The Louisiana Chapter of the National Association of Royalty Owners (NARO) is holding its first event of 2012 in Lafayette, Louisiana.  "Louisiana Mineral Code" will be presented on Tuesday, March 27th from 1:30 to 4:30 p.m. at The Petroleum Club of Lafayette. Patrick S. Ottinger with Ottinger Hebert, L.L.C. will be the guest speaker. The event is limited to 120 registrants. The cost is free to NARO Louisiana members or $100 to non-members.

Continuing education credits will be available.

The registration form can be accessed via our website www.narolouisiana.org <http://www.narolouisiana.org>. 

As 2011 comes to a close, it is time to begin thinking about the New Year and what prosperity it will bring. The ISA Lafayette Section Executive Committee has begun its efforts for the Annual GoTech 2012 Expo and Social Networking event. The Expo will be held on Thursday, March 22, 2012 at the Cajundome Convention Center. The Exhibitor format will be a Table-top model, just as in 2011, where the booth spaces will be on the perimeter of the Cajundome Convention Center Festival Ballroom, with a networking area in the middle. We are still finalizing our keynote speaker and will notify you as soon as all details are worked out. This year, ISA Lafayette will be hosting Mr. Bob Lindeman, ISA National’s new President for 2012. We trust that all exhibitors and attendees will help us welcome Mr. Lindeman in true Acadiana tradition. The Keynote Luncheon and presentation will take place in the Festival Ballroom.

There are ONLY 44 spaces available, so please get your registrations in early to ensure that you have a space.

Our GoTech 2012 schedule is as follows:
 8:00am – 10:00am Vendor set-up
 10:00am – 11:00am Exhibitor Networking
 11:00am – 12:00noon Lunch and Mr. Lindeman Presentation
 12:00noon – 1:00pm Keynote Address
 1:00pm – 4:00pm GoTech Tabletop Exhibits OPEN to Public
 3:00pm – 5:00pm Social (Cash Bar)
 4:00pm -5:00pm Exhibit Take Down

The Social will begin a little earlier this year and will be held in the ballroom area inside the Convention Center. ISA Lafayette along with their sponsoring partners will provide the food and a Cash Bar will be available for your ‘social networking’ beverages of choice.

Registration for GoTech 2012 can be accomplished on-line at www.isalafayette.org and will begin on January 15th, 2012. Purchases and payment can be submitted on-line or a registration packet can be downloaded for printing if you prefer to mail your payments. A deadline for registration has been set for March 1, 2012 in order to allow us to finalize the details and projected attendance. Remember, ONLY 44 spaces available – when they are gone – THEY ARE GONE!

In an effort to help control costs for exhibitors, the cost for one table space will be $250, which includes (2) Keynote Luncheon tickets and (2) Exhibitor badges. An unlimited number of Guest badges can be registered on-line or through the registration packet. Each table-top space will be an ‘open front’ that is approximately 8’ wide by 6’ deep with side rails. One 6’ skirted table, (2) chairs, a trash can, and (1) single electrical outlet (120VAC, 5 amp) will be provided for each space. Additional services are available from Clark Services. Additional table spaces, ie 6’x8’x6’ are available at $150 each. There are NO hanging backdrops in the spaces. There will be a wall at the back of your space, however, nothing can be affixed to the wall. If you need a backdrop for your space, you are encouraged to provide your own – free standing backdrop.

We encourage everyone to renew or become Section Sponsors during sign-up for GoTech. Section sponsorships are $150/year and cover the period of July-June. Benefits of section sponsorship include:

 Support of the annual ISA-Lafayette scholarship program at UL-Lafayette. Each year we award (2) scholarships – (1) to an Engineering student and (1) to an Industrial Technology student – in an effort to develop future instrumentation professionals.

 Display of Section Sponsor logos at all ISA-Lafayette events.

 Recognition of Section Sponsors at all ISA-Lafayette events.

 Display of Section Sponsor logos and contact information on the ISA-Lafayette website.

The cost of Keynote Luncheon tickets this year will be $30 each. As mentioned above, (2) tickets are included in the cost of the first table space; additional tickets may be purchased on the ISA-Lafayette website or by contacting either Rachel Hebert, rhebert@DMC-CC.com, 337-593-8662, or Ashton Chiasson, ashton.chiasson@hlrcontrols, 337-280-8962. We encourage everyone to purchase tickets early to enable us to provide an accurate estimate of the expected number of attendees.

The Keynote Luncheon speaker will be determined in the near future.

We are also seeking hospitality sponsors for the Social that will begin at 3:00pm during the GoTech 2012 Expo. This will be an opportunity to network with other instrumentation professionals, vendors and end users alike, in a more relaxed setting and should be a fun time for all – one thing we strive for is to provide an opportunity for our membership to “pass a good time” regardless of the circumstances that surround our industry. The Hospitality Sponsors will be recognized with their names prominently displayed throughout GoTech 2011 and during the Social. Hospitality sponsorships are available for $250. If you would be interested in being a VIP Sponsor to GoTech 2012, please contact one of our Board Members. Their contact information can be found at www.isalafayette.org.

If you have participated in GoTech in the past we are excited about your return to this venue. If you have not yet participated in the GoTech event, we encourage your participation and attendance. If you have additional suggestions or comments, please feel free to contact any of the Section officers or use the “Contact Us” feature of the website, www.isalafayette.org. This is your organization and it is only with your feedback that it can prosper.

In a further effort to enhance the benefits of participation in the ISA-Lafayette Section we are making efforts to expand the range of attendance and topics of interest for our monthly meetings. More on this later; or as the news guys say, “Details at 10:00”.

Thank you for your continuing support of the ISA Lafayette Section and GoTech 2012.

Brent Haydell
President – ISA Lafayette

First National Bank, USA v. DDS Construction, LLC, 2011-1418 (La. 1/24/2012).

In this case, the Supreme Court of Louisiana addresses the use of an instrument frequently utilized to correct errors in recorded documents: the notarial act (or affidavit) of correction.

A construction company granted a mortgage to a bank on subdivision lots it was seeking to develop.  The company sold one of the lots, “Lot 8,” but failed to use the funds to pay off its loan.  The purchaser of Lot 8 granted a mortgage to a second bank to finance its purchase.  The bank holding the first mortgage sought foreclosure.  Later, as a result of the construction company paying off part of its debt as to other lots, the bank recorded a request to cancel the first mortgage as to certain property, but erroneously listed Lot 8 among those to be released. 

Thereafter, the bank recorded an Act of Correction to remove Lot 8 from the Request for Cancellation.  This act was executed by the bank’s vice-president, but not by the notary who passed the request.  Later, the bank filed a second Act of Correction, seeking to fix the same mistake, but, this time, the correction was executed by the notary.

The bank that held the second mortgage then sought to have its mortgage ranked superior to all others, arguing that the first bank canceled its mortgage by the filing of its Request for Cancellation (which erroneously included “Lot 8”) and that the Act of Correction could not reinstate it.  The dispute wound up the in the Louisiana Supreme Court.  The primary issue before the Court was whether a notarial affidavit of correction can affect a mortgage that was previously canceled.

The Court decided the case by first examining the notarial act correction statute at issue, La. R.S. 35:2.1, which provides, in pertinent part:

A. A clerical error in a notarial act affecting movable or immovable property or any other rights, corporeal or incorporeal, may be corrected by an act of correction executed by the notary or one of the notaries before whom the act was passed, or by the notary who actually prepared the act containing the error. The act of correction shall be executed by the notary before two witnesses and another notary public.

B. The act of correction executed in compliance with this Section shall be given retroactive effect to the date of recordation of the original act. However, the act of correction shall not prejudice the rights acquired by any third person before the act of correction is recorded where the third person reasonably relied on the original act. The act of correction shall not alter the true agreement and intent of the parties.

The Court found no limitation in the language of the statute to prevent its application to mortgages.  Next, the Court considered whether the inclusion of Lot 8 in the list of released properties can be considered a “clerical error” under the statute.  The Court stated that it “hold[s] that including, or failing to include, a number in a series of numbers is just one of the almost limitless examples of clerical errors.” 

However, the Court found that the first Act of Correction did not comply with the statute.  La. R.S. 35:2.1 requires that the correction be executed by the notary before whom the act was passed or the notary who actually prepared the act containing the error.  The first Act of Correction was executed by a company vice-president, not a notary.  The Court found that the second Act of Correction, which was executed by the proper notary, complied with the statute.

Further, the Court held that, in accordance with paragraph B of the statute, the corrections can be given retroactive effect to the date of the filing of the Request for Cancellation.  The Court states that:

The effect of making the correction to the Request for Cancellation retroactive deletes the reference to Lot 8 as though it was never there; [the mortgage] was never cancelled from Lot 8 and the [the first mortgage] continued to prime the [second mortgage].  We find the holders of the [second mortgage] suffered no prejudice as contemplated by the statute as a result of the filing of the Act of Correction. . . .

The bank holding the second mortgage argued that a mortgage may only by reinstated by a court and that private parties may not use La. R.S. 35:2.1 to revive the mortgage.  The Court rejected this argument, reasoning that prior cases holding that only a court may reinstate a mortgage pre-date the enactment of La. R.S. 35:2.1 in its present form and, in any event, “the present facts do not constitute the reinstatement of a mortgage. Here, by operation of the statute, the mortgage was never cancelled as to Lot 8, so there is no mortgage that would need to be reinstated.”

The Court also looked at the specific facts of the case and determined that the correction served the true intent of the bank in the Request for Cancellation, which was to release certain properties other than Lot 8 from its mortgage.

This case raises a few issues worth discussing.  First, the statute requires some very specific formalities.  For example, it only applies to “notarial acts,” which the Supreme Court notes are also referred to as authentic acts, which are instruments executed in the presence of two witnesses and a notary.  Thus, the statute does not appear to apply to an instrument that contains only a direct or witness acknowledgement, in which the signing party or a witness later acknowledges the signature in the presence of a notary.  Further, the act of correction, itself, must be executed before two witnesses and another notary public.  As a result, both the original act and the act of correction should be in authentic form.   

The act of correction must be executed by (1) the notary (or one of the notaries) before whom the act was passed, or (2) by the notary who actually prepared the act containing the error. This requirement can lead to some difficulties for landmen and title examiners where the act of correction is executed in the second case, that is, by a notary other than one who passed it.  In that scenario, it may be impossible to determine whether the act complies with the statute because one may not be able to ascertain or verify whether the notary signing is the one who actually prepared the original document.

Greater challenge may lie in determining whether the correction “alter[s] the true agreement and intent of the parties” (La. R.S. 35:2.1(B)).  For example, where a correction inserts the middle name of a party (changing “Jane N. Smith” to “Jane Nancy Smith”), it is unlikely that the state of mind of the parties will be called into question.  However, what about where the description of property in a sale is changed because of a purported typographic error  – say, “the SW of SE of Section 12” amended by a notarial act of correction to “the SW of SW of Section 12”?  Or, where the notarial correction inserts a mineral reservation into a sale that originally contained no such reservation?  How would a third party looking only at the public records know that the corrections comport with the true intent of the parties?  Courts can look at evidence and testimony pertaining to the intent of the parties; a landman or title examiner looking only at the public records does not have that luxury. 

In short, be wary when you come across a notarial act of correction because of both the stringent formalities required by La. R.S. 35:2.1 and the difficulty of determining whether the correction conforms with the subjective intent of the parties to the original act. 

Adams v. Chesapeake Operating, Inc., 2011 WL 6370512 (W.D. La. 2011).

In this case, an unleased owner of land within a unit sent Chesapeake Operating, Inc., the operator of a unit well, a letter demanding “production payments” within thirty days of receipt of the letter.  The property owner thereafter filed suit claiming payments for his share of production, as well as “a penalty up to twice that amount and interest . . . as well as attorney’s fees,” citing Sections 212.21 to 212.23 of the Mineral Code.  These statutes provide:

§ 212.21. Nonpayment of production payment or royalties; notice prerequisite to judicial demand

If the owner of a mineral production payment or a royalty owner other than a mineral lessor seeks relief for the failure of a mineral lessee to make timely or proper payment of royalties or the production payment, he must give his obligor written notice of such failure as a prerequisite to a judicial demand for damages.

§ 212.22. Required response of obligor to notice

The obligor shall have thirty days after receipt of the required notice within which to pay the royalties or production payments due or to respond by stating in writing a reasonable cause for nonpayment. The payment or nonpayment of the sums due or stating or failing to state a reasonable cause for nonpayment within this period has the following effect.

§ 212.23. Effects of payment or nonpayment with or without stating reasonable cause therefor; division order

A. If the obligor pays the royalties or production payments due plus the legal interest applicable from the date payment was due, the owner shall have no further claim with respect to those payments.

B. If the obligor fails to pay within the thirty days from notice but states a reasonable cause for nonpayment, then damages shall be limited to legal interest on the amounts due from the date due.

C. If the obligor fails to pay and fails to state a reasonable cause for failure to pay in response to the notice, the court may award as damages double the amount due, legal interest on that sum from the date due, and a reasonable attorney’s fee regardless of the cause for the original failure to pay. 

Chesapeake claimed that the landowner could not recover the “double damages” penalty under these provisions because an unleased mineral owner is not a royalty owner and is not entitled to a “production payment”.  The landowner argued that payments due to an unleased owner are a type of “production payment”.

The court agreed with Chesapeake.  Without making a determination as to the exact definition of “production payments,” the court reasoned that these statutes apply to parties “connected, in some form, whether directly or indirectly, by a mineral lease or some type of contract or agreement.”  Section 212.21, for example, refers to the “failure of a mineral lessee,” and the title of the law that enacted these statutes referenced its purpose as providing for remedies for “the purchaser of a mineral production payment.”  Because the unleased landowner was not a purchaser of mineral production payments and because there was no lease connecting the parties, the “double damages” penalty provisions of Sections 212.21 to 212.23 were not available to him.

2012 Education Events

February 28-March 2, 2012 - REGISTER ONLINE HERE
Oil & Gas Land Review, CPL/RPL Exam
Shreveport, LA
18 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

March 1-2, 2012 -REGISTER ONLINE HERE
Intro to Field Land Practices & Optional RPL Exam 
San Antonio, TX
14 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM* 

March 7, 2012 -REGISTER ONLINE HERE
Advanced Contracts Series: AMI's and Special Issues Related to JOA's and Farmouts
Oklahoma City, OK
7 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM* 

March 8-9, 2012 -REGISTER ONLINE HERE
Intro to Field Land Practices & Optional RPL Exam 
Zanesville, OH
14 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM* 

March 15 - 16, 2012 - REGISTER ONLINE HERE
Mining and Land Resource Institute
Reno, NV
11 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM*

March 20 - 23, 2012 - REGISTER ONLINE HERE
Oil & Gas Land Review, CPL/RPL Exam
Pittsburgh, PA
18 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

April 9, 2012 -REGISTER ONLINE HERE
Advanced Contracts Series: Structuring Exploration Deals
Oklahoma City, OK 
7 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM* 

April 11-14, 2012 - REGISTER ONLINE HERE
Oil & Gas Land Review, CPL/RPL Exam
Midland, TX
18 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

April 12, 2012 -REGISTER ONLINE HERE
Field Landman Seminar
Oklahoma City, OK 
2 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

April 16, 2012 - REGISTER ONLINE HERE
Applied Land Practices 
Bismarck, ND
7 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM* 

April 17, 2012 - REGISTER ONLINE HERE
Southwest Land Institute
Fort Worth, TX
7 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

April 20, 2012 - REGISTER ONLINE HERE
Working Interest/ Net Revenue Interest Calculations Workshop
Oklahoma City, OK
6 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM*

April 21, 2012 - REGISTER ONLINE HERE
Working Interest/ Net Revenue Interest Calculations Workshop
Fort Worth, TX 
6 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM*

April 23, 2012 -REGISTER ONLINE HERE
Field Landman Seminar
Dickinson, ND
2 RL/RPL/CPL CE Credits

April 27, 2012 - REGISTER ONLINE HERE
Working Interest/ Net Revenue Interest Calculations Workshop
Pittsburgh, PA
6 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM* 

April 30-May 1, 2012 - REGISTER ONLINE HERE
Fundamentals of Land Practice and Optional RPL Exam
Fort Worth, TX 
7 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

May 3-4, 2012 - REGISTER ONLINE HERE
Principles of Land Practice and Optional RPL Exam
Pittsburgh, PA 
14 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

May 5, 2012 - REGISTER ONLINE HERE
Working Interest/ Net Revenue Interest Calculations Workshop
W. Houston, TX
6 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM* 

May 10, 2012 - REGISTER ONLINE HERE
Working Interest/ Net Revenue Interest Calculations Workshop
Nacogdoches, TX
6 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM* 

May 11, 2012 - REGISTER ONLINE HERE
Working Interest/ Net Revenue Interest Calculations Workshop
Shreveport, LA
6 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM* 

May 15-18, 2012 - REGISTER ONLINE HERE
Oil & Gas Land Review, CPL/RPL Exam
Woodlands, TX
18 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

May 22-23, 2012- REGISTER ONLINE HERE
JOA Seminar- Comprehensive Review of Operating Agreements and Well Trades
Pittsburgh, PA
14 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

May 25, 2012 - REGISTER ONLINE HERE
The Division Order Process
Denver, CO
7 RL/RPL/CPL CE Credits 
*FLYER WITH REGISTRATION FORM*

 

ATTENTION: If you are paying by check, please note that AAPL cannot process your registration until the check has cleared: this delays your registration process by at least two days. AAPL recommends that you pay by credit card whenever possible to ensure quick reservation and confirmation.

PLEASE CONTACT STEPHANIE RICKELS AT SRICKELS@LANDMAN.ORG WITH ANY QUESTIONS.

LAPL Members Share Christmas Spirit with the Healing House

by Elise Talbot

Happy 2012! As I look forward to a new year with a new Professional Group, a wedding day, and hopefully a busy work schedule.  I look back on 2011 and I am so thankful for all the Blessings that I was able to share with the LAPL.  Last year you all aided the LAPL in the project at Lafayette General to give back to the pediatric patients of the Acadiana area. This year we called upon your generosity again to help a local non-profit, grief center of Lafayette, The Healing House.  The outpouring of LAPL kindness was again just absolutely humbling.

This non-profit agency focused on helping children ages 4-18 through grief issues in a group atmosphere does not provide counseling or therapy, but a safe place, where children who have experienced a death of a loved one can express their thoughts and feelings in a variety of ways.  In support groups facilitated by volunteers, children learn to express their grief through interactive play, expressive artwork and discussion groups with peers experiencing the same trauma.

            The house has the cozy feel of "Grandma's Cottage". Although Healing House is geared toward children, parents will also find a place to talk and share feelings with others in their situation or spend quiet time reading on the enclosed porch or in the meditation garden.

Thanks to your help we raised $6,550 to help with the needs of the Healing House.  Please help me in thanking all of our Compassionate sponsors. 

Ottinger Hebert, L.L.C.

C. David Allen, et ux

J. Percy Bernard, Jr.

Byron C. Verillion, Jr., et ux

Michael P. Westbrook, et ux

W. K. Rainbolt, Jr.

Merit Energy Services, LLC

Debbie B. Springer

Cliff Schumacher, et ux

Gary Hebert

S&R Resources, Inc.

Classic Petroleum, Inc.

Marlene Venable

Oil Land Services, Inc.

Tim Ledet, et ux

Durelle and Laura Allen, Jr.

Hypatia LaCour,

Schoeffler Energy Group, Inc.

Kathryn Thorpe

Barron and Kathleen Roche

Jack Lewis

Scott Sonnier

Brandon Comeaux

Robert Earl Willis

Roy Young

Lonnie Saunier

Antoinette Klump

Mandy Todd

Nadya Hartsook

Lauren Gessey

Josk Allen

Joel Scallan

Mona and Sammy Russo

Chris Carter

Tiffany Gispert

Rudy Dupuis

Travis Brazell

Lindsey Saba

Tesa and Justin Mernedino

Merendino Energy Group

Jim Marceaux

Murray Dickens

Jon and Mary Stimac

Ruth Ann Gannon

Lara Warren

Joni Faul

Keith Hebert

Elise and Tommy Talbot

Frank and Kelly Lipari

Please take the time to check out the Healing House photos to see what the LAPL will be helping the kids and families with in this New Year.

Thank you and may God Bless You,

Kindness,

Elise Talbot

Executive Director,

Christmas Charity Chairperson

CAPTIONS:

1) Hand prints of Healing House children who are always welcome back.

2) The Gaming System “Wii” raised the money for last year for the patients in the Pediatric Unit at Lafayette General Medical Center.

 3) Arts and Crafts Room at the Healing House, where the children can express themselves.

4) Free to Be Me Room, the Rules of the Healing House.

5) Free to Be Me Room, where the children can express and act out some the occasions they may be having trouble letting go

6) Free to me Room. Many hats to try on in the Healing House’s Free to Be Me Room.

7) Hurricane Room.  When the kids need a safer room to let out some of the feelings that may not be to friendly.

8) Support Group Sharing Room.  Were the kids can share in the grieving process.

9) Art work in the meeting room above the fireplace, This Christmas Season.

10) Meeting Room is very cozy and welcoming for the Families in Acadiana.

Louisiana Legal Update

By Jamie D. Rhymes
Liskow & Lewis

Divisibility of Mineral Leases

In the Haynesville Shale, there have been a number of deals where companies have purchased “deep rights” in leases in certain areas held by production. A recent suit, Georgia F. Hodgson and Eugene F. Hodgson v. Chesapeake Louisiana, L.P., et al, Dkt. No. 535185-C, Caddo Parish, challenged whether such an assignment of deep rights could divide the mineral lease, such that there would be separate maintenance obligations for the shallow rights and the deep rights. The trial court held that the lease was divided by an assignment of the deep rights. This short article will review the jurisprudence regarding lease divisibility and the recent decisions that might lead to some guidance on whether a lease can be divided by an assignment of the deep rights.

Historical Jurisprudence on Lease Divisibility
Historically, courts have held that a partial assignment of a lease may divide a mineral lease. For example, in Roberson v. Pioneer Gas Co., 137 So. 46 (La. 1931), a 40 acre portion of a 125 acre lease was assigned to a third person. A well was drilled on the 40 acre tract, but there were no operations on the remaining 85 acres. The lease contained a “division rental” or “rental apportionment” clause. Such a clause generally provides as follows:

"It is hereby agreed in the event this lease shall be assigned as to part or as to parts of the above described lands, and the assignee or assignees of such part or parts shall fail or make default in the payment of the proportionate part of the rents due from him or them, such default shall not operate to defeat or affect this lease in so far as it covers a part or parts of said lands upon which said lessee or assignee thereof shall make due payment of said rental."

The Roberson court held that the division rental clause had the effect of making the lease divisible. Thus, the operations on the 40 acres did not maintain the lease as to the remaining 85 acres. See also Swope v. Holmes, 169 La. 17, 124 So. 131 (La. 1929), Tyson v. Surf Oil Co., 195 La. 248, 196 So. 336 (La. 1940). The use of this clause to divine intent to make the lease divisible by the parties is questionable, as on its face it is nothing more than an effort to preserve a portion of the lease if one of the lessees fails to make a delay rental payment properly.

The Hodgson Case
In Hodgson v. Chesapeake Louisiana, L.P., the predecessor in title to the Plaintiffs, Mary Flournoy, granted a mineral lease to Fortune Gas and Oil (“Fortune”) in 1975 covering 52 acres of land in Caddo Parish, Louisiana (the “Flournoy Lease”). In 2006, Fortune assigned to Fairway Resources all depths below the Rodessa Hill formation in the Flournoy Lease in certain geographical areas without any reservation. The lease contained a division rental or rental apportionment clause which stated:

". . . the rentals payable hereunder shall be apportioned as between the several leasehold owners ratably according to the surface area of each, and according to the undivided interest of each, and default in rental by one shall not affect the rights of other leasehold owners hereunder. An assignment of this lease, in whole or in part, shall, to the extent of such assignment, relieve and discharge Lessee of any obligations hereunder and , if Lessee or assignee of part or parts hereof shall fail or make default in the payment of the proportionate part of the rentals due from such Lessee, or assignee, or fail to comply with any other provisions of the lease, such default shall not affect this lease insofar as it covers a part of said lands upon which Lessee or any assignee thereof shall make payment of said rentals."

The Plaintiffs argued that the assignment of the deep rights divided the lease pursuant to Roberson and the older cases regarding division of leases when there is a division rental clause. The Defendants countered that the lease was not divisible and further, that the assignment was properly a “sublease” and as such could not have divided the lease.

The trial court ruled that the rental apportionment clause, cited above, created divisibility when the lease was partially assigned. One issue for the court was whether the lease could be divided “horizontally” in addition to being divided “vertically.” For example, consider a vertical division as taking a 100 acre lease making two 50 acre leases, both of which are unlimited as to the depths each covers. A horizontal division would be to take the same 100 acre lease, and make two separate 100 acre leases, but one covering rights from surface to 100’, and the other all depths below 100’.

The trial court relied upon the decision in Scurlock Oil Co. v. Getty Oil Co., 278 So.2d 851 (La. App. 3d Cir. 1973) to hold that the lease could be divided horizontally. The trial court noted that in Scurlock , the Third Circuit theorized that a mineral lease could be horizontally divided under the right circumstances, but held that such a division did not occur in that case. The Louisiana Supreme Court reversed Scurlock, but on other grounds, Scurlock Oil Co. v. Getty Oil Co., 294 So.2d 810 (La. 1974), but on other grounds and did not reach the question of whether a mineral lease could be horizontally divided by an assignment.

Nevertheless, the Hodgson court followed the Third Circuit’s logic in Scurlock, and held that the Flournoy Lease could be horizontally divided. The Defendants in Hodgson also argued that the transfer of the Flournoy Lease was a sublease, and not an assignment, and thus did not divide the lease. In simple terms, Louisiana mineral law distinguishes between an assignment conveying all of the assignor’s interest in a lease, and a sublease, under which the sublessor conveys a portion of his interest, but not everything. (Thus, an “assignment” under which the assignor retains an overriding royalty interest is actually a sublease).

The Hodgson Defendants argued that under the Third Circuit’s opinion in Scurlock, a partial assignment of a horizontal stratum was a sublease, as the owner of the deep rights necessarily reserved the right to access the surface of the land. The trial court in Hodgson did not address why they considered the transfer of the Flournoy Lease as an assignment, but one can only assume that the trial court took the position that without a reservation of an overriding royalty or some other interest in the deep rights, the transfer was an assignment and not a sublease.

Hoover Tree Farm v. Goodrich
Several months prior to the Hodgson opinion, the Second Circuit gave some guidance on the issue of divisibility of mineral leases. In Hoover Tree Farm, L.L.C. v. Goodrich Petroleum Co., L.L.C., 63 So.2d 159 (La. App. 2d Cir. 2011), the court addressed the impact of a Most Favored Nations (“MFN”) clause. The MFN at issue applied only to Goodrich Petroleum Company, and its “respective successors and assigns.” Goodrich assigned a 50% working interest as to all depths below the Cotton Valley formation to Chesapeake Louisiana LP (“Chesapeake”).

Although not pertinent to the court’s decision as to whether Chesapeake was a successor or assign of Goodrich, the court noted that the language relied upon in the Roberson case, supra, “contemplated only a type of limited lease division upon the nonpayment of a portion of the lease rentals during the primary term” and did not provide for a division for all purposes. Id. at 174. Applying this strict construction of lease divisibility, the court that the assignment of a 50% working interest in the deep rights in the subject lease did not divide the lease, as there was not a transfer of a specific geographical portion of the lease. Id. at 175 n18. It appears that the panel in the Hoover Tree Farm was of the view that the rental apportionment clause did not indicate an intent to make the lease divisible, even as to vertical division. It is difficult to imagine, therefore, that the Hoover Tree Farm would have found a basis for horizontal lease division. The Hodgson case is on appeal and it appears that a correct result would be to reverse the decision as to its holding that a lease can be horizontally divided based upon the rental apportionment clause.

The defendants in the Hoover Tree Farm case also took the position that the transfer to Chesapeake was a sublease, and not an assignment, and thus Chesapeake was not a “successor or assign.” The court reviewed the jurisprudence regarding determining whether a partial transfer of a lease is to be considered a sublease or assignment, including the Scurlock decision from the Third Circuit. The court found that the no prior case had involved the transfer of an undivided interest in a mineral lease, and in that situation, the court found that the transfer of a 50% interest was not a sublease, but an assignment of an undivided interest in the deep rights, leaving Goodrich and Chesapeake as co-owners of the deep rights. Thus the court found that Chesapeake was an “assign” under the MFN clause, and the lessees were obliged to pay the higher amounts owed pursuant to the MFN clause.

Jamie Rhymes represents oil and gas companies, from the largest to the smallest, in a in a
wide variety of energy litigation and legal matters. He has extensive experience in oil and gas
litigation, including royalty litigation, lease litigation, joint operating agreement disputes, loss
of control litigation, and legacy litigation. Mr. Rhymes has appeared before the Commissioner
of Conservation and the State Mineral Board in various oil and gas matters for clients. He also
performs title examinations. He renders drillsite and division order title opinions for the energy
industry in connection with the drilling of wells and disbursing proceeds of their production.

Local Government Embraces and Plans for Future CNG Conversions

By Don Bertrand

After beginning my first term of office as Councilman and Chairman of the Lafayette Cons olidatedGovernment (LCG) Council and the Metropolitan Planning Organization* (MPO) in January 2008, discussions began considering fuel alternatives for the fleet vehicles owned and operated by local government entities in an attempt to make our local government fleets more cost efficient.

In the summer of 2008, LCG and the MPO initiated a study of alternative fleet fuels. In 2010, following two years of research – which included reviews of infrastructure cost, fuel cost, supply availability, future long term fuel options and short term alternatives – it was determined by the public transportation fleet managers of Lafayette Parish, the School System and the University of Louisiana at Lafayette transit systems that Compressed Natural Gas (CNG) would be the best fuel choice, both in the short and the long term. All three administrations supported the joint recommendation of the fleet managers and a major CNG Conversion plan was initiated. Staff members of the MPO, developed and programmed a five year CNG Conversion Plan for Lafayette Consolidated Government, Lafayette Parish School System and the University of Louisiana at Lafayette transit systems. Obviously a key component to the success of this program is fueling locations. The Lafayette CNG Plan includes installation of three new CNG stations.

The first station will be located on and fronting East University Avenue adjacent to the Lafayette Consolidated Government’s Public Works Administration building. In late 2011, construction bids were let with an estimated completion date of April, 2012.

A second CNG station is anticipated in the area of La. Hwy. 89 (Southpark Road) and East Pinhook Road with a third CNG station expected in an area near the Interstate 49 and Interstate 10 Interchange.

In an effort to expand on a CNG market, the Lafayette MPO is also working with public transit representatives in the eight parish area to develop a multi-parish regional transit system utilizing and coordinating CNG vehicles. Additionally, the Louisiana Transit Design Studio, based in Lafayette and working with the University Industrial Design program is advancing design and development of a CNG para-transit vehicle and is in collaboration with seven MPOs around the state. The MPOs have determined a statewide need for a heavy duty (20 year) para-transit vehicle for use by local transit operators.

An important need identified in the Lafayette CNG Conversion program is education for the public and local business on the safety, the cost efficiencies and the stable in-state supply of CNG fuel sources. A 20- minute public information video is being prepared to help bridge this information gap. Public vehicles and transportation fleets will transition to CNG fuel system as funding is identified. The LCG council recently approved submission for Federal conversion grants which have target dates of April 2012. Currently, 100 Lafayette Consolidated Government vehicles are scheduled for conversion over the next several months. The School Board and University systems begin conversions this year (2012) as more CNG service stations come on line. The Lafayette Transit System has installed a slow fill station for the five new CNG buses delivered in July of 2011 and are now in operation. The University Transit system will be transitioned to CNG with four new buses scheduled for delivery in March 2013.

*The Metropolitan Planning Organization (MPO) is mandated by the Federal Government to receive Federal dollars which return to our community through the Federal Highway Administration and the State of Louisiana. The MPO is made up three subcommittees, the Citizens Action Committee, Transportation Policy Committee and the Transportation Technical Committee, with the final decision on any matter going to the Metropolitan Planning Organization which is currently the Lafayette Consolidated Council. The MPO designated area is determined by population.

Links:

LOUISIANA LEGAL UPDATE

By Lauren L. Garner

Dennis, Bates & Bullen, L.L.P.

 Drilling Permit Obtained by Lessee During the Primary Term of a Current Lease is Not a Title Defect as to a Top Lease Sufficient to Reject the Bonus Draft.

 Pilkinton v. Ashley Ann Energy, LLC, et al, 46, 650 (La. App. 2 Cir. 11/2/11), 2011 WL 5170296. NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS.  UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

 In June 2008, Ashley Ann Energy, LLC, (“AAE”), on Chesapeake’s behalf, contacted the plaintiffs, Amy and Roy Pilkinton, about the possibility of obtaining an oil, gas, and mineral lease on 86.20 acres in Bossier Parish. The Pilkintons informed AAE that their property was currently leased to KCS Resources (“KCS”). The parties discussed the possibility of a top lease to become effective after the primary term of the KCS lease expired on December 1, 2008 (the “Top Lease”). 

 On August 7, 2008, the Pilkintons executed the Top Lease in favor of AAE, which was on a standard printed Bath form with an additional Exhibit “A” attached. The primary term was listed as three years, but was not to commence until December 2, 2008. Exhibit “A” contained two pertinent provisions:

 1. This lease is expressly made subject to that Oil and Gas Lease dated December 1, 2005 from Roy L. Pilkinton and Amy H. Pilkinton to KCS Resources, Inc., ... and Lessee herein accepts this Lease subject to the terms of the Prior Lease.... It is not the intent of the Lessor and Lessee to cloud or in any way to impair any rights, titles, and interests, if any, of the parties arising under the Prior Lease....

2.   Lessor makes no express or implied warranty of title whatsoever, and Lessor shall have no obligation to return any bonus consideration or benefits received under any of the terms hereof, including, but not limited to royalties, shut-in payments, or other monies paid to Lessor on account of a failure of title. Lessee takes this lease at his own risk and peril.

In consideration of the Top Lease, the parties agreed that the Pilkintons would initially receive one-fourth of the total bonus payment. The other three-fourths of the bonus would be paid in the event that KCS’s lease terminated.  Upon signing of the lease, the Pilkintons were given a draft for $431,000. On the face of the draft, AAE included a provision that stated “upon approval of title but not later than 20 banking days after sight.”

 Due to Chesapeake and AAE’s failure to pay the draft, the Pilkintons filed suit. The Pilkintons filed a motion for summary judgment to determine the validity of the Top Lease, and later filed for leave to amend their petition to seek recovery of the additional three-fourths bonus payment ($1,293,000) since the KCS lease had expired. The defendants filed a cross-motion for summary judgment and opposed the plaintiffs’ request to amend.  The trial court granted the plaintiffs’ motion for summary judgment, denied the defendants’ cross-motion for summary judgment, and granted plaintiffs’ request to file their amended petition. The defendants appealed the rulings on the summary judgments. The appellate court affirmed the trial court.

 A mineral lessor impliedly warrants title to the interest leased unless such warranty is expressly excluded or limited. The liability of the lessor for breach of warranty is limited to recovery of money paid or other property or its value given to the lessor for execution or maintenance of the lease and any royalties delivered on production from the lease. La. Mineral Code art. 120. As a legal right, the top lease exists at its inception as a mere hope or expectancy in the extinction of existing superior leasehold rights, which extinction will confer upon the top lease owner the essence of a mineral lease, i.e., the right to explore for and produce minerals.  Patrick G. Tracy, Jr., The Effects of Top Leasing in the Louisiana Law of Oil and Gas, 43 La. L. Rev. 1189 (1983). 

 Both parties cited Texas General Petroleum Corp. v. Brown, 408 So. 2d 288 (La. App. 2d Cir. 1981). In that case, the lessors expressly excluded any warranty against pre-existing mineral leases still in effect, “not even for return of bonus monies.” The drafts for the bonus payments were conditioned “upon approval of title ... by drawee not later than 60 days.” The drafts were paid at the end of the 60-day period, but the lessee brought suit claiming the payments were made in error. The court rejected these claims, finding that there was no conflict in the non-warranty provision of the lease and the lessee’s 60-day period to determine the existence of any title issues. After the end of the 60-day period, the non-warranty provision was given effect. 

 The court distinguished this matter from Texas General because this dispute concerns a third provision in the parties’ lease contract in addition to its non-warranty provision and the 20-day Draft Provision. The court considered the effect of the KCS lease provision contained in paragraph 1 of Exhibit “A” to the Top Lease.  Exhibit “A” noted that “this lease is subject to a Prior Lease and Lessee recognizes that this

 Exhibit “A” shows that the parties’ agreement was clearly a prospective agreement for a lease that might become effective on December 2, 2008. They agreed to become bound by this executory contract in August, and they might later become bound as lessor and lessee in a new lease. The KCS lease had a primary term of three years that ended December 1, 2008. The lease also contained the typical habendum clause. KCS’s permitting of a proposed unit well affecting the Pilkintons’ property in August was not an event by itself having any relevance to the maintenance of the KCS lease under the terms of the habendum clause. The act of permitting a well, even if it had occurred on December 1, was insufficient to extend the KCS lease beyond its primary term. Therefore, the defendants were obligated to pay the $431,000 draft. 

 The defendants argued the 20-day Draft Provision released them of that obligation, but the court disagreed. Just as the KCS well permit did not have any bearing in August 2008 upon whether the KCS lease might be extended beyond its primary term on December 1, the KCS well permit was not a flaw in the Pilkintons’ title. The parties had agreed that (1) the property was subject to the KCS lease; (2) the Pilkintons’ land would become leased on December 2 if the KCS lease terminated; and (3) AAE would pay $431,000 to obtain the executory contract and an additional payment if the KCS lease terminated. None of these tenets of the agreement was altered by the KCS permit, and AAE’s conditional right to acquire the December 2 lease remained the same after the permit. Accordingly, the KCS well permit is not a title flaw falling within the meaning of “approval of title” of the 20-day Draft Provision when the overall context of the parties’ contract is considered, and such provision does not excuse AAE from its obligation to pay the $431,000 draft.

 The defendants also argued that error vitiated the parties’ consent because the Pilkintons knew that KCS planned to drill a well affecting the KCS lease and that if the defendants knew of such imminent drilling, they would not have been interested in leasing the Pilkintons’ property. This argument was also rejected. The court noted that the KCS lease itself implies that the company would desire to develop its investment in the lease by exploring for oil and gas during the remainder of the primary term of the lease. The defendants’ intent for their acquisition of the Top Lease was given in full view of the contingency for the extension of the KCS lease after December 1 which might result from a decision by that company to drill. Such was an accepted risk by the defendants upon entering into the Top Lease. 

 A copy of the case discussed above may be obtained upon request from Lauren L. Gardner by facsimile (337-233-9095) or e-mail (gardner@dbblaw.net).

Lauren L. Gardner is an associate in the Lafayette office of Dennis, Bates & Bullen, L.L.P.  She was born March 25, 1981, in Cut Off. She graduated from Louisiana State University in 2003 with a B.A. in History and graduated from Louisiana State University School of Law in 2006 with a J.D. and a B.C.L. During law school, Ms. Gardner was a law clerk for Chief Judge Henry N. Brown, Jr. at the Second Circuit Court of Appeals.  Ms. Gardner is admitted to the bar in Louisiana, the United States District Courts for the Western, Middle and Eastern Districts of Louisiana, and the United States Fifth Circuit Court of Appeals. She is also on the board of the Lafayette Young Lawyers’ Association and the Editorial Committee of The Promulgator.

SUNCOAST LAND SERVICES, INC., seeks Title Agents and Landmen experienced in surface title, pipeline negotiations and acquisitions for long term projects in SE Texas.   Additionally, staffing needs for multiple projects located in Louisiana.  Qualified candidates must be willing to travel and possess a diverse scope of skills to perform document interpretation, contract negotiation, management of multiple deadlines, internet based communication, proficient in Microsoft Excel, report preparation and basic mapping.  All such qualified candidates seeking a long term association with SunCoast should submit your resume and desired day rate to resume@suncoastland.com.  Jobs are available immediately.

All such submittals will be held in confidence.

Links:

TO FEE OR NOT FEE, THAT IS THE QUESTION; DISTINGUISHING BETWEEN ACTS OF SALE AND RIGHTS OF WAY

By: Ashley Green and Kate Labue

 With the majority of the Haynesville Shale area having been leased and gas production underway, the focus has now turned to the ownership of minerals in and to road, canal and rail beds.  If it is clear from the language of the document that what was intended to be conveyed was a right of way or a fee simple title then no further inquiry can be made.[i]  Extrinsic evidence may only be considered if the instrument contains ambiguous language.  However, it is common for older transfer instruments to contain ambiguities that give rise to the question of whether the contracting parties intended to create a right of way (i.e., servitude) or to transfer full ownership.[ii]  Courts in Louisiana have often analyzed various deeds, including railroad deeds, road rights of ways, canal grants, and other various agreements in determining whether they are, in fact, deeds translative of title or deeds granting mere rights of way over lands.  

A.        The Very Conveyances Of His Lands Will Hardly Lie In This Box[iii]

In Louisiana, the conveyance of a right of way is to be regarded as a mere servitude and not as a transfer of a fee-simple title to land unless the deed evidences that the parties intended otherwise.[iv]  It is important to recognize that one cannot rely solely on the title of the instrument for a correct designation.  The use of the words “right of way” in the granting clause of an instrument is also not conclusive.  These instruments must be interpreted as a whole to determine the rights granted to a purchaser under Louisiana law.[v]

Because of the particular ambiguities presented, historically, transfer language was often analyzed in railroad deeds.  In John T. Moore Planting Co. v. Morgan's Louisiana & Texas Railroad & Steamship Co., 126 La. 840, 53 So. 22 (1908), the issue was whether an instrument which conveyed a strip of land, not more than two lines of track in width, was a fee conveyance or a right of way for railway purposes.  The court held that the instrument created a mere servitude because “if a strip of land running across the plantation had been intended to be conveyed, the parties would hardly have failed to specify its width.”  The court noted that the donor reserved the right to cultivate “the land on either side of the line of the road not in actual use by said railroad company.”  According to the court, these stipulations were inconsistent with the idea that a fee of a strip of land was conveyed to the railroad; but rather indicated strongly that the donor only intended to transfer a mere right of passage.  Similarly, in Bond v. Texas & Pacific Railway Co., 181 La. 763, 160 So. 406 (1935), the court examined a deed that granted to the Natchitoches Railway Company “a right of way 150 feet in width over any of his lands through which the line of road of said Company now passes," and the right to “fell all timber within reach of center line of said road,” but reserving to Grantor the right to cultivate lands on both sides of the rail. The court found that the stipulations in the grant were inconsistent with the intention to convey a fee ownership of the land to the railroad, and found the deed merely created a right of way.

In Rock Island, Arkansas & Louisiana Railroad Co. v. Gournay, 205 La. 125, 17 So.2d 8 (1943), reh’g denied 205 La. 164, 17 So.2d 21 (1944), the Louisiana Supreme Court held that an instrument which transferred to a railroad company, its successors and assigns “in perpetuity, a strip of land, one hundred (100) feet in width, over and upon the following described land,” was a mere servitude. In making their decision, the court noted that the instrument only granted the grantee “the right to change water courses, and to take stone, gravel and timber and to borrow earth, on said right of way for the construction and maintenance of said railroad.”  While the granting clause may have been favorable to the railroad, the document, which contained the words “in perpetuity” and “over and upon,” evidenced an intention to create only a right of way. 

In Esso Standard Oil Company v. Texas & New Orleans Railroad Company, et al, 127 So.2d 551 (La. 3d Cir. 1961), a concursus proceeding was instituted by an oil company to determine ownership of payments attributable to royalty interests.  In the deed, grantors did “grant, sell, convey and deliver to the Morgan’s Louisiana & Texas Railroad and Steamship Company…a strip of ground one hundred feet wide, for a right of way through, over and across the following described land…”  The court found that the deed only granted a right of way.  It based its decision on the following factors:  (1)  the purchaser had the right to enter land adjacent to the right of way and deposit timber and surplus dirt; (2) there were frequent references in the deed to a “right of way;” (3) references to damages to adjacent property, all of which provisions are common in right of way deeds; and (4) the recitation in the deed that the right of way shall be “in perpetuity” rather than “forever,” which would connate a more permanent transfer of ownership.

B.       Sohio Ye Doing So Far?

In Sohio Petroleum Co. v. Hebert,[vi] Sohio Petroleum Company instituted a concursus proceeding to have the court judicially determine the ownership of certain royalties accruing from two gas production units located in Calcasieu Parish, Louisiana. Made defendants to the concursus proceeding were Sweet Lake Land and Oil Company (“Sweet Lake”) and the heirs and assigns of Ducre Hebert (hereinafter referred to as the ‘Hebert Group’). The need for the concursus was the ambiguity contained in a deed from North American Land and Timber Company (“North American”) to Ducre Hebert (“Hebert”) dated January 18, 1918,[vii] which transferred certain property to Hebert, “less right of way for canal and public road on west and south sides....”  After trial on the merits, the trial court held that North American retained only a servitude for canal and road purposes, and thus, fee title to all of the land described in the deed was conveyed to Hebert. Sweet Lake appealed. 

The appeals court outlined the following factors that courts have used in determining whether the deed conveyed a right of way or fee simple title:

(1) the consideration recited in the deed;

(2) whether a specific measurement is given to the “right of way;”

(3) whether the party claiming the fee title had an actual need for such title;

(4) to whom the property was assessed and who paid the taxes on the property;

(5) whether the grant was made for a specific purpose;

(6) whether the grant is made “in perpetuity” or “forever;” and,

(7) how the parties to the conveyance, or their heirs and assigns, have treated the property.[viii]

The court of appeal found that the parties only intended to reserve a servitude for a canal and a public road on the west and south sides of the property.  It noted that, had the vendor intended to reserve the fee title to these strips of land, the term ‘right of way’ would not have been used, and the dimensions of the property so reserved would have been described with exactness.  Moreover, the court noted that the taxes, since 1918, were continuously paid by the Heberts, and that such property was not “less and excepted” from mineral leases granted by the Heberts to Sweet Lake as lessee, all indicating that Sweet Lake had rights as a right of way holder, and not fee owner, over the strips of land concerned in the suit.

Conversely, in Conway v. Crowell Land & Mineral Corp., 635 So.2d 544, 93-1158 (La. App. 3 Cir. 4/6/94), the appeals court held that a deed to a railroad which included the following language was a transfer of full ownership rather than a right of way:

A Right-of-Way, for railroad purposes, One Hundred Feet Wide, over and across the North-Half of the North-West Quarter, Section Thirteen, Township One, South of Range Two, West of the Louisiana Meridian, in the Parish of Rapides, Louisiana-the said Right-of-Way to be located as now staked out by the engineer, and entering the North-West Quarter of North-West Quarter of Section from the North, and proceeding in a South-Easterly direction through the said North West Quarter of the North-West Quarter, and entering the North-East Quarter of the North-West Quarter from the West and proceeding in a Southeasterly direction through the said North-East Quarter of the North-West Quarter, and going out of the same on the South side.

In applying the seven factors, the court noted that in 1913, the transfer of a 20 acre tract of land, along with the payment of five hundred dollars ($500.00) cash for a 100 foot wide railroad strip constituted substantial consideration, and that the disputed strip was described with exactness, indicative of grantor’s intent to convey fee title to the railroad tram.  Further, that the railroad was paying the property taxes on the disputed strip, indicating a conveyance of fee title, and not a mere transfer of servitude.

Recently, in Woodland Properties, L.L.C. v. New Orleans Sewerage and Water Bd., 49 So.3d 443, 444, 2010-0331, 1 (La.App. 4 Cir., 2010), the Louisiana Fourth Circuit Court of Appeal was asked to analyze the language contained in an August 31, 1942 deed from Ernest B. Norman to the State of Louisiana and the Department of Highways (the “State”) entitled “Right of Way.”

In 1965, more than 20 years after execution of the 1942 deed and unbeknownst to Mr. Norman, the Sewerage and Water Board of New Orleans (“SWB”) applied for and obtained from the State a permit to construct a 16–inch underground asbestos cement waterline (the “waterline”) across the Norman property.  In 1994, the State quitclaimed the “right of way” back to Mr. Norman’s successors. 

In 2002, Woodland, the successor of Mr. Norman, entered into an option to sell the Norman property to the Johnsons for construction of a private residence.  A survey revealed the existence of the waterline.  SWB admitted that it never asked Mr. Norman or his successors-in-title for permission to construct the waterline but simply obtained a permit from the State to install the waterline under the property. Based on the problems presented by the waterline, the Johnsons withdrew from the option and cancelled the potential sale. Thereafter, Woodland proposed that SWB remove the waterline or purchase the Norman property, arguing that the Norman property was effectively removed from commerce due to the SWB waterline and SWB’s claimed maintenance of the servitude.  After SWB refused, Woodland filed suit.  SWB filed a motion for summary judgment, asserting that Mr. Norman transferred full ownership of the property to the State via the 1942 deed and that SWB was not required to obtain permission from Mr. Norman or his successors to construct the waterline.  The trial court granted SWB’s motion for summary judgment and Woodland appealed. 

The issue before the appeal court was whether the state had the authority to grant SWB the right to install the waterline on the property. The authority would depend on whether the deed to the State conveyed fee title or a mere right of way.  The appeals court, without much elaboration, held that there was no language in the deed that evidenced a transfer of full ownership, but rather a mere right of way over the Norman property, and thus, the State did not have the authority to grant SWB a permit to construct a waterline over the property without first obtaining permission from Mr. Norman.

C.       Was the Fare Fair, Did the Description Compare? Did Thou Use “Forever” In Your Purchase Endeavor?

The seven factor test appears to be a pretty straight forward one.  If the consideration for the transfer was near the fair market value of the property, then the factor supports a finding of fee simple title.  If, on the other hand, the consideration was low, the factor will support a finding of a mere right of way grant.  A deed that does not contain a specific property measurement will also reflect favorably upon the vendor, since ownership interests are difficult to enforce absent a proper description.[ix]  The fact that a transfer was made for a specific purpose (e.g., construction of railroad tracks or drainage canals) will also favor the vendor.  Further, while it may be difficult, due to the passage of time, to determine the intention of the original parties, the payment of taxes on the property in question and the language in subsequent sales which describe the property (e.g., whether they refer to “right of way” or mention fee title interest) may play a pivotal role in ascertaining what the parties believed their interests to be. 

D.       Parting Is Such Sweet Sorrow

As illustrated by the cases discussed herein, it is often the tiniest pieces of land that cause the biggest complications.  If the intentions of the contracting party are clear, and the words of a contract are express, then under Louisiana law, one must only look to the four corners of the instrument to determine its effects on the immovable property concerned therein.  Conversely, when the language in the instrument is ambiguous, Louisiana courts will often use the seven factor test to determine the intention of the parties.  

Ashley Green is a member of Gordon, Arata, McCollam, Duplantis & Eagan, LLC.  Ashley graduated from the Paul M. Hebert Law Center at Louisiana State University in 2004 as a member of the Order of the Coif, earning her J.D. and Bachelor of Civil Law Studies. During law school, Ashley was an Associate for the Louisiana Law Review and a student member of the Wex Malone Inns of Court.  Ashley's practice centers on commercial bankruptcy, oil and gas litigation and oil and gas property examination.  

Kate Bailey Labue is an associate in the Baton Rouge office of Gordon, Arata, McCollam, Duplantis & Eagan, LLC. Kate graduated from the Paul M. Hebert Law Center at Louisiana State University in 2004, earning her J.D. and Bachelor of Civil Law Studies. Kate’s practice centers on oil and gas property title examination, and regulatory issues as well as oil and gas litigation.

Presented by Jeffrey D. Lieberman, Liskow & Lewis APLC

(a) Morgan v. Winbeau Oil & Gas Co.,

Inc., 45,921 (La. App. 2 Cir. 2/16/11),

--- So.3d ---

This case involved the requirement that an assignee and current owner of a mineral lease is a party needed for just adjudication (formerly called an “indispensable party”) in an action seeking to rescind an earlier assignment to an intermediate party. The plaintiff, Robert W. Morgan a/k/a Morgan Enterprises, Inc. (“Morgan”) owned several mineral leases covering lands in Red River Parish. He purchased the leases in 1995.

On February 9, 2009, after being approached by Eugene Farr, Morgan assigned the leases to Winbeau Oil & Gas Co., Inc. Six months later, Winbeau assigned the leases to Petrohawk Properties, L.P. During the course of Morgan’s negotiations with Farr, Morgan stated that Farr told him that he “had checked the leases at the courthouse” and that they were “no good.” Id. at *1. Morgan then told Farr that he would send someone to the courthouse to check the leases, but that Farr told him “that’s not necessary. I’ve already checked it out. They’re no good.” Id. Morgan did not independently check the leases, stating, in essence, that he had relied on Farr’s statements that the leases had expired. Nevertheless, Morgan assigned the leases to Winbeau.

After discovering the assignment from Winbeau to Petrohawk, Morgan filed suit on February 8, 2010, against Winbeau and Farr, seeking either rescission of his assignment to Winbeau or money damages. As explained in the concurring opinion, Morgan claimed his consent to the assignment was vitiated by fraud. Id. at *3. He subsequently obtained a default judgment rescinding the assignment. At the hearing to confirm his preliminary

default, Morgan testified and introduced several exhibits, including the assignment to Winbeau and the later assignment from Winbeau to Petrohawk. Petrohawk was not a party to the suit.

On appeal, the Second Circuit found that Petrohawk was a “party needed for just adjudication” under La. Code Civ. Proc. Ann. art. 641, et seq., noting that Petrohawk may be entitled to the protections of the public records doctrine and that Petrohawk was the record owner of the leases. Id. at *2. Although not raised by Winbeau on appeal, the court noticed the failure to join Petrohawk on its own motion, reversing the judgment and remanding the case for Morgan to amend its petition to add Petrohawk as a party. Id. at *3.

Of particular interest, Judge Stewart’s concurring opinion addressed Morgan’s fraud claim, which centered on his negotiations with Farr and Farr’s statements during the negotiations that the leases at issue were “no

good.” The concurring opinion ultimately found that the evidence offered by Morgan did not establish a prima facie case of fraud sufficient to support the confirmation of his default judgment, reasoning that it appeared

from his testimony that he could have ascertained the truth about the validity of the leases without difficulty, inconvenience, or special skill, and that he was not reasonably induced to rely on Farr’s misrepresentation

due to a relation of confidence between them. Id. at *6.

(b) Neumin Production Co. v. Tiger Bend,

Ltd., 10-1307 (La. App. 3 Cir. 3/9/11),

--- So.3d ---

This concursus proceeding centered on whether a single mineral servitude covering contiguous tracts was created in an act of partition, or whether multiple mineral servitudes were created. The partition at issue was executed by the shareholders and then owners of lands formerly owned by two liquidated companies. Prior to the execution of the partition, the lands were owned by different owners depending on in what companies they owned shares. In the partition, there were three separate conveyances of the property. First, there was a transfer from the Haas- Constant group to the Mikell-Carruth group. Second, there was a conveyance from the

Mikell-Carruth group to the Haas-Constant group. Last, there was a conveyance from the Mikell-Carruth group to Joseph M. Haas and Montez Haas Constant. The partition instrument stated that the parties thereto “desire to partition and exchange certain of their undivided interests to the end that the Haas-Constant Group (as hereinafter identified) receives certain properties or interests in properties, and the Mikell-Carruth Group (as hereinafter identified) receives certain other properties and interests in properties, in each case subject to complete mineral reservation.” Id. at *2 The partition instrument further stated that “all parties transferor in this Act declare, and all parties transferee of any interest in property herein recognize, that each conveyance herein effected is made by the transferor with full and complete reservation of all oil, gas and other fugacious or similar mineral, of whatsoever nature, located in, on or under any property transferred.” Id.

In the concursus, a collection of claimants identified as the Mikell Group contended that a single mineral servitude was created over certain contiguous lands described in the partition. They further asserted that prescription of nonuse was interrupted for this single mineral servitude, and that they were entitled to the production proceeds deposited with the court as owners of the mineral servitude.

Tiger Bend claimed that the partition created multiple mineral servitudes. If separate mineral servitudes were created in the partition, then the mineral servitude burdening the tract upon which the well at issue was located had prescribed for nonuse, and Tiger Bend—the surface owner of the tract—would be entitled to the deposited proceeds.

The court first recited the general rules pertaining to the creation of mineral servitudes from the Louisiana Mineral Code, including La. Rev. Stat. Ann. §31:66: “Co-owners of land constituting a continuous whole may partition it and reserve a single mineral servitude in favor of one or more of them.” Id. The court then cited Whitehall Oil Co. v. Heard, 197 So.2d 672 (La. App. 3 Cir. 1967), which it characterized as the “pivotal case on the creation of a single mineral servitude as opposed to multiple mineral servitudes when land is partitioned.” Id. at *3. In that case, Justice Tate, then writing for the Third Circuit, stated that “owners of land may create a single mineral servitude or royalty so long as they own the lands in question and so long as the tracts in question are contiguous and form a single, continuous body of land. Determination of whether a landowner reserving or granting a mineral servitude or mineral royalty rights intends to create a single servitude or royalty interest or instead multiple interests is, therefore, dependent upon construction of particular conveyances . . . [and] whether the landowner intends to reserve a single or multiple interests by a particular reservation

must similarly depend upon principles of contractual construction.” Id. *3 (citations omitted).

Turning to the partition instrument, the court noted that this partition was different from the usual scenario in that the co-owners of the properties that were partitioned were not all the same co-owners of each contiguous tract of land due to the differing shareholders for each of the liquidated companies. In determining that the mineral reservation in the partition created separate mineral servitudes, the court stated that “it is clear to this court that there would be no necessity to reserve the minerals if the parties intended that a single servitude be created over all of the properties to the partition. Obviously, the parties intended to reserve the minerals in the same proportion on any property they owned prior to the partition by inserting

the reservation language in the partition instrument.” Id. at *4.

Countering the argument by two members of the Mikell Group who were shareholders in both of the liquidated companies—and thus co-owners of all of the properties involved in the partition—that their reservation created a single mineral servitude, the court held that they were not the owners of a single mineral servitude but rather co-owners of the separate mineral servitudes with the different parties who had an interest in each particular tract before the partition. Id.

Further information concerning the abovementioned cases may be obtained from Jeffrey D. Lieberman at jdlieberman@liskow.com or by phone at (337) 232-7424.

Mark A. Doré

Dupuis & Polozola, LLC

337-235-2232

Granting language in mineral lease held to grant Lessee rights to all depths

Alyce Gains Johnson Special Trust v. El Paso E&P Company, LP, ____ F.Supp.2d ____, 2011 WL 759631, this case was brought by El Paso seeking a declaratory judgment to determine whether the “granting clause” of a Bath Form 14-BRI-24 Lease executed in 1950, included rights as to all depths underlying the surface.  The United States District Court held that the granting language of this Bath Form is unambiguous, and as such, the mineral lease affects all depths. 

            The lease at issue is dated August 2, 1950, and is executed on a M.L. Bath Form, which is the Louisiana Bath Form 14-BRI-24.  The lease covered property situated in the Bethany/Longstreet Field which at the time contained almost exclusively producing wells at the 6,000 foot subsurface level, with no well deeper than 7,500 feet from the surface.  (Although not mentioned in this case, it appears that the Court was satisfied that the mineral lease was maintained since 1950.)  In 2009, the Plaintiff’s were approached about a new lease of their lands affecting the Haynesville Shale formation, which is at a depth of approximately 10,400 feet.  Plaintiff’s sought a release or some other written documentation from the Defendant stating that the Haynesville formation was not included in the original 1950 lease.  The Defendant refused to grant such a release.  In January 2010, the Plaintiff filed a Complaint in the United States District Court for the Western District of Louisiana, Shreveport Division, seeking a declaratory judgment that the 1950 mineral lease did not apply to the Haynesville Shale formation or the deeper formations that were not capable of being explored at the time the 1950 lease was originally granted. 

The Court in this instance stated that no Louisiana cases have found that the “granting clause” in any Bath form lease to be ambiguous.  The Plaintiff’s ancestor did not place any limitation on his grant of mineral rights in the 1950 lease, and the jurisprudence supports the notion that the granting clause is unrestricted.  The Court noted that the unambiguous language of the Bath form lease conveys all rights to explore, without limitations as to depths.  Mineral lessors have attempted to limit the broad granting language in the original Bath form leases by including amendments establishing depth limitations, and the Court noted that in Blanchard, et al v. Pan-OK Production Co., Inc., et al., 755 So.2d 376 (La.App. 2 Cir.2000) and Noel v. Discus Oil Corp., et al., 714 So.2d 105 (La.App. 2 Cir.1998) the Courts were faced with such an amendment to the granting clause of a standard Bath form lease.  In both instances, the Courts were forced to go beyond the ambiguous language of the amendments to the intent of the parties.  However, this Court noted that there were no amendments to the 1950 lease, and because Louisiana jurisprudence has consistently demonstrated that the granting clause in the standard Bath form lease is unambiguous and unrestricted, it granted the Defendants motion to dismiss. 

Maintenance of a mineral lease beyond the primary term by continuous operations

H & K Limited of LA, LLC v. Martin Producing, LLC and Chesapeake Energy Corporation, 46,338, (La.App. 2 Cir.5/18/2011), ___ So.3d ___, 2011 WL 1880289, concerns whether a mineral lease was maintained beyond the primary term by continuous operations. 

            The lease at issue is dated March 14, 2005, has a paid-up primary term of three (3) years, and came to be acquired by Chesapeake Energy Corporation.  In August 2007, Chesapeake commenced vertical drilling operations in a well identified as the Chiggero 14-1.  On December 6, 2007 the leased premises was included in a drilling and production unit.  On February 17, 2008, Chesapeake drilled the horizontal portion of the well, with continuing operations reflected by the well activity report.  On May 14, 2008, the last day of the primary term, the Court noted that drilling of the Chiggero 14-1 horizontal well continued.  The well was completed on June 18, 2008, and began production on July 19, 2008, and at the time of the judgment was still producing in paying quantities. 

            The issue in this case was whether the ninety (90) day provision for termination of the mineral lease (found in paragraph 6 of this mineral lease) was applicable during the primary term. 

The pertinent language of the mineral lease interpreted by this Court is as follows:

2.   Subject to the other provisions herein contained, this lease shall be for a period of three (3) years from the date hereof (called “primary term”) and as long thereafter as (1) oil, gas, sulphur or other minerals is produced from said land hereunder or from land pooled therewith, or (2) it is maintained in force in any other manner herein provided.

6.   If within ninety (90) days prior to the end of the primary term, Lessee should complete or abandon a well on the lands described above or on land pooled therewith, or if production previously secured should cease from any cause, this lease shall continue in force and effect for ninety (90) days from such completion or abandonment or cessation of production.  If at the expiration of the primary term or at the expiration of the ninety (90) day period provided for in the preceding sentence, oil, gas, sulphur or other mineral is not being produced on said land or on land pooled therewith, but Lessee is then engaged in operations for drilling, completion or reworking thereof, or operations to achieve or restore production, or if production previously secured should cease from any cause after the expiration of the primary term, this lease shall remain in force so long thereafter as Lessee either (a) is engaged in operations for drilling, completion or reworking, or operations to achieve or restore producing, with no cessation between operations or between such cessation of production and additional operations of more than ninety (90) consecutive days, or (b) is producing oil, gas, sulphur or other mineral from said land hereunder or from land pooled therewith.

The heart of the Plaintiff’s argument is whether the first sentence of paragraph 6 of this lease was applicable before the end of the primary term.  The Plaintiff’s claimed that the original vertical well was “abandoned” on October 8, 2007, and that, Chesapeake did not move back onto the site until mid-February 2008, which is more than 90 days from October 8, 2007.  However, the court found that drilling the vertical well was part of the entire operation of completing the Chiggero 14-1.  The Court stated that even if it considered the vertical well “abandoned” in connection with the first sentence in paragraph 6, the abandonment would have occurred on October 8, 2007, which was not “within ninety (90) days prior to the end of the primary term”.  Further, the Court noted that the vertical portion of the well was drilled in August 2007, and that Chesapeake commenced horizontal drilling on the tract on February 17, 2008, and both of these dates are clearly with in the primary term.  Therefore, because on March 14, 2008 (the date upon which the primary term would have expired) Chesapeake was “then engaged in operations for drilling, completing or reworking, or operations to achieve or restore production, with no cessation between operations or between such cessation of production and additional operations of more than ninety (90) days,” the lease was extended beyond the primary term by the operations and production that occurred.

Two recent decisions provide an opportunity to gain a fuller understanding of two important aspects of mineral law:  (1) First, the workings of the Mineral Code article which requires the lessor to give written notice to the lessee as a prerequisite to a judicial demand for damages or dissolution of the mineral lease for non-payment of royalties, and (2) the creation of a valid declared unit on which one might rely to maintain a mineral lease.

Special Lease Provision Operates as Express Resolutory Condition,

Absolving Lessee of Responsibility for Royalties on Production Post-Termination

In Stream Family Limited Partnership v. Marathon Oil Co.,[i] the plaintiff sued certain working interest owners for unpaid royalties and damages under a mineral lease which had been granted to Marathon.  Marathon had assigned a portion of its interest in the lease to Shocker in 1992 and Shocker then assigned its interest to La Mesa.  After its assignment to Shocker, “Marathon had no direct involvement with the Stream Lease.”

La Mesa operated a well on the leased premises and failed to pay royalties for the period of time from May 1998 to March 2004.

The plaintiff made demand on Marathon and others pursuant to Article 137 of the Louisiana Mineral Code[ii] for the payment of royalties due and owing.  Marathon did not pay in response to this demand.

Suit was filed on September 17, 2004.  Marathon filed an objection of prescription which was granted, the court holding that “any claims of Stream for unpaid royalties under the Stream Lease earlier than three years prior to the filing of the lawsuit were prescribed.”

Marathon then filed a motion for summary judgment “arguing that language in the Stream Lease should absolve Marathon from its obligation to pay Stream the royalties.”  This motion was granted.

The mineral lease contained the following provision, to-wit:

Untimely or improper payment for royalties shall con­stitute an express resolutory condition of this lease with respect to LESSEE’s rights.  Except in instances of will­fully or persistently late or improper payment LESSOR shall give twenty-one (21) days written notice of LESSEE’s failure to make timely or proper payment of royalties as a prerequisite to a successful judicial demand for dissolution of the lease.  In the instance of willfully or persistently late or improper payment, LESSOR need not give such notice and the lease shall resolve immediately.

Stream’s representative testified that he believed that royalties “was (sic) intentionally or willfully not paid.”  Based on this testimony, the court found that the quoted language con­stituted an express resolutory condition[iii] such that the lease ipso facto terminated pursuant thereto.  The court stated:

The Stream Lease terminated in accordance with the express resolutory condition prior to September of 2001, which was well after the continued nonpayment of royalties by La Mesa that began in May of 1998.  When the lease terminated, Marathon had no further rights or obligations thereun­der.

The court specifically rejected Stream’s argu­ment that the require­ment in Article 137 for pre-suit notice of default was a matter of public policy against which parties were not free to contract.

Comments

The decision is certainly correct, but might seem a bit counterintuitive when one considers Article 129 of the Mineral Code:

An assignor [in this case, Marathon] is not relieved of his obligations or liabilities under a mineral lease unless the lessor has discharged him expressly and in writing.

But in this case, the unpaid block of revenue which survived the granting of the objection of prescription – three years preceding the date of filing of suit – related to production obtained after the lease had terminated pursuant to the lease clause.

By that time, the production so obtained was not in the nature of royalties (for which an unreleased assignor might be responsible pursuant to Article 129), but as the result of the production obtained by a trespasser – La Mesa – a fact noted by the court:

The termination of the “lessee's rights” under the express resolutory condition ends all rights that La Mesa had under the lease, including the right to operate wells.  This would make La Mesa a trespasser on the leased property, and Stream would have every right to pursue them for recovery of the amounts illegally removed from the property.  The same result follows whether the termination occasioned by the activation of the express resolutory condition is described as the termination of the lease or the termination of the lessee’s rights.  (Italics added).

Seemingly, the clause on which the court relied was drafted by the lessor as it was obviously of greater benefit to the lessor than to the lessee, in that it dispensed with the necessity of prior notice and an opportunity to cure, in the case of an intentional or willful nonpayment of royalties.  This is a liberality of contracting which is specifically authorized by Article 3, Louisiana Mineral Code.[iv]

By eliminating the codal requirement of thirty days’ prior notice of nonpayment of royalties before filing a suit for dissolution, the clause became an express resolutory condition, bringing the lease to an end in such cases.[v]

Rejecting the lessor’s attempt to avoid the operation of the clause which it prepared based upon the plaintiff’s argument that public policy disallows the exercise of “freedom of contract” under these circumstances,[vi] the saying “be careful what you ask for” comes to mind.

Post-Primary Term Filing of Declaration of Unitization Came Too Late to Maintain First Lease; Validity of Declared Unit Where the Second Lease Not Described

Next, in Mobil Oil Exploration and Producing Southeast, Inc. v. Latham Exploration Company,[vii] a concursus proceeding was brought to determine which of two competing mineral leases was the valid and effective mineral lease.  One lease – the “1981 Lease” – was granted for a primary term of one (1) year; the other lease – the “1982 Lease” – was granted for a primary term of six (6) months.

The court determined that, at the end of the primary term of the 1981 Lease (June 2, 1982), there was no production or operations on the leased premises.  Rather, the lessee executed a “Declaration of Unitization” on May 28, 1982, but it was not filed for recordation until June 8, 1982, which was after the expiration of the primary term.  The court stated the issue, as follows:

Thus, we are left to determine the effective date of a declara­tion when the lease required the lessee to both execute in writing and file for record an instru­ment identifying or describing the pooled acreage.

Reading the terms of the lease, the court noted that, “[i]n order to [maintain the lease beyond its primary term by pooling], Latham was required to execute a written instrument identifying or describing the acreage to be pooled and file the instrument for record.  The lease did not give the lessee the option of only executing a written instrument; it clearly required that both acts be performed.  Therefore, as it applies to the 1981 lease, the declared unit could not have gone into effect until both required acts were performed, which was on June 8, 1982.”

The court held that the post-primary term filing of the declaration of pooling was not effective to maintain the 1981 Lease in force and effect.  Thus, the 1981 Lease expired by its terms at the expiration of the primary term of one (1) year.

Concerning the 1982 Lease (dated June 2, 1982), the court considered whether the “Declara­tion of Unitization” executed on May 28, 1982, had the effect of maintain­ing the 1982 Lease in force and effect.  The court noted that the “pooling clause” requires that the lessee execute and file for record “an instrument identifying or describ­ing the pooled acreage.”  “Based upon this provision, it is clear that reference to a particular lease was not a requirement to unitize the Garretts’ land.  All that was required was the lessee executing and filing an instrument that identified or described acreage to be pooled.”

Although the “Declaration of Unitization” did not describe the 1982 Lease, it did “identify and describe” the lands covered by such lease.  This was held sufficient to maintain the 1982 Lease in force and effect beyond its primary term.

Comments

As to the 1981 Lease, the decision is certainly correct since no valid unit had been formed as of the end of the primary term of that lease.[viii]  The subsequent filing of the “Declaration of Unitization” simply came too late to save that lease.

With regard to the 1982 Lease, and while admittedly not explicitly required by the language of the “pooling clause” in the commercial printed lease forms in prevalent use in Louisi­ana, the custom and practice is such that unit declarations typically do in fact describe the mineral leases to be affected thereby.  While the decision is seemingly valid based upon the language of the “pooling clause” of the lease involved, it does place a new burden on a third party to ascertain whether a prior (but unidentified) mineral lease has been maintained by a unit declaration which only describes land, but does not describe the particular mineral leases involved.

Not mentioned by the court was the fact that the “Declaration of Unitization” was executed prior to the execution of the 1982 Lease but recorded after the grant of such Lease.[ix]

Making the Case for Legal Good Faith through Diligent Landwork

Onebane Law Firm

by

Jasmine B. Bertrand

            A recent decision out of the United States District Court for the Western District of Louisiana provides an excellent example of how diligent landwork can benefit a client in unexpected ways. 

            The legal issues involved in Chesapeake Louisiana, L.P. v. HTP and Associates, LLC, 2011 WL 2899058 (W.D. La. July 15, 2011) were the result of a lessor’s misrepresentation of his marital status and the community nature of property subject to a mineral lease.  The sixty acre DeSoto Parish tract at issue (the “Subject Property”) had been purchased by David Whitaker in 1992 (the “1992 Acquisition”).  In the 1992 Acquisition, Whitaker was described as a “single man,” despite the fact that he was married at the time to Dessie Whitaker, to whom he was married from 1955 until her death in 2005.  Initially, the Judgment of Possession rendered in the Succession of Dessie Whitaker, which was filed in both Caddo and DeSoto Parishes in January of 2008, did not recognize the decedent’s interest in the Subject Property.  Thereafter, in March of 2008, Whitaker granted a mineral lease covering the Subject Property in favor of Land Endeavors, LLC (the “Lease”), which was recorded in April of 2008.  All interest in the Lease was assigned to Chesapeake (the “Assignment”) in August of 2008 and said assignment was recorded in December of 2008.  However, in the interim between the execution and recordation of the Assignment, an Amended Judgment of Possession was rendered in the Succession of Dessie Whitaker, in which Dessie’s community interest in the Subject Property was recognized.  The Amended Judgment of Possession was filed in Caddo Parish, but was not filed in DeSoto Parish.  Thereafter, in December of 2009, the heirs of Dessie Whitaker executed mineral leases covering the Subject Property in favor of HTP and Associates, LLC, and recorded same in DeSoto Parish on January 19, 2010 (the “2009 HTP Leases”). 

            Litigation ensued in 2009 when Whitaker filed for a declaratory judgment seeking to have the Lease declared null and void.  The litigation later settled when Whitaker agreed to ratify, confirm and adopt the Lease.  Chesapeake then filed a complaint against HTP and the Whitaker heirs, seeking declaratory relief that the Lease was in full force and effect and seeking a permanent injunction preventing HTP from interfering with the Lease.  In response, HTP and the Whitaker heirs counterclaimed for declaratory judgment that the 2009 HTP Leases were in effect while the Lease was null and void.   

            In rendering its decision, the Court first discussed Louisiana’s presumption that property acquired during marriage is community property, noting that because Whitaker was married at the time he acquired the Subject Property, it was presumably community property.  The Court then noted that Louisiana Civil Code Article 2347 requires the concurrence of both spouses in order to lease community property.  Because Whitaker never received Dessie’s concurrence when leasing the Subject Property, the litigation was focused on the extent that third parties could rely upon Whitaker’s representations that he owned and leased the property as a single man. 

            In setting forth their arguments, the plaintiff relied upon Louisiana Revised Statute 35:11, which states in pertinent part that: 

“A. Whenever notaries pass any acts they shall give the marital status of all parties to the act ….  B.  A declaration as to one’s marital status in an acquisition of immovable property by the person acquiring the property creates a presumption that the marital status as declared in the act of acquisition is correct and except as provided in Subsection C of this Section, any subsequent alienation, encumbrance, or lease of the immovable by onerous title shall not be attacked on the ground that the marital status was not as stated in the declaration.  C. Any person may file an action to attack the subsequent alienation, encumbrance, or lease on the ground that the marital status of the party as stated in the initial act of acquisition is false and incorrect; however, such action to attack the alienation, encumbrance, or lease shall not affect any right or rights acquired by a third person acting in good faith.”

In contrast, the defendants relied upon Louisiana Civil Code Article 3341, which provides in pertinent part that:

“The recordation of an instrument: … (2) does not create a presumption as to the capacity or status of the parties.”

In discussing the statutes, the Court noted that application of La. R.S. 35:11 created a presumption of the validity of Whitaker’s declaration that he was a single man in the notarized 1992 Acquisition.  On the other hand, application of Article 3341 resulted in the recordation of the 1992 Acquisition not creating a presumption as to the validity of Whitaker’s declaration.  Importantly, the Court found that Article 3341 did not negate the presumption created by La. R.S. 35:11, i.e., application of Article 3341 upon recordation of the instrument did not preclude application of La. R.S. 35:11 upon notarization of the instrument.  Thus, the presumption of La. R.S. 35:11 applied.

            The next step in the Court’s analysis was to determine the meaning of “good faith,” as used in La. R.S. 35:11.  The Court noted that the term was undefined in this context, and upon the suggestion of all parties in the case, analogized to the rules of good faith for purposes of acquisitive prescription.  After discussion of whether an objective or subjective standard of good faith was more appropriate, the Court adopted the standard enunciated by the Louisiana Supreme Court in Phillips v. Parker, 483 So.2d 972 (La. 1986), in which the Court rejected the theory that good faith includes constructive knowledge of all public records, and instead adopted a “totality of the circumstances” test, where good faith is determined by a consideration of all relevant factors of the particular case.  The Court noted that good faith is presumed, and that the defendant has the burden of showing that, under objective considerations of the case, Chesapeake was not in good faith when it acquired the Lease.  In this vein, the Court set forth four objective factors it would consider in its analysis of good faith:  (i) whether Chesapeake checked the public records or obtained a title examination; (ii) whether a reasonable search of the conveyance records related to the Subject Property would have informed Chesapeake that the declaration of marital status may have been incorrect; (iii) whether the circumstances surrounding the acquisition of the Lease have suggested a title defect; and (iv) whether Chesapeake had actual knowledge that Whitaker did not own the Subject Property as a single man.   

            In examining the first factor, the Court noted that both Chesapeake and Land Endeavors either personally searched the title or hired an outside firm to do it, and that additionally, Chesapeake received a verbal title opinion from an attorney.  The Court found that nothing in the first consideration weakened the presumption that the parties were in good faith. 

            In examining the second factor, the Court noted that the chain of title between the 1992 Acquisition and the 2009 HTP Lease was found to be “devoid of any clear statement controverting the presumption that David Whitaker owned the property as a single man.”  Specifically, the Court examined the steps that the landman who performed the due diligence before acquiring the Lease took with respect to the Subject Property, noting that he first checked the plat at the tax assessor’s office, which showed David Whitaker’s name only, then performed a vendee search in which the 1992 acquisition was found, and then performed a vendor search from 1992, which revealed a mineral lease taken by Whitaker in 2005 covering the Subject Property.  The 2005 lease also stated that Whitaker owned the Subject Property as a single man, which reinforced the landman’s belief that Whitaker owned the Subject Property as a single man.  The Court then discussed the expert testimony for this issue, noting the plaintiff’s expert’s statement that “to render a title opinion a landman only looks to the public records on the applicable property; there is no reason to look at the records regarding other property,” as well as the defendant’s title examiner’s admission of the importance of a landman’s ability to rely on an appearance clause that states the status of a party.  The Court further noted that the landman used his knowledge that Whitaker had been married at some point to check outside the chain of title by finding the Judgment of Possession rendered in the Succession of Dessie Whitaker in order to ensure that the Subject Property was not listed as a part of her estate, which further confirmed the separate nature of the property.  Although the defendants claimed there was adequate information in the public records to alert the plaintiffs as to Whitaker’s marital status, the Court found that information was either not specific to the Subject Property or did not provide a clear indication that Whitaker did not own the property as a single man.  The Court took particular issue with the fact that the Judgment of Possession rendered in Dessie Whitaker’s succession clearly noted the Subject Property was not part of her estate.  The combination of the Judgment of Possession and repeated assertions by Whitaker of the nature of the property provided ample information upon which a title examiner should be able to rely.  “To require title examiners to delve into any potential lead that would suggest a person was married when he acquired property as a single man would transform the role of a title examiner into that of a private investigator.”  

            In examining the third factor, the Court discussed the inclusion of a non-warranty provision in the Lease, addressing the defendants’ suggestion that its inclusion casted doubt as to the good faith of the parties in acquiring the Lease.  The Court noted that Louisiana courts have indicated that the inclusion of such a provision could potentially put a purchaser on notice of a title deficiency.  However, the Court stated that while such a potential must be acknowledged, “Louisiana jurisprudence states that such a conclusion can only be drawn if there was no investigation to assess the validity of the seller’s title.”  In this case, both the original lessee as well as Chesapeake ran the title to the Subject Property, and nothing of record indicated that the property was not owned by Whitaker as a single man. 

            Finally, in examining the fourth factor, the Court found that there was no evidence presented at trial to suggest that the original lessee or Chesapeake had actual knowledge that Whitaker did not own the property as a single man.  Therefore, under the totality of the circumstances, the Lease was acquired in good faith.  After the Court made a finding of good faith, it then granted Chesapeake’s request for declaratory relief.   

            This case presents an excellent example of how application of laws protecting the rights of third parties can result in a just outcome, in spite of title imperfections.  It also should be read as an example of good due diligence practices on the part of both the original lessee as well as the assignee, which, especially considering the Court’s analysis of the inclusion of the non-warranty provision in the Lease, were crucial to a finding of good faith.  Additionally, the landman in this case appears to have done everything correctly, especially with respect to conducting follow-up research to ensure that the Subject Property was not included as part of the deceased wife’s estate, thus emphasizing the importance of the role of a thorough, conscientious land professional.    

Exploration Land Services is looking for experienced Landmen and Abstractors for both local and out of town work.  We are a full service land company located in Lafayette, Louisiana.  Job requirements include, but are not limited to, title research to determine surface and mineral ownership; preparation, negotiation and acquisition of Oil, Gas and Mineral Leases; complete abstracts of title and/or run sheets (Louisiana and Texas).  We are seeking experienced, aggressive landmen/abstractors to fill these positions.  If you are interested in applying, please send your resume along with your desired day rate to contact@explorationland.com.

2011 AAPL Education Classes

AAPL would like to let you know that spots are still available in the following 2011 classes:

Joint Operating Agreement & Exploration and Participation Agreements
Tulsa, OK
14 RL/RPL/CPL CE Credits
*FLYER WITH REGISTRATION FORM*

ATTENTION: If you are paying by check, please note that AAPL cannot process your registration until the check has cleared: this delays your registration process by at least two days.  AAPL recommends that you pay by credit card whenever possible to ensure quick reservation and confirmation.

PLEASE CONTACT STEPHANIE RICKELS AT SRICKELS@LANDMAN.ORG OR 817-847-7700 WITH ANY QUESTIONS.

PXP

Plains Exploration & Production Company

Sr. Landman

Land – Lafayette, LA

BASIC PURPOSE OF POSITION:

The Senior Landman is responsible for the commercial development and management PXP’s leasehold and contractual interests in the Gulf of Mexico and for the acquisition and development of land holdings in select U.S. onshore basins.  

ESSENTIAL DUTIES AND RESPONSIBILITIES:

·         Provide commercial input for PXP’s Gulf of Mexico team in support of drilling and development operations, while meeting contractual and regulatory obligations.

·         Direct and manage field landmen and title attorneys in leasing, title preparation, curative measures and oversee the formation of pooled/spacing units to bring a project to a drillable stage.

·         Negotiate and prepare joint venture trade contracts, including operating agreements, participation agreements, farmout agreements, oil and gas leases, assignments, production handling agreements and other related contracts.

·         Interface with the geoscience, engineering, operations, legal, regulatory, accounting, property administration and other internal disciplines with respect to issues or questions regarding lease maintenance, contract and regulatory compliance, ownership and access matters, joint interest billings and revenue distribution. 

·         Cultivate and maintain working relationships with multi-disciplinary teams as well as joint venture partners, industry personnel, mineral and surface owners and regulatory agencies.

·         In concert with operational team, ensure that PXP exploration and production activities comply with applicable governmental laws, statutes, regulations, and oil and gas leases and contracts.

POSITION SPECIFICATIONS:

• Must have a Bachelor’s Degree with major in Petroleum Land Management, Business Administration or other closely related discipline.
• Ten years broad based land expertise preferred with experience in the Gulf of Mexico.
• Working knowledge and ability to apply to federal, state and local rules, regulations and statutes applicable to the oil & gas industry, with emphasis on understanding of the BOEMRE regulations.
• Demonstrate ability to self-start and balance multiple competing projects simultaneously and reach closure within the established time frame.
• Results oriented with strong interpersonal, communication and technical skills and the ability to work both independently and in a team-based environment.
• Experience in negotiating and administering oil and gas leases and joint venture contracts, with an emphasis on lease and contract compliance.
• Must have proficiency in Microsoft Office suite and other PC software and a willingness to learn internal and external computer systems used by industry to access data.

The position is located in Lafayette, Louisiana.  Please visit us at www.pxp.com and apply through our careers page.

EQUAL OPPORTUNITY EMPLOYER

The LAPL Scholarship Committee will be interviewing PLRM students in Moody Hall on the UL campus, Wednesday, Nov. 2, and Thursday, Nov. 3, 4-6 p.m. both days.

Anyone wanting to sign up for an interview should contact Jennifer Taylor in the Management Dept., 337-482-6087.

Links:

INSIDE THE LOUISIANA LEGISLATURE
By Richard Hines

This being a fiscal year in Louisiana, the 2011 Legislative Session was concerned with balancing the budget and re-drawing districts. With several oil and gas plays ongoing, all eyes were on Baton Rouge as they looked for revenue, so taxing oil and gas interest looked good to the politicians; but none of those bills seem to make it out committee. In the meantime several laws were passed, like the Bill for Helicopter Safety for our crews in the gulf; the bill that declares the powers of our local Levee Districts, as well as the adoption of rules on year-round oyster consumption.

Several interesting laws were passed that, if they become effective, may impact your oil and gas operations—like the one for the study of the remediation of the “legacy” and orphaned oilfield sites and the one that provides that the gulfward Louisiana boundary extends into the Gulf of Mexico three leagues or a little more than 10 miles!

Guess they figured out the royalty is worth more than they could get from a tax increase.

We had some close calls on bills not making it back to the floor for a vote: one concerning prescription of the time to recover the payment on royalties, from three to ten years; another with changes to unitization rules; and, yes, even a transportation tax on natural gas as it passes through the pipelines under our feet. With re-districting looming, along with a $25 billion state budget and a $3.8 billion construction budget needing funding, all bets were off. Tops, Higher Ed, the SUNO-UNO merger, and even welfare drug testing were all on the table.

What appeared to be a meltdown turned into no big deal as lawmakers used maneuvers like raiding certain fund accounts and using federal money grants. Education and health care survived the axe, this year. The 4-cent cigarette tax renewal passed as it was tacked on to the Tops bill at the last minute. This maneuver saved Gov. Jindal from having to sign a tax bill (he proclaimed no tax would pass his desk). By making it a constitutional amendment, he avoided having to veto the renewal.

Interesting times indeed; the legislators drew new districts by population and several parishes state offices got hammered like in St. Landry, while New Orleans got more compact districts and central Louisiana districts got spread out. We lost one of our congressional districts, meaning two of our local congressman will have to run against each other.

Also, LAPL friend Scott Angelle came back to Department of Natural Resources after a stint as Assistant Governor - I mean Lieutenant Governor. Apparently, it isn’t all what it’s cracked up to be. He is a very effective negotiator; just ask Governor Jindal who tapped him as his legislative liaison. Next time you see Scott, tell him to run for higher office—he is a natural. All in all not much got done in this year’s 60-day session. We started out with $1.6 billion shortfall but ended up with a
balanced budget. Spending guidelines, contingencies, and the like kept the term-limited legislators in line with the governor.


Here is a list of the Louisiana Acts mentioned above:

HCR167/MINERALS

Urges and requests the DNR, Conservation, AG, DEQ, to study the remediation of "legacy" and orphaned exploration and production oilfield sites.


SB119/PUBLIC LANDS

Provides that in order to allow the individual lessee to lease lands from the state in preference to syndicated landholders or corporations, no lease will cover a larger area than 640 acres of public land, which area must be contiguous. Further provided that no lessee may own more than one such lease at one time. Act does not apply to White Lake lands.

SB160/COMMERCIAL REGULATIONS

Provides for safe transportation of offshore oil platform workers.

HB640/LEVEES

Revises provisions relative to the rights and powers of levee districts.

SB145/COASTAL RESOURCES

Provides relative to the gulfward boundary and coastline of Louisiana extends a distance into the Gulf of Mexico 3 marine leagues from the coastline or 10.357 statute miles.

SCR96/COASTAL RECLAMATION

Requests the Governor's Office of Coastal Activities and the office of coastal protection and restoration to support the establishment of state seashore and the restoration of the habitat.

SB240/FISH/FISHING

Provides relative to oysters leases, precludes liability to an oyster lease arising from oil and gas activities permitted
prior to filing a new oyster lease for the same property.

Here are Laws from other States that may be of interest:

COLORADO

An Act that prohibits any covenant or lien from being binding on or enforceable against any subsequent owner, purchaser, or holder of any mortgage, deed of trust, or other security interest encumbering the affected real property.

INDIANA

An Act to regulate coal bed methane wells via alternative spacing rules.

OHIO

A newly-formed Oil and Gas Leasing Commission will to allow oil and gas drilling on state-owned lands, including within state parks and forests and will advertise those lands open for drilling and oversee the competitive bidding process.

OKLAHOMA

An Act that eliminates the requirement that any wind or solar energy agreement shall not interfere with or supersede any entity’s right to obtain easements.

An Act that stipulates that certain parties may not unreasonably interfere with the mineral owner’s right to reasonably use the surface estate.  The bill also stipulates that a wind energy developer must provide a notice of intent at least 30 days prior to beginning construction of wind energy facilities. 

An Act that removes the fiduciary duty on the applicant or the operator of a well spacing and drilling unit or in the operation of a well drilled in the unit.

An Act that gives the OCC authority to authorize units larger than those allowed in the historical scheme, in particular with laterals exceeding five thousand two hundred eighty (5,280) feet in length.  Units may be two governmental sections; however, the OCC may expand a given unit up to four governmental sections if necessary. 

An act amending State Law by requiring that operators negotiate “in good faith” in settling surface damages.

PENNSYLVANIA

An act that proposes to levy a $10,000 base impact fee on natural gas drillers in the Marcellus Shale.

WEST VIRGINIA

An Act that would create natural gas horizontal well control act. FORCED POOLING

Here are some new Public Land laws and changes:

UTAH

Operators on federal and Indian lands are forced to use bonding as per Onshore Order #1. Wildland Suit (Red Rock Wilderness Act) Millions of acres designated as wilderness with restrictions.

COLORADO and NEVADA

Federal Exploratory Units established, discussing term change to 5 years. With new threatened species identified making acreage off limits.

EASTERN US  

Pennsylvania moratorium on development on Forest Lands.
New York moratorium on development expired July 1, 2011, but still no drilling.
Virginia Horizontal drilling ban in National Forest.
Arkansas lawsuit on environmental impact statement required for Hydraulic Fracturing operations.

Here are some State regulatory changes that may be of interest:

INDIANA

Permitting and notice requirements for coal bed methane wells.

WEST VIRGINIA

Joint Committee on Marcellus Shale activity formed, new legislation to follow.

MICHIGAN

New Hydraulic Fracturing regulations put into place relating to High Volume Fracturing.

PENNSLYVANIA

Pipeline regulations are on their way! Requires operators provide precise location and other emergency response information only to unconventional wells.

TEXAS

Disclosure and composition of fracturing fluids by operators will be required in 2012.

OFFSHORE

REGULATIONS RESULTING FROM THE BP OIL SPILL LAST YEAR REGARDING BONDING AND PERMITTING HAVE RESTRICTED NEW WELLS FROM BEING DRILLED BY OPERATORS.

Richard Hines is a partner and vice president of American Data Corporation. He has been an active contributor and leader in the LAPL and AAPL.