In Mistretta v. Hilcorp Energy Company, unleased mineral owner Mistretta sued Hilcorp alleging failure to provide requested production and well cost information pertaining to an oil well operated by Hilcorp. The well was in a unit established in accordance with the Louisiana Conservation Act.  The issue: Do La. R.S 30:103.1 and 103.2 require one notice or two before the operator loses its right to recover costs from the owner?

Under the Act, each mineral owner in a drilling unit is responsible for its share of development and operation costs. To prevent free riding, the Act provides a mechanism for sharing the risk that the well, once drilled, will not produce enough to cover drilling costs. If the operator gives the opportunity to participate in drilling the well and the unleased mineral owner declines, the operator can recover out of production the nonparticipating owner’s share of drilling costs.  

The statute (paraphrased)

103.1: The operator must report to owners of unleased mineral interests by a sworn, detailed itemized statement of costs of drilling, completing and equipping within 90 days from completion of the well. and then send quarterly reports thereafter on costs and revenues, or within 90 calendar days after receiving a request from an unleased mineral owner in writing, whichever is later. Communications must be by certified mail.

103.2:   Whenever the operator permits 90 days to elapse from completion of the well and 30 additional days to elapse from date of receipt of written notice from the owner calling attention to the operator’s failure to comply with 103.1, the operator will forfeit his right to demand contribution from the owner for the costs of the drilling operations of the well.

Operative dates would be helpful:

• September 3, 2022:  Completion of the well.
• December 7, 2022: Mistretta’s written notice received.
• February 16, 2023: Hillcorp’s email response.
• February 20, 2023: Hillcorp’s certified mail response.
• There was no second written request from Mistretta

Mistretta contended that express unambiguous language of 103.1 and 103.2 requires that after 90 days had passed following the completion of the well and after 30 days have passed after the operator received notice from the unleased owner requesting reports, 103.2 takes effect resulting in forfeiture of the operator’s right to recover drilling costs. Hillcorp’s response was not timely under 103.2 (coming more than 30 days after receipt of Mistretta’s notice).

The ruling – two requests required

The court did not buy Mistretta’s interpretation of the statute. 103.1 must be read in conjunction with 103.2 and when read together the statute requires two separate notices, an initial request seeking information and another notice advising the operator that it had failed to provide the required information. The operator’s obligation under 103.1 does not arise until the request is made for such a report.103.2 provides for the passage of an additional 30 days after the owner has sent the operator a notice calling attention to its failure to comply with 103.1 before it takes effect and results in forfeiture.

Reading 103.1 in conjunction 103.2, the 103.2 penalty provision was not triggered due to Mistretta’s failure to comply with a second notice requirement mandated by 103.2.

The court added that 103.2 is a penalty statute. Penalty statutes are penal in nature and should be strictly construed.

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