010N o. 09- 30363

11 B . B re a c h o f C o n tra c t B e c a u s e § 3 0 :1 2 (A)(2 ) is ju r is d ic tio n a l in n a tu r e , t h e d is tr ic t c o u r t s h o u ld h ave d i sm i ssed t h e case f or l ack of j u ri sdi ct i on u pon f i n di n g t h at t h e sui tw as a coll a tera l a tt a c k
. H ow ev er, th e d i stri ct cou rt did g o on to m a k e fi n d i n gs as to b r e a c h o f c o n tr a c t t h a t w e co n s tr u e a s a n a lte r n a tiv e b a s is fo rits d e c is io n . Fi r s t , t he di s t ri ctcour tf o und t hatChes ap e ak e “ di d no tb r e ac h t he O pe r at i ng Agr e e m e nt be c aus e t he w e l l s w e r e dr i l l e d f o r t he pur po s e o f

r e ac hi ng t he Lo w e r Cot t o n Val l e y Zo ne , Res e r vo i rA, ” w hi c h z o ne w as no tc o ve r e d b y t he O p e r a tin gA g r e e m e n t. E O G R es. , 20 09 W L 89 18 91 at * 8. I t s t at e d: “ Ther e i s no c o n t ract uala gr e e m e ntb e t w e e n t he pa r t i e s w i t h r e s pe c tt o t hi s f o r m at i o n. W i th ou t a con tractu a lag ree m e n t, th ere can be n o b rea ch the reo f. ” I d. Se c o nd, t h e d i st ri ctcou rta ckn ow l edg ed E O G ’ s argu m en ttha t“ t h e w el l s w ere c om pl et ed i n the tw o zo n es su bj ect to the O p e r a tin g A gr ee m en t. ” Id
. at* 9. H o w e ve r , t he di st ri ctcourtrej ect ed the argu m en tt h at t h i s co m p leti on i n t h e t w o covered
zo n es b rea ch edthe O p era ti n g A gr ee m en t, si n ce su ch com p l eti on w a s “f ou n dto be ne c e s s ar y andi n t he i nt e r e s tof co ns e r va t i o n by t he Com m i s s i o ne r , ” a nd t hus t he s ui tw as a n i m pe r m i s s ibl e c o l l at e r ala t t ac k. I d. W e have r eve r se d t he di st r i c t c our t ’ s f i ndi ng t hat t he s ui tw as a c ol l at er al att ack, an d an y f

i n di n g t h at i s predi cat e d t h ereup on l i kew i se c an n otsurvive. Acc o r di ngly, w e v ac at e t he f i ndi ng t hatt he r e w as no b r e ac h o f c o nt r ac ta nd
r e m a n dto th e d is tr ic t co u r t to d e te r m in e th e r e s p e c tiv e c la im s o f th e p a r tie s in t h e f i rsti n st an ce. CO NC L US I ON C on si deri n g t h e f

oregoi n g, w e revers e t h e j u dg m en tof t h e di st ri ctcourt t h at t h e su i tw as a col l ater ala t t ack, v acate the f i n di n g t h at there w as no breach
o f c o n t r a c t , a n dre m a n dfo rfu r th e rp r o c e e d in g s co n s is te n t w ith th is o p in io n . A p p ell a n t’ s m oti on f or leav e to fil e a su r-rep l y is de n i ed as m oo t. Case: 09-30363 Document: 00511095981 Page: 11 Date Filed: 04/29/2010