## Facts

- Davis Oil and Steamboat held separate mineral leases on adjacent tracts in Louisiana’s East Manchester Field.
- Davis Oil sought an order from the Commissioner of Conservation creating drilling and production units; the initial proposal did not include certain portions of Steamboat’s leasehold.
- Steamboat appeared at the conservation hearing, opposed Davis Oil’s proposed unit boundaries, and submitted a counterproposal seeking inclusion of portions of its leasehold to prevent uncompensated drainage.
- The Commissioner issued a unitization order that included portions of Steamboat’s leases in two units and designated Davis Oil as the unit operator.
- Steamboat’s included acreage represented small percentage interests in each unit.
- Davis Oil drilled one well in each unit; both wells were dry holes.
- Davis Oil invited Steamboat to participate in drilling; Steamboat declined.
- Davis Oil billed Steamboat for its proportionate share of drilling costs based on Steamboat’s unit interests; Steamboat refused to pay, asserting that any cost recovery was limited to recoupment from its share of production.

## Issues

1. Whether a non-operating lessee whose leasehold is compulsorily included in a drilling unit becomes personally liable in cash for dry-hole costs by proposing and supporting modified unit boundaries at the conservation hearing.
2. Whether, absent consent to operations, a non-operating owner’s liability in a compulsory unit is limited to recovery out of its share of production.

## Decision

- The Louisiana Supreme Court reversed the court of appeal and reinstated the trial court’s judgment.
- Steamboat was not personally liable for any portion of Davis Oil’s dry-hole drilling costs.
- Steamboat’s participation in the unitization proceeding and submission of a counterproposal to protect against drainage did not constitute implied consent to unit operations.
- Because there was no production, Davis Oil had no source from which to recoup costs from Steamboat’s production share.

## Legal Principles

- In a compulsory drilling unit, a non-operating mineral interest owner who does not consent to operations has no liability for development and operating costs except out of its share of production.
- Personal (in personam) liability for drilling and operating expenses requires express or implied consent; absent consent, the nonconsenting owner is effectively carried and costs are recoverable only from production.
- Regulatory participation—such as advocating for unit boundaries or submitting alternative unit proposals—does not, by itself, create contractual consent to operations or personal liability for costs.

## Conclusion

The court held that a nonconsenting lessee included in a compulsory unit is not personally liable for dry-hole costs, and that participation in conservation hearings to protect correlative rights does not imply consent to unit operations; the operator’s recovery is limited to the nonconsenting party’s share of production, if any.


Davis Oil Co. v. Steamboat Petroleum Corp., 583 So. 2d 1139 (La. 1991)