In Litel Explorations, LLC v. Aegis Development Co., LLC, 21-0741 (La. App. 3 Cir. 4/6/22), –So. 3d–, the Louisiana Third Circuit denied the LDNR’s claims for recovery of over 6.3 million dollars in emergency costs from prior operators of an orphaned well. The Court held that, when the LDNR spends monies from the Oilfield Site Restoration Fund on emergencies, it can only recoup those costs from the well’s operator of record and its working interest owners.
In 1993, the State of Louisiana enacted the Oilfield Site Restoration Law (“OSRL”) with the goal of cleaning up and closing orphaned oilfield sites through the use of the Oilfield Site Restoration Fund (the “Fund”). See La. R.S. 30:80 et seq. In 1999, the Legislature provided a separate method for the Louisiana Department of Natural Resources (“LDNR”) to respond to emergencies, defined as situations requiring “immediate action to prevent substantial or irreparable damage to the environment or a serious threat to life or safety.” This revision to the OSRL also allowed the LDNR to tap into the Fund to pay for emergency response costs.
When the LDNR spends money from the Fund for either plugging orphan wells or responding to emergencies, it may recover those funds pursuant to the cost recovery rules of La. R.S. 30:93. For orphan well restoration work the LDNR may, in certain circumstances, recover costs exceeding $250,000 from prior operators of the well in reverse chronological order, starting with the current operator of record and proceeding backwards through the chain of prior operators and working interest owners until all costs are recovered. For emergency response costs, however, the statute simply states that “recovery of costs shall be against the responsible party.” The OSRL defines “responsible party” as “the operator of record . . . who last operated the property . . . and that operator’s partners and working interest owners.” La. R.S. 30:82(11).
The Litel case began as a legacy lawsuit, in which Pioneer Natural Resources, Inc. and Gary Production Company were named as prior operators of the G.A. Lyon Well #1. The Lyon Well was leaking in 2018, which prompted the LDNR to task the current operator (Sandhill Production, Inc.) with stopping the leak. Sandhill never managed to stop the leak, and it abandoned the well in August 2019. The LDNR declared an emergency over the Lyon Well leak and spent money from the Fund on the emergency response. Thereafter, the LDNR intervened in the Litel case, seeking recovery of emergency costs from Pioneer and Gary. Pioneer and Gary filed motions for partial summary judgment, arguing that the LDNR could only recover emergency costs from the current operator and its working interest owners under the plain language of La. R.S. 30:93. The trial court agreed, and dismissed the LDNR’s claims for cost recovery.
The LDNR then filed the instant appeal with the Louisiana Third Circuit. In its briefing, the LDNR argued that the orphan status of the well controls the source(s) of cost recovery and that costs expended on an orphaned well are recoverable from prior operators regardless of whether the expenditure was for plugging the well or responding to an emergency. Pioneer and Gary disagreed, maintaining that the plain language of the statute limits emergency cost recovery to the responsible party (i.e., the last operator of record and its working interest parties). They further argued that the Lyon Well had not been declared an orphan well at the time LDNR declared an emergency, nor when the LDNR began spending monies from Fund on emergency response. In addition, Pioneer and Gary highlighted that orphan restoration work under the OSRL requires a formal bidding process, whereas the LDNR chose to employ the less-stringent informal bidding process available for emergency responses.
The Louisiana Third Circuit, in an opinion authored by Judge Perret, affirmed the granting of Pioneer’s and Gary’s motions for partial summary judgment. The Court noted that while the LDNR may typically recover costs from prior operators for orphan well restoration, the “clear and unambiguous language” of the OSRL “creates a separate and distinct limitation as to recoupment of costs incurred pursuant to a response to any emergency.” Thus, for “any emergency,” cost recovery “shall be against the responsible party.” (Emphasis added by the Third Circuit). By declaring an emergency and paying for emergency response costs with monies from the Fund, the LDNR limited itself to recovery from the responsible party – Sandhill and its working interest partners. Given that Pioneer and Gary were not working interest owners with Sandhill, the LDNR could not recover costs from them.
The Third Circuit’s ruling highlights the separate nature of cost recovery by the LDNR for orphan well restoration versus emergency response in the OSRL. In addition, it highlights that under each regime, the declaration requirements, bidding procedures, and cost recovery rules are all different depending on which type of work the LDNR elects to pursue. Furthermore, this ruling ensures that, while prior operators may be required to pay for well plugging obligations that they once held themselves, they will not be on the hook for unforeseen emergencies arising under the watch of another operator.
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