Articles

Created by: Martha Mills at 8/25/2015 5:30:53 PM | 0 comments. | 972 views.

FROM THE MEMBERSHIP CHAIRMAN

Mandy Barrilleaux, RPL


Hello, hello, hello!!!!!! I would like to start off by saying, welcome back to all of our wonderful members!!!!! And to all of you out there who have been thinking about joining the LAPL or know of someone thinking about joining, we want to extend a welcome to them as well. We would love to have them as part of our association! September 1st marks the official new year for the LAPL, so please keep an eye out for the LAPL Membership Renewal form. This form is for you to review, make changes to and return to us, and will help us in making sure that we have all of your current and up to date information, so that you receive your newsletters, emails and any other information that we send out throughout the year.

We are very excited to announce that we will be having our Annual Kick-Off Party again at Antlers downtown! Last year was a great success and a lot of fun. The date for this event is Sunday, September 13th at 2:30 p.m.. Kick off is at 3 p.m.. This is a great opportunity to apply for or renew your membership, pay your membership dues, or bring a friend that might be interested in joining the LAPL, all while kicking off the football season with many of your friends and colleagues. The Saints will be taking on the Arizona Cardinals. There will be food, drinks, door prizes, cash prizes and of course the Saints game! We will also have a football pool for those who are interested in doing a little betting!  

IF YOU INTERESTED IN HELPING OUT WITH THIS EVENT PLEASE CONTACT:  Jamie Castille, Angela Benedict or Mandy Barrilleaux. You can find their contact information on Page 2, right next to this letter.


Finally, we would like to give a HUGE thank you to all of our amazing sponsors! This event is free because of them. So come on out and meet someone new, introduce a friend to someone, shake someone’s hand! It’s going to be a blast so I hope to see everyone there!!!!!


Created by: Martha Mills at 8/24/2015 8:30:35 PM | 0 comments. | 983 views.

The LAPL Executive Committee is excited and pleased to announce that we now offer ONLINE REGISTRATION for our regular luncheon/meetings! Starting now, you can sign up for our Friday, September 25, meeting at the Petroleum Club.

Because of PayPal's processings fees, the cost is $22/person, as opposed to $20/person at the door. Also, if you need to register and pay for several people (up to 10), you may do so now ONLINE. However, if you would still prefer to pay at the door, that remains an option. Checks payable to the LAPL are accepted.

To register online, click on the link below. You will find everything you need to know about the September 25 meeting and how to pay.

Register Now! Sept. 25 Luncheon

 

Created by: Martha Mills at 8/24/2015 11:32:54 AM | 0 comments. | 1002 views.

The Lafayette Association of Professional Landmen annual kickoff party is to be held at Antler's in downtown Lafayette, Louisiana starting at 2:30pm until 8pm on September 13th. Food, fun, football pool with cash prizes and door prizes to be given away. It is free to all who attend and we are welcoming sponsors. Please contact Jamie Castille: (337) 962-9948 or email jcastille61179@aol.com for more information. We thank you for your continued support!

DEADLINE FOR SPONSORSHIPS:  TUESDAY, SEPT. 8!

08/25/2015Groves

stonewall logo

08/25/2015Mantra

08/25/2015Keith

08/25/2015PetroRoots

08/25/2015LandmanTrends

2015 Kick off HPS

Lowrys logo

Merlin logo

 

oil land logo

Reagan logo

totaland 2015 logo

 

Links:

Kickoff_Sponsorship_Flyer_2015
Created by: Martha Mills at 8/24/2015 10:43:11 AM | 0 comments. | 1083 views.

LAPL Supporting Its Future

by Tim Ledet



Last year the LAPL and UL Lafayette Foundation teamed up to establish the PLRM Promise campaign to lend financial support to the Moody College of Business Professional Land and Resource Management Program.  The LAPL committed to a three-year $15,000 donation paying a minimum of $5,000 per year with the first fiscal year commencing August 1, 2014-July 31, 2015.  The final first year tally resulted in $5,783 in contributions.


Year number two commenced August 1, 2015, and the LAPL continues its commitment to encourage additional contributions. Julie Falgout, President and CEO of the UL Lafayette Foundation, established an LAPL account and reminds everyone no amount is too small and all donations are tax deductible.  Instructions on how to give are listed on the flier printed in every newsletter.  Just look for the big red thermometer, usually on page 9.


PLRM Promise donations do not fund the LAPL Scholarship Program but do provide direct university support to the PLRM Program. Scholarships are funded by proceeds from other LAPL annual events, such as the crawfish boil, golf tournament and educational seminars.


The ULL Professional Land and Resource Management Program has taken giant steps of excellence in recent years and our industry is the primary beneficiary.  We’re tops in the nation and strive to stay there.  However, the cost of educating young professionals continues to climb and ULL needs our help.  


Thank you for your consideration and continued support of this important campaign.


       

Created by: Martha Mills at 8/18/2015 9:46:27 AM | 0 comments. | 1034 views.

American Association of Professional Landmen - Director Update

Damon R. Weger, CPL

August 7, 2015

Networking is important for landmen, and LAPL and AAPL offer many opportunities to do just that!  In our current industry slowdown I feel it is important to urge all of our members to take full advantage of every event that our associations sponsor.

This LAPL Newsletter provides information on our upcoming events as does our website.  Most all of the individuals that I have had the honor to get to know through our association, and through AAPL, are of the highest character and have become close friends.  Further, I feel certain that many business exchanges and company hires are a result of a contact made through LAPL or AAPL.

As your AAPL Director, I feel it important to express my thoughts as how best to take advantage of your LAPL membership and to urge each of you to become involved in AAPL through its networking opportunities and its certification program. First, at the local level it is a good idea to attend as many LAPL events as you can – most of us can’t make all of the events, but it is great to visit with fellow industry friends.  Secondly, get involved in the planning process by helping out at the committee level and maybe working your way up to the Executive Committee where the decisions are made.

 

Becoming certified in our industry is becoming more important than ever!  Those who we do business with, landowners and company contacts, are quickly becoming more educated as to who we are as landmen and what holds many of us accountable to a set of ethical and educational standards.  Most everyone we meet will communicate with their friends through Facebook or some other social media outlet to let them know what is happening in their daily lives, and when we become a part of that conversation our reputations are exposed for what they are.  All anyone has to do is type in landman and they can find out exactly what certifications are available to us and will then ask you about your education and what holds you accountable to ethical standards.  What will your answer be?

If you have recently entered the landman industry, you may want to start your certification by becoming a Registered Landman (RL).  This is a temporary designation available for landmen who do not have work experience to qualify for the higher certifications of RPL and CPL.  RL signifies a fundamental knowledge of the land industry as well as a landman’s commitment to furthering their education.

Next, the mid-level designation offered by AAPL, Registered Professional Landman (RPL) certification, distinguishes a landman as knowledgeable, experienced and professional.  Finally, the highest designation offered in the energy management industry is the Certified Professional Landman (CPL).  This certification is the standard by which landmen demonstrate their comprehensive competence, proficiency and professionalism in the landman field.

 

The times may be difficult for some, but as things begin to pick up we will be stronger and more tested.  Become the best that you can through education and networking!

 

Thank you all for your involvement and may God Bless you.

Damon Weger, AAPL Director

Created by: Martha Mills at 8/17/2015 2:09:01 PM | 0 comments. | 969 views.

HPS OIL & GAS PROPERTIES, INC. is currently seeking Landmen with a minimum of five (5) years’ experience.  Must be able to perform all tasks associated with Due Diligence Projects.  Interested parties without restrictions on travel and extended out of town stay are preferred.  Please email resume’ to geraldb@hps-og.com or mail to the following:

 

HPS OIL & GAS PROPERTIES, INC

P. O. Box 52149

Lafayette, LA 70505

Created by: Martha Mills at 8/17/2015 1:56:59 PM | 0 comments. | 949 views.
The Executive Committee of the LAPL would like to welcome its newest members and applicants:

New Applicants:

David J. Vanicor
Active, Lafayette, LA
David N. Mayeaux
Active, Lafayette, LA
Blaine J. Hebert
Active, Youngsville, LA
Sharon Mouledous
Active, Lafayette, LA
Belinda A. Fife
Active, Lafayette, LA

New Members:

Jason Peterson
Active, Lafayette, LA
Alex Prochaska
Active, Lafayette, LA
Charlie Doucet
Active, Lafayette, LA
Robert W. Scheffy, Jr.
Active, Baton Rouge, LA
Catherine L. Bergeron
Active, Ventress, LA
Roger D. Lehman
Active, Lafayette, LA
If you have any questions about Membership in the LAPL, please contact Mandy Barrilleaux, RPL, at mandybarrilleaux@gmail.com or call 337-962-1922. The LAPL mailing address is P.O. Box 53491, Lafayette, LA  70505.
Created by: Martha Mills at 8/5/2015 3:34:48 PM | 0 comments. | 945 views.

FROM THE PRESIDENT

David Deville, CPL

 

It is my honor and privilege to serve as the 2015-2016 President for the LAPL.  I look forward to picking up where Mr. Keith Hebert left off.  Those are some big shoes to fill.  For those who don’t know Keith, he is one of the most caring, compassionate people that I have ever met.  I am proud to call him my friend and colleague and especially thankful that he will be around to help out with the challenges we face for the coming year. 

We have some new faces this year on the Executive Committee. I would like to welcome Pete Van Der Veldt as 1st Vice President and Annie Caillouet as Director.  Welcome back Corey Perkins, Angela Benedict, Carolyn Savoy, Bill Bownlee, Sarah Richard, Mandy Barrilleaux, Damon Weger and Martha Mills.  What a fantastic group, and I hope that when our members run into you guys on the street that they stop and say thanks for what you are doing.  Also, welcome back Bill Justice and Sal Micelli.  You two have a special place in my heart because, although you do not hold “official” positions within the committee, you’re always there, you give freely and your guidance and ideas are greatly appreciated.  The LAPL is very fortunate to have had all of you guys serve for so long.  I don’t think that our 529 current members in good standing really know the efforts that have gone in to the planning, execution and accounting for all of the events that take place. 

We will be introducing some new ideas and events this year, and I invite all of the members to contact me or any of the other EC members and ask how you can help.  You can serve as a committee chairman or member.  There will be plenty of opportunities with the Kickoff Party in September, 10 Safety meetings, 7 Monthly Luncheons, Crawfish Boil, Golf Tournament, raising funds for our charities and our PLRM students, GCLI and Annual Directory (NEW!).  That’s not even the complete list!

The LAPL is 68 years old this year.  That’s amazing.  Let us all contemplate that for a minute.  In 1947 our predecessors had the foresight to join together to help one another and our community, and here we are almost 70 years later and still on solid ground because of the efforts of so many or so few depending how you look at it.  Please join us and become an active part of a great organization.  We would love to have you but even more, we would love to know you.

Created by: Martha Mills at 7/20/2015 2:55:55 PM | 0 comments. | 1087 views.

American Association of Professional Landmen - Director News

Damon R. Weger, CPL

Hope you are all having a great summer!  We’ve had a plenty of rain, but hey, we haven’t had to water our lawns.  If you’re like most of us in Louisiana (and our friends in Texas) you are probably thinking about buying a canoe to get across your yard.  I think I just coined a new word – “yard canoe”.

The AAPL Annual Meeting in Nashville has come and gone.  The attendance was a bit lower than usual, with much of the country experiencing the same sluggishness (I guess that’s a word) that we are in the South.  The numbers may have been down, but it was a very good meeting.  Nashville is a great city with much history and the people there are truly special.

Lower attendance has been the trend across the country at networking and educational events.  NAPE Summit was down a bit with 14,946 attendees present.  

As I write this I know that many of you are experiencing the hardship of being out of work.  This is a time for us all, as friends and industry companions, to stick together by sharing ideas and connections to help each other weather these difficult times.  At times it can be hard to find the funds to make it to our LAPL and AAPL events, but this is the time to take advantage of the resources available through our associations – networking and support.  Keep in mind that AAPL continues its 50% rates on seminars and 25% reduced price on materials along with their offer of tuition assistance if you cannot afford an educational event.

Also, if you are getting to the end of your five year certification cycle, the $100.00 fee to re-certify as a CPL will no longer be required every five (5) years.  AAPL has decided that the fee was an undue burden when added to the 50 credit hours and the yearly AAPL membership fee.  Another item of note is that instruction sheets have been added to RL and RPL applications to clarify some concerns that applicants were having when filling out the forms.

As many may have already heard, Marty Schardt, AAPL’s Executive Vice-President, has resigned.  This position is now open and about 17 applicants have put their names in the hat.  The organizational structure that has been in place at AAPL Headquarters for many years has been significantly restructured to account for growth thereby easing the burden placed on an incoming EVP.  There are now several layers of directors/managers that are responsible for decision-making within their scope of authority, which in theory should alleviate some of the pressures of the EVP position.  

Now that the new headquarters is in full use, AAPL management is looking to get the new building paid off ($2.3 million note) by next year.

A survey was sent out by AAPL to its membership on May 28th entitled “Independent Landman Survey”.  They need 30% to respond to this survey in order to help them answer independent contractor issues.  The survey takes about 10 minutes or so to complete and will be very helpful to AAPL.

Forms that have previously been available only through Forms on Disk will soon be available on the AAPL website.  This will finalize their efforts to make all forms that they have available through the website.

Don’t forget to take full advantage of all of the resources that are available at landman.org and that the June 30 deadline to renew your AAPL membership has been extended to September 18.

Thank you all for your involvement and may God Bless you.


Damon Weger, AAPL Director


Created by: Martha Mills at 7/14/2015 2:41:09 PM | 0 comments. | 1529 views.

LOUISIANA LEGAL UPDATE 

By Colleen C. Jarrott, Esq. 

C. Jacob Gower, Esq. 

Slattery, Marino & Roberts, APLC  

Mineral Lessees Beware!
 

    Mineral lessees should pay attention to two cases currently pending before the Louisiana Supreme Court: McCarthy v. Evolution Petroleum Corp. (Docket No. 2014-C-2607) and Hayes Fund v. Kerr-McGee Rocky Mountain, LLC (Docket No. 2014-C-2592).  Right now, the Court is considering both cases on the merits, and we anticipate rulings in these cases in the coming months.  The outcome could have alarming consequences for the mineral lessor-lessee relationship, and could undermine years of long-standing legal precedent.  This legal update summarizes both cases and provides their current procedural posture.

McCarthy v. Evolution Petroleum Corp. – A Duty to Speak?

    McCarthy involves the interpretation of a mineral lessee’s obligations to its lessor pursuant to the Louisiana Mineral Code.  Article 122 of the Mineral Code specifically says that a mineral lessee does not owe a “fiduciary obligation” to his lessor.  However, the Louisiana Court of Appeal, Second Circuit ruled that lessees owe an implied duty to disclose information to their lessor regarding the future development of minerals.  If the Second Circuit’s decision is allowed to stand, it will turn the current rule on its head and create a new obligation--the “duty to speak.”  

    Plaintiffs are former royalty owners in the Delhi Unit in Richland Parish.  They claimed that defendant, Evolution Petroleum, in May 2006, improperly obtained their royalty interests by undervaluing their 1/8 interests because Evolution failed to disclose important information about the future development of the unit.  Evolution allegedly sought to obtain the royalty interests of lessors that were either elderly or unsophisticated in oil and gas matters.  The offers were unsolicited by plaintiffs.   At the time of the offers, Evolution was the 100% working interest owner in the Delhi Unit.  

    Plaintiffs argued that Evolution fraudulently induced the sale of their interests by misrepresenting the future value of the minerals.  According to plaintiffs, Evolution did not tell the royalty owners at the time of the offer that it was in the process of negotiating a sale of the unit to Denbury, who would later perform tertiary recovery of about 30-40 million barrels of oil by injecting carbon dioxide into the formation.  As plaintiffs alleged in their petition, it was Evolution’s plan, following the sale to Denbury, to retain certain royalty interests obtained from plaintiffs and profit therefrom on about 9-14 million barrels of oil.  Evolution also did not tell any of the royalty owners about the proven reserves underlying the Delhi Unit.  Because Evolution failed to disclose this information, plaintiffs argued that the sale of their royalty interests should be rescinded.     

    Evolution filed a peremptory exception of no cause of action with the trial court.  This type of exception is triable on the face of the pleadings.  No evidence may be introduced in support of the exception.  The trial court granted Evolution’s exception.  Plaintiffs appealed to the Second Circuit, which reversed and remanded the case to the district court.  The Second Circuit found that Evolution had a duty to speak; that Evolution was aware of the pending sale to Denbury at the time of the offers; and, therefore, as a reasonably prudent operator, it should have told plaintiffs that there was a significant amount of proven reserves remaining in the unit.  

    Plaintiffs claimed that the exception should not have been granted because it was clear from the pleadings that Evolution purposefully left out production valuation information viz. the Denbury deal in order to undervalue its offer(s) to purchase plaintiffs’ royalty interests.  The Second Circuit found that the failure to disclose such information constituted fraud by silence.  The court found that because Evolution was planning a long-term development plan, as a reasonably prudent operator, Evolution was obligated to inform its lessors about said plans and not remain silent.         

    Seemingly, and as the Second Circuit recognized in its decision, this case presents a matter of first impression, meaning it presents novel issues of law that have not been addressed in this context in prior Louisiana oil and gas jurisprudence.  The Second Circuit’s ruling is not supported by current law, nor the express words of the Louisiana Mineral Code.  Article 122 specifically states that a lessee does not owe a fiduciary duty to his lessor.  The Second Circuit’s decision essentially eviscerates this rule and engrafts an implied obligation of a duty to speak as part of the reasonably prudent operator standard.  

    At this time, the Louisiana Supreme Court is considering the case on the merits.  Evolution filed an application for writ of certiorari in December 2014.  That application was supported by a number of amici--AAPL, LOGA and LMOGA.  The Louisiana Supreme Court granted Evolution’s writ application in March 2015.  Evolution submitted its original brief on the merits in May 2015.  That brief was also supported by amici.  Plaintiffs filed their original brief thereafter in June.  The La. Supreme Court has not yet ruled on the case.  

McCarthy v. Evolution Petroleum Corp., 111 So.3d 446 (La. App. 2 Cir. 10/15/14), writ granted, 161 So.3d 646 (La. 03/27/15).  

Hayes Fund v. Kerr-McGee Rocky Mountain, LLC – Pay Up, say Lessors (and the Third Circuit!).

    The outcome of this case will also have consequences for mineral lessees, but in a different way from McCarthy.  This case centered on alleged formation destruction from the drilling of two wells located in Jefferson Davis Parish.  

    Plaintiffs (landowners) claimed that defendants ruined certain oil and gas formations by allowing water to intrude into the formations during drilling operations and by allowing drill pipe to become directionally stuck in the well bores.  Because the formations were “destroyed” as a result of these operations, plaintiffs claimed they were deprived of certain mineral royalties, totaling over $13 million.  In addition, plaintiffs claimed that defendants (1) improperly collaterally attacked two unit orders issued by the Commissioner of Conservation, and (2) that they were entitled to “all damages” given the wording of the surface damages clause of the mineral lease.

    The district court held a trial on these issues in 2012.  The trial spanned 11 months (non-consecutively) and consisted of over 25 days of testimony.  After a full trial on the merits and consideration of the evidence, the trial court found that plaintiffs did not meet their burden of proof and dismissed the case.

    Plaintiffs appealed to the Louisiana Court of Appeal, Third Circuit.  The Third Circuit reversed the ruling of the trial court and awarded plaintiffs over $13 million in damages.  Pursuant to Louisiana law, the Third Circuit is bound to review such cases using a manifest error standard, meaning that the Court must review the record before it but it cannot make its own findings of fact or re-weigh the evidence.  Here, however, the Third Circuit made its own factual findings and credibility determinations about witness testimony, instead of remanding the matter to the district court for further proceedings.     

    The Third Circuit also made the following findings: (1) defendants’ evidence at trial regarding damages constituted a collateral attack on the unit orders of the Commissioner of Conservation because the proper method of determining the amount of royalties due plaintiffs, according to it, was to take the mathematical volume of the geographic unit (the “reserves”) and multiply it times the price of oil; (2) plaintiffs were entitled to all of the damages they sought because the surface damages provision of the mineral lease struck through the restrictive words “timber and growing crops of Lessor,” in the eyes of the Third Circuit meant that plaintiffs were entitled to all damages without any limitations; and (3) the mineral lease did not need to be read as a whole, as required by Louisiana law; rather the sole focus for it was the surface damages clause alone.   

    This case is significant but for all the wrong reasons--it provided for an improper, draconian interpretation of the mineral lease at issue and it provided a misguided understanding of how the collateral attack doctrine is to be applied, pursuant to Louisiana law.  The case was appealed by lessees to the Louisiana Supreme Court in December 2014.  Defendants’ writ application was granted in April 2015, and the matter is currently being considered by the Court on the merits.

Hayes Fund for the First United Methodist Church of Welsh, LLC v. Kerr-McGee Rocky Mountain, LLC, 149 So.3d 280 (La. App. 3 Cir. 10/01/14), writ granted, _____ So.3d _____ (La. 04/17/15).

Lagniappe

EPA’s New Rule Regarding the Definition of “Waters of the United States”

    On May 27, 2015, the United States Environmental Protection Agency (EPA) issued a final rule that allegedly clarifies the definition of “waters of the United States” in the Clean Water Act.  This is a significant rule that should be reviewed by all landowners, farmers and lessees with onshore operations.  The rule has the potential to cause an increased cost of operation because it requires that a permit be obtained from EPA prior to any work on “waters of the United States,” which could include certain tributaries, ditches or other small waterbodies as defined in the new rule.  For a copy of the rule, visit: http://www2.epa.gov/sites/production/files/2015-06/documents/preamble_rule_web_version.pdf.

 

 

 
Created by: Martha Mills at 7/9/2015 3:52:50 PM | 0 comments. | 1060 views.

Oil Crisis: Is anyone guarding his assets? Anyone? Anyone?

I’ve been wondering about something lately and have been asking around. The reaction I get reminds me of the movie “Ferris Bueller’s Day Off”. Remember the teacher asking the class history questions, getting no response, and saying “Anyone, Anyone”?

Ferris Bueller - Ben Stein - History Teacher

Have you heard of the term “contango”? This is a situation where the futures price (or forward price) of a commodity is higher than the expected spot price. Sound familiar? This is what is happening with oil today; “I’m not selling my oil today, because it will be worth more tomorrow.” In the past, producers would produce the oil or a buyer would buy oil today and store it, and then wait for prices to go up before selling or simply forward sell at the higher price. The trick is that the cost of storage has got to be lower than the spread between the spot price and futures price. This is an old technique in our business, but now has a new twist.

E&P companies, primarily in the shale, are doing something unusual. They are drilling wells, but not completing all of them. As a general rule in 2013 The Hess Corporation said the average cost to drill a well in the Bakken was $4.8 mm to drill and $3.0 mm to complete. The backlog of wells drilled, but not completed, has been given the name “fracklog”, and it’s a growing trend. According to Harold Hamm, CEO of Continental Resources, “About 85 percent of U.S. wells aren’t being completed right now…” Bloomberg reports that there are over 3,000 of these wells.

Let’s say you drill, but don’t complete the well, to save the “completion cost,” hedge your bets, and wait for higher prices. You are effectively storing the oil in a natural reservoir (“contango”) and building a fracklog inventory. The big question is, how are your leases going to be maintained? Every lease I have ever seen, and that’s a whole lot of leases, has a shut in provision which allows the operator to pay to extend the lease beyond the primary term if the well is shut in, but only for a fixed period of time and usually only if it is “capable of producing”. What I don’t know is whether or not this growing list of fracklog wells can be classified as “shut-in”?

What happens if the same lease has vertical or horizontal pugh clauses? It is estimated that over 65% of leases taken in the shale plays contain horizontal and/or vertical pugh clauses, with an even higher rate of horizontal and/or vertical segregations on resulting assignments. I’m calling this the “commoditization or valuation on a formation basis.” The question I have is will the shut-in payment on non-completed wells hold all of the lease or only the unitized/pooled acreage by depth or even any of the lease? If it does, what about the non-pooled acreage and all “deeper” depths?

This is not just an academic question. It is truly a big financial question. If these non-completed wells cannot hold lease acreage or deeper depths, how will that affect the “reserve” values of the companies? I was looking at the difference between Proved Developed Producing Reserves (PDP) and non-producing reserves (which goes by many names, like Proved Undeveloped Reserves, Potential Reserves, and Resource Potential) listed on the investor presentations of several big shale E&P companies. What I found interesting is the huge spread between the two categories! Non-producing reserves were usually around 6-10 times greater than Proved Develop Producing reserves.

So the question still remains, if you don’t complete the well, how are you going to hold all those leases, which obviously hold all those reserves, which make up a major portion of the company asset value? After speaking with a number of oil & gas attorneys and principles of E+P companies, I haven’t found anyone who feels confident about an answer in either direction.

I think it is going to be a huge factor in how a company maintains its “undeveloped” acreage position and thus its balance sheet asset valuations. We have spent a year developing our program to tell you exactly which leases, which depths, and what acreage your company will lose and how much it will cost to keep that acreage for the next year.

So what do you think about the scenario at hand? Anyone? Anyone?

Created by: Martha Mills at 7/2/2015 4:16:04 PM | 0 comments. | 1132 views.

The Executive Committee of the LAPL would like to welcome its newest members and applicants:

New Applicants:

Jason Peterson, Active, Lafayette, LA

Alex Prochaska, Active, Lafayette, LA

Charlie Doucet, Active, Lafayette, LA

Robert W. Scheffy, Jr., Active, Baton Rouge, LA

Catherine L. Bergeron, Active, Ventress, LA

Roger D. Lehman, Active, Lafayette, LA

New Members:

Charles F. Bull, Active, Lafayette, LA

J. Harris Ledoux, Active, West Monroe, LA

William "Bill" Stout, Active, Lafayette, LA

Created by: Martha Mills at 7/1/2015 12:47:01 PM | 0 comments. | 1000 views.
REMINDER:  Deadline to renew your AAPL membership has been extended through September 18th.  Please renew today
Created by: Martha Mills at 5/1/2015 3:22:28 PM | 0 comments. | 1165 views.

FROM THE DIRECTOR OF EDUCATION

Bill Brownlee

Another Spring, another Spring Seminar. As routine sets in, it is easy to overlook the significance of many things that we accept as routine. Our LAPL Seminars, for instance, can easily be taken for granted.

The last couple of years, I have had the pleasure of working in Texas surrounded by Landmen who primarily live and work in Texas. When these Landmen talk about going to a one day seminar for 7 credits, they speak of paying $400 - $700. They complain about how much it costs to keep up their CE hours, and I don’t blame them.

We members of LAPL have the HUGE benefit of a relationship with our local Oil and Gas Attorneys. These Attorneys give us presentations, for free, in exchange for their CE hours with the Louisiana Bar Association. Those of us who have attended the last several seminars must agree that many of these presentations, had we hired a speaker at today’s prices, would have cost $2000 or more each. For example, I tried to get an economist from Baton Rouge to speak at this year’s seminar, the price was near $4000 for a one hour presentation. Not an option.

My point? We get about 50 – 70 attendees at each of our seminars. We have 7 presentations, all excellent, for 7 credit hours. At a mere $2000 per presentation, that’s $14,000 worth of presentations that we get for free. It is easy to see how the price per person can approach $400 to $700, yet we pay $100, and that includes a breakfast and lunch, and take home materials, and usually a door prize of some sort. The price pays for the use of the building, the catering, and the cost of printing the materials. WHAT A BARGAIN!! Plus, at this year’s Spring Seminar you will hear the President of AAPL, Roger A. Soape, speak during lunch.

Take advantage of this educational windfall! Register today.  

 

 

Created by: Martha Mills at 4/30/2015 1:12:23 PM | 0 comments. | 1354 views.

LOUISIANA LEGAL UPDATE

By Andrea Knouse Tettleton

Mayhall Fondren Blaise

 

Midstates Petroleum, LLC v State Mineral and Energy Board of the State of Louisiana, et al,

No. 14-1168, Unrecorded (La. App. 3rd Cir. ______)

 

The first step in determining ownership of the surface and minerals of a tract of land is whether the tract of land was properly severed from the United State of America or the State of Louisiana. As title examiners, we come across various transfers of title by the State of Louisiana, but most commonly we examine patents and lieu warrants issued by the State of Louisiana. Act 104 of 1888 grants the State of Louisiana the authority to issue lieu warrants. Act 104 of 1888 allows the State to keep money from the sale of property it did not own and in its place issue a land or lieu warrant. Upon application for a patent at some future date, the holder of the lieu warrant would be issued title to suitable land to satisfy the previous erroneous sale.

Title examiners should be particularly cautious of patents issued by the State of Louisiana after 1921. Prior to 1921, the minerals in and to any tract of land sold by the State were transferred in said act of sale. However, Louisiana passed the 1921 Constitution which in Section 2, Article 4 contained a prohibition against the sale of mineral rights by the State, providing in pertinent part: In all cases the mineral rights on any and all property sold by the State shall be reserved, except where the owner or other person having the right to redeem may buy or redeem property sold or adjudicated to the State for taxes. Thus, any land sold by the State of Louisiana subsequent to the passage of the 1921 Constitution would be subject to the constitutionally imposed mineral reservation.

While the issue of mineral ownership upon severance pre-1921 and post-1921 appears to be straight forward, Midstates Petroleum, LLC v State Mineral and Energy Board of the State of Louisiana, et al addresses the issue of whether the minerals underlying a tract of land are transferred when a lieu warrant was issued prior to 1921 but the application for a patent to satisfy the rights acquired under the lieu warrant is executed after 1921.

Facts

In 1858, the State of Louisiana sold a tract of land to John Laidlaw; however, the State later determined that it did not own the tract of land, as the federal government had previously sold said tract. Pursuant to Act 104 of 1888, the State of Louisiana issued Warrant No. 188 on August 28, 1919 to John Laidlaw. The heirs of John Laidlaw sold their rights under Warrant No. 188 to Alvin R. Albritton. In 1943, Albritton applied for a patent to satisfy the rights acquired under the 1919 lieu warrant. The lieu warrant was issued prior to the passage of the 1921 prohibition against the State’s sale of minerals, but the patent application was not requested until after the passage of the 1921 Constitution.

In 2011, the ancestors in title to Alvin Albritton granted a mineral lease burdening the property acquired in Warrant No. 1888 to MidStates Petroleum Company. In August of 2012, the State Mineral and Energy Board of the State of Louisiana entered into an operating agreement with MidStates on the same tract of land. MidStates drilled a well which began producing and then filed a concursus proceeding to determine the ownership of the proceeds. The State filed a Motion for Summary Judgment asserting it should be declared owner of the minerals in and to the disputed property. The Albrittons filed a cross Motion for Summary Judgment contending they should be declared the owners of the mineral in and to the disputed property. The trial court denied the State’s Motion and granted the Albritton’s motion. The State appealed to the Third Circuit arguing that the trial court erred in granting the Albritton’s motion for summary judgment.

Discussion

The Third Circuit Court of Appeal held that law, equity and jurisprudence supported the trial court’s finding that the issuance of a lieu warrant created a constitutionally protected contractual right to some land with minerals that cannot be impaired either by statute or subsequent constitutional amendment by the State.

The Third Circuit found that the Albritton’s reference to the United States Supreme Court case of McGee v Mathis, 71 U.S. 143 (1866) particularly instructive. In McGee, the Arkansas legislature passed an act that provided if a private person drained and leveed certain swamp lands, he could take as compensation either the land he improved or a scrip he could present at a later date for similar quantity of land, and said lands would be exempt from taxation for 10 years. In 1853, the plaintiff drained land and obtained a scrip for his compensation. In 1855, before the plaintiff could exchange his scrip for land, the legislature repealed the tax exemption. Plaintiff selected his land in 1857, and Arkansas demanded he pay taxes on said land. The U.S. Supreme Court held that the legislature’s attempt to collect taxes on land selected pursuant to scrips executed prior to the 1855 Act which repealed the tax exemption constitute an impairment of existing contractual rights. The Third Circuit held that in accordance with McGee, once Warrant No. 188 was issued, the State could not change the terms of the contract by changing the stipulated character of the land, i.e. the removal of the rights to the underlying minerals, any more than it could revoke its contract to issue a patent in compensation for the previously issued erroneous title.

The Third Circuit also relied upon the Louisiana Supreme Court decisions in State ex rel. Hyams’ Heirs v Grace, 197 La. 428, 1 So.2d 683 (La. 1941) (referred to as Hyams II) and State ex rel. Hyams’ Hiers v Grace, 173 La. 215, 136 So.569 (La. 1931) (referred to as Hyams I). In 1863, Henry Hyams purchased land from the State which the State did not have title to. Pursuant to Act 104 of 1888, the Hyams estate filed an application for a lieu warrant. The application was lost, but after some time, the warrant application was found and Warrant No. 168 was issued to the Hyams heirs on December 28, 1917. To satisfy the 400 acre warrant, the Hyams heirs made three separate patent applocations in 1917, 1918 and 1919. The applications were rejected by the State leading the Hyams heirs to file a petition of mandamus to compel the issuance of a patent. The Louisiana Supreme Court in Hyams I granted the relief of mandamus and held that the Hyams’ estate’s compliance with Act 104, in conjunction with the State misplacing the application for the lieu warrant, created an equitable contract right as of the date of the original lieu warrant application in 1888. The Hyams’ heirs were granted patens for the 120 acres of land applied for in the 1917, 1918, and 1919 applications.

In 1938, the Hyams heirs made a written application for a patent for the remaining 280 acres left under Warrant No. 168, and the State refused the application. The Hyams heirs filed a petition of mandamus to compel the issuance of the patent. The State contended that the 1921 Constitution prohibited the sale of minerals by the State. In Hyams II, the Louisiana Supreme Court concluded the 1921 Constitution’s prohibition against the sale of minerals did not apply to this transfer. The Hyams’ heirs were granted a patent on the 280 acres.

The Third Circuit held that the facts in Hyams II were identical to the issues presented in the instant case. Hyams II involved whether the State could invoke Section 2, Article 4 of the 1921 Constitution to prohibit the conveyance of minerals in a patent applied for and issued after 1921 to satisfy a lieu warrant applied for and issued under Act 104 prior to 1921. The court in Hyams II held that there was no language used to indicate that the constitutional provision was to apply to transfer of property under lieu warrants previously issued under Act 1034 of 1888. Lieu warrants are contracts between the State and the holder of the warrant, creating a contractual right in the holder of the warrant for land of like class and character. The Third Circuit agreed with the decision of the trial court to base its ruling on the holding in Hyams II that a lieu warrant issued prior to 1921 is a contractual obligation owed by the State to convey land with minerals, and the passage of the 1921 Constitution cannot alter or impair that obligation. The Third Circuit was not persuaded by any of the State’s arguments that the trial court erred in finding the holding in Hyams II was controlling in the instant case.

The Third Circuit then discussed the State’s reliance on the Justiss Oil Co. v. Louisiana State Mineral Bd. 42, 212 (La. App. 2 Cir. 4/14/20), 34 So.2d 507, writ denied, 10-1066 (La. 9/17/10) in support of its position. The Third Circuit’s discussion of Justiss is particularly compelling, because the Third Circuit’s decision that the ruling in Justiss was incorrect creates a split amongst the Louisiana Appellate Courts. In Justiss, the State sold land it did not own to Frank Pierson. In 1919, Pierson had the erroneous 1896 certificate cancelled and obtained Warrant No. 187. In 1935, the heir in title to Pierson presented the warrant to the land office, and the State issued Patent No. 101068. Justiss Oil acquired the tract through sheriff’s sale. Justiss Oil and State of Louisiana both subsequently granted mineral leases on the disputed tract. The State made the same argument that it made in Midstates, which is that the minerals were not transferred in 1935, but were reserved by the State under the 1921 Constitution. Justiss Oil argued that because the patent was issued pursuant to a pre-1921 lieu warrant, the constitutional prohibition did not apply. The Second Circuit held that “property rights [including mineral rights] vest only when the lieu warrant is presented to obtain a patent for a specifically identified parcel of land”; therefore, the minerals were reserved by the State in the 1935 patent.

The Third Circuit refused to follow the holding of Justiss, stating that it would instead follow the holding of the U.S. Supreme Court in McGee v Mathis in addition to the holding of the Louisiana Supreme Court in Hyams II.  The Third Circuit determined that it was the Justiss court’s incorrect interpretation of the facts of Hyams II which led to its failure to ultimately follow the clear holding of that case.

Holding

The Third Circuit found that the issuance of a lieu warrant prior to 1921 created a constitutionally protected contractual right to some land with minerals that cannot be impaired either by statute or subsequent constitutional amendment.

Accordingly, MidStates clearly holds that if the lieu warrant was issued prior to the 1921 Constitution and the patent was issued after the 1921 Constitution, the minerals ARE transferred. The Third Circuit’s decision in MidStates clearly contradicts the Second Circuit’s holding in Justiss.

 

 

Andrea K. Tettleton is a partner in the Baton Rouge, Louisiana office of Mayhall Fondren Blaize. Her practice focuses on oil and gas law in Louisiana, including drill site and division order title examination and contract negotiation. She graduated magna cum laude from Texas Christian University with a Bachelor of Science in Psychology. She earned her Juris Doctorate cum laude from the Paul M. Hebert Law Center at Louisiana State University in 2009. Mrs. Tettleton is a member of the Louisiana State Bar Association, Baton Rouge Bar Association, and Louisiana Oil & Gas Association. She is currently serving on the Board of Directors and the Executive Committee for the Baton Rouge Association of Professional Landmen and on the Board of Directors for Women’s Energy Network.

Created by: Martha Mills at 4/14/2015 6:47:49 PM | 0 comments. | 1250 views.

The 2015 Louisiana State Legislature


The Louisiana State Legislature will convene its 2015 Regular Session on Monday April 13, 2015. This legislative session will last for 60 days adjourning on Thursday June 11, 2015 at 6:00 p.m.

This will be a very active session as of date there have been 271 Senate Bills pre-filed and 774 House Bills pre-filed. It will also be a very interesting and volatile session as the State has a $1.6 Billion budget short fall, the Legislators will be trying to fill the hole with many different types of fees, restrictions and sunset provisions for many tax credits. Everything is at risk from TOPS, property taxes, inventory taxes, sales taxes, tax deductions, with Hospitals and Higher Ed being in most danger as they are not protected.

House Bill 55-Rep. Ritchie and Senate Bill 15-Sen. Nevers – Propose a tax on the use of hydrocarbon processing facilities. Meaning that as hydrocarbons (Oil & Gas) are processed by Louisiana Refineries they will be taxed before moving out of state through pipelines or other means.

House Bill 101- Rep. Ritchie – Reduces the severance tax “exemption” for production of Oil and Natural Gas from horizontally drilled wells and horizontally drilled recompletion wells from 100% to 75%.

House Bill 116 – Rep. Gisclair – Provides for the protection of coastal residential property through the use of bulkheads and buffer zones for water bottom leases.

House Bill 120 – Rep. Shadoin - Repeals the sunset provision which terminates the commissions of provisional notaries existing on Aug. 1, 2016.

House Bill 228 – Rep. Reynolds - Dedicates $300,000 from the state's mineral income from activity on certain water bottoms of Lake Bistineau to weevil production for control of giant salvinia in the lake.

House Bill 341 – Rep. Garofalo - Provides additional penalties for the illegal taking of oysters from leased acreage.

House Bill 372 – Rep. Garofalo - Requires the secretary of state to post certain information on its website regarding the passage rate of the uniform notarial examination, and subjects notaries to suspension or revocation of their commissions for failure to fully complete the required annual report.

House Bill 388 – Rep. Leger - Levies an additional 4¢ per gallon tax on gasoline, diesel fuel, and special fuels from July 1, 2015, through June 30, 2018, increasing the tax from 20¢ per gallon to 24¢ per gallon for dedication to projects in the Transportation Infrastructure Model for Economic Development Program.

House Bill 400 – Rep. Schexnayder – Authorizes the Commissioner of conservation to regulate liquefied natural gas facilities in the state.

House Bill 429 – Rep. Jackson - Changes the tax credit for ad valorem taxes paid on vessels in Outer Continental Shelf Lands Act Waters from a refundable credit to a credit in which amounts of the credit above the tax liability may be carried forward and applied against subsequent tax liability for up to five years.

House Bill 432 – Rep. Jackson - Changes the tax credit for ad valorem taxes paid on certain natural gas from a refundable credit to a credit in which amounts of the credit above the tax liability may be carried forward and applied against subsequent tax liability for up to five years.

House Bill 483 – Rep. Jay Morris – Limits the severance tax “exemption on horizontally drilled wells and horizontally drilled recompletion wells from 24 months to 12 months or until payout of well cost is achieved, whichever occurs first.

House Bill 504 – Rep. Jay Morris - Prohibits the contradiction, under certain circumstances, of a donation inter vivos made in authentic form.

House Bill 522 – Rep. Stokes - Exempts natural gas held, used, or consumed in providing natural gas storage services or operating natural gas storage facilities from ad valorem property tax.

House Bill 525 – Rep. Lambert - Deposits excess mineral revenue into the Transportation Trust Fund when the Budget Stabilization Fund has reached its constitutional capacity.

House Bill 579 – Rep. Garofalo – Increases the rental rates for oyster leases and the severance tax on the harvest of oysters.

House Bill 590 – Rep. Cox - Requires certain facilities to implement a fence-line air monitoring system.

House Bill 597 – Rep. S. Bishop - Allows for a privilege for a voluntarily conducted environmental audit and information attached to that audit.


House Bill 631 – Rep. Harris - Changes the severance tax "exemption" for production of oil and natural gas from horizontally drilled wells and horizontally drilled recompletion wells by changing the duration from 2 to 4 years and by changing the amount of the exemption from 100% to a certain amount based on the price of oil and natural gas.

House Bill 680 – Rep. Leopold - Provides relative to certain aspects of private oyster leases located on privately-held water bottoms.

Senate Bill 41 – Sen. Allain – Changes the restoration cost limitation on site restoration from $250,000 to $50,000.

Senate Bill 79 – Sen. Allain - Proposed law provides that within 60 days after the end of stay required in present law, the parties must meet and confer to assess the dispute, narrow the issues, and reach agreements useful or convenient for the litigation of the action.

Senate Bill 88 – Sen. Allain – Changes the definition of “drilling unit” from a “maximum area which may be efficiently and economically drained by one well” to a “maximum area which may be efficiently and economically drained by any well or wells designated to serve the drilling unit as the unit well, substitute unit well, or alternate unit well”.

Senate Bill 89 – Sen. Adley - Removes the refundable tax credit for ad valorem property taxes paid on natural gas held, used, or consumed in providing natural gas storage services or operating natural gas storage facilities.

Senate Bill 122 – Sen. Adley – Provides for an increase in the base amount of mineral revenues state receives prior to annual deposit into the Budget Stabilization Fund.

Senate Bill 148 – Sen. Gallot - Constitutional amendment to provide that private purchasers of lands belonging to the state, school board, or levee district shall gain the ability to acquire mineral interests upon prescription resulting from nonuse without interruption.

Senate Bill 265 – Sen. Broome - Requires the recordation of certain instruments regarding real property rights and provides for the allocation of fees and penalties concerning the recordation requirement.

Senate Bill 271 – Sen. White - Provides for equivalency of the special fuels tax with the gasoline tax on motor vehicles that operate on the highways using liquefied natural gas, liquefied petroleum gas, or compressed natural gas.



For you hunters:

House Bill 161 – Rep. Burford - Allows night taking of feral hogs on private property year-round.

House Bill 306 – Rep. Jackson - Provides that hunting licenses are not required for the taking of outlaw quadrupeds, nutria, or beaver.

For Students or Parents with Students:

House Bill 181 – Rep. Terry Brown - Restricts awards under the Taylor Opportunity Program for Students (TOPS) to U.S. citizens and children of non-U.S. citizens who either are serving in or were honorably discharged from any branch of the U.S. armed forces

House Bill 462 – Rep. Cox - Aligns the high school curriculum requirements for eligibility for a TOPS-Tech award and requirements for a career diploma. Provides relative to certain testing requirements to receive a TOPS-Tech Early Start Award.

Also, as most of you know by now this is a BIG election year with many municipal elections being held in May and the larger fall election held in October where we will elect a new Governor, so please go VOTE! It is your privilege to elect our future leaders.

Remember many laws and issues will be up for grabs this session and anything can happen once a bill goes to committee or hits the House or Senate floor. Call or email me if you need more information on any of the legislation that you might feel affects you or your company.


Thanks

Richard Hines, CPL

337-234-1125

rhines@ilandman.com


Created by: Martha Mills at 4/14/2015 5:25:10 PM | 0 comments. | 1132 views.

Our apologies to our friends at Angelle and Donohue for printing the incorrect date for their Safety Meeting at Tsunami.

We hope to see you there on Thursday, May 14!

Thanks again Angelle and Donohue!

Created by: Martha Mills at 4/14/2015 2:47:36 PM | 0 comments. | 1484 views.


Timely Payment of Royalty. . . because Penalties on Mailbox Money are not funny

by Kate B. Labue


Kate Labue is an attorney with Randazzo Giglio & Bailey LLC. Mrs. Labue’s practice encompasses all areas of oil and gas law, including property title examination, litigation, and regulatory matters with the Louisiana Office of Conservation and the Louisiana Office of Mineral Resources. She regularly speaks at seminars on oil and gas related topics and has authored several articles on such oil and gas topics.



Withholding of royalty, after the passage of the mineral code in 1975, has been considered a passive breach of a lessee’s obligations. Thus, the nonpayment of such royalty, alone, is not sufficient to spur cancellation of a mineral lease. However, if sufficient notice requesting payment of past due royalties is sent to a Lessee and further payment is unreasonably withheld, Lessors may seek monetary penalties and even, cancellation of their mineral lease against their Lessee.

 

What constitutes a “timely payment” of royalty is undefined under the current version of La. R.S. 31:137; thus, the issue has spurned litigation in all of the Louisiana state and federal courts, with different time periods being held as timely, with response, under the circumstances. See Fawvor v. U.S. Oil of La., Inc. 162 So.2d 602 (La.App. 3rd Cir. 1964)(finding payment of royalty after 9 months was timely under the circumstances); See Canik v. Texas International Petroleum Corp., 308 So.2d 453 (La.App. 3 Cir. 1975), writ denied, 310 So.2d 850 (La.1975)(holding four (4) months was timely where there was no willful intent by the defendant in waiting for the necessary title work to be completed before paying royalties); See Hilliard v. Amoco Production Co. 1177-1178, 95-1366 (La.App. 3 Cir. 10/9/96); 688 So.2d 1176 (finding payments made 9 months from the completion of the well and formation of unit, due to title complications was timely).

In 2013, certain members of the Louisiana Legislature sought to amend La. R.S. 31:137, and enact hard deadlines for the payment of royalty by a lessee. Representative Henry Burns proposed House Bill 223 (“HB 223”) in the 2013, which sought to define “timely payment”, subject to the delays provided by R.S. 31:212.32 and contrary provisions in a mineral lease, as being:  (1) Sixty (60) days after the calendar month in which oil production is sold; or (2) Ninety (90) days after the calendar month in which gas production is sold.   These time periods appear to align with the Operator’s obligation to file Monthly Oil & Gas Production Reports to the Louisiana Office of Conservation. HB 223 did not pass out of the House. Representative Burns then filed House Concurrent Resolution No. 73, which requested the Louisiana Mineral Law Institute study and report its findings on the issue on or before January 1, 2014; however, no findings were reported and no new bills have been filed, as of yet, for the 2015 legislative session, and as a result, timeliness of payment is still unclear.


If a Lessor believes their payment is “untimely”, and sends notice that royalties are due, then pursuant to La. R.S. 31:138, the lessee has thirty (30) days after receipt of the notice to either (a) pay the royalties due or (b) respond stating a reasonable cause for nonpayment. If the Lessee fails to do either, Lessors may then seek damages from their Lessees.


It is uncertain what a court would view as justifiable circumstances for a delay in payment of royalties, or a reasonable length of non-payment. As a result, courts have to examine these two questions on a case-by-case basis. The Louisiana First Circuit, in Bayou Bouillon Corp. v. Atlantic Richfield Co., 385 So. 2d 834, 839 (La. App. 1st Cir. 1980) laid out several factors to be considered when determining whether such non-payment is reasonable, including: 1. the length of time royalties were not paid; 2. the amount; 3. circumstances outside the control of the lessee; 4. lessee's motive; 5. when the lessor sought payment; and 6. whether the footing was unequal (i.e. whether Lessee held the superior position to resolve any impediments to payment).


Reasonableness has been recognized in situations where royalties were not paid due to (a) honest mistake, corrected when the error is discovered (See Hebert v. Sun Oil Company, 223 So. 2d 897 (La. App. 3d Cir. 1969)(holding that deletion of property from a revised unit, where royalties were not paid for 8 months until error was discovered was an inadvertent clerical error);  (b) customs of the oil and gas industry (see Canik v. Texas International Petroleum Corp, 308 So.2d 453 (La.App. 3 Cir. 1975) (finding that it was customary to not pay royalties for four months following the creation of a new unit, while  engaged in the administrative work necessary for all owners in the new unit); (c) special circumstances outside the lessee’s control (See Fawvor v. United States Oil of Louisiana, Inc. (La.App.3d Cir. 1964), 162 So.2d 602) (finding that an error in a  survey plat, subsequently discovered, causing the lessee to be unable to determine the amount of the lessor's land included within the unit and pay for 8 months, was reasonable).


The Louisiana Second Circuit Court of Appeal recently issued an opinion regarding the issues of sufficient notice and reasonableness of nonpayment of royalties under La R.S. 31:137, et seq., and upheld harsh penalties against an operator for failing to meet their obligations to pay royalties.


In Samson Contour Energy E & P, L.L.C. v. Smith, 49,494 (La.App. 2 Cir. 12/29/14); 2014 WL 7404070, Effie Connell (“Mother”), and her children, Billy Smith (“Mr. Smith”) and Betty Robinson (“Ms. Robinson”) executed a mineral lease (the “Connell Lease”) covering their property, including property in Section 8. Thereafter, in 1996, Mother donated to her son, Billy Smith (“Mr. Smith”) her one-half (1/2) interest in Section 8, reserving a usufruct in certain wells (the “1996 Donation”). The Lessee of the Connell Lease received notice of the 1996 Donation and began paying Mr. Smith the donated interest. In January, 2001, Mother died, survived by Mr. Smith and Ms. Robinson. Her succession was opened, and during the pendency of her Succession, Ms. Robinson filed a petition to annul the 1996 Donation to Mr. Smith.


Lessee assigned interests in the Connell Lease to Samson Contour Energy E&P, LLC (“Samson”) in 2003. In April 2004, Samson was informed of the annulment proceeding for the 1996 Donation and suspended royalty payments for the existing wells in Section 8; however, Samson drilled new wells in Section 8, and using outdated information, began paying Mr. Smith, and his assignees, the interest from the 1996 Donation in those wells. In January 2005, the district court rendered judgment annulling the 1996 Donation and ordering the transfer of the interests covered thereby in Section 8 to the Estate of Effie Smith Connell (“the Estate”). The Estate administrator forwarded a copy of the Judgment annulling the 1996 Donation to Samson.


Samson, failing to update its paydeck, continued to pay out the production from the new wells, as if the 1996 Donation was still valid, to Mr. Smith.  The Estate again contacted Samson, forwarding a second copy of the Judgment. Samson thereafter credited the Estate with an interest in the new wells; however, the Estate promptly notified Samson that their calculations of royalties due to the Estate were incorrect. Moreover, when the Estate received a check from Samson, in the incorrect amount, Lessors returned the check, by hand delivery, with an accompanying letter notifying Samson of the royalty underpayment to the Succession.


In response, Samson initiated a concursus proceeding, naming the Estate, and all of the heirs of Effie Connell, as parties and began placing new production from the wells into the court. Samson did not, however, deposit in the registry the amount for royalties claimed by the Estate for past production. The Estate filed a joint motion for partial summary judgment. The court rendered partial summary judgment for the Estate, ordering that the funds deposited in the registry be disbursed to the Estate and closed the registry.


The Estate, thereafter, filed an action alleging Samson’s failure to pay royalties and seeking cancellation of the mineral leases. The matter proceeded to a bench trial, and the court held for the Estate, finding Samson’s failure to make payments was unreasonable, and awarded double the amount of royalty, as damages and interest as well as attorney fees.


On appeal, Samson argued the district court erred in finding that the Estate’s notice to Samson was sufficient. More particularly, Samson argued the notices from the Estate were deficient because they failed (a) to “demand” payment; and (b) to provide information so that proper payment could be made. Moreover, Samson argued that it was protected under the public records doctrine, since the judgment annulling the 1996 Donation was never recorded. Finally, Samson argued that the same heir who received excess royalties (Mr. Smith, heir of the Estate) initiated the claim as co-administrator of the Estate, and thus, had “unclean hands”.


The Second Circuit disagreed. The court found that Lessors did not have to make a demand for specific performance in their letters (i.e. demand the payment of royalties) but rather, only put the Lessee on notice that monies are due, before seeking judicial remedies. The Second Circuit Court of Appeal found the Lessors had given sufficient notice by (a) having the Estate administrator provide letters of administration in June 2006; (b) requesting royalties be paid to the administrators at their listed address (c) disputing accounting for the wells in Section 8; (d) providing judicial documents supporting their right to payment via facsimile; (e) providing email documentation disputing the interest reflected in the Estate; and (f) providing a hand written letter and return check informing Samson as to the insufficient payment rendered and requesting payment of full royalties.  The court found the foregoing, even in the absence of the words “demand for payment,” provided sufficient notice to Samson under Article 137.


The court also determined Samson’s actions did not meet reasonable industry practices, as Samson failed to accurately adjust the percentages on its paydeck when it was informed of an error, and further failed to investigate its records and pay the proper owner(s) after it received notice.


Moreover, the court discussed the invocation of the concursus proceeding as a response to the Lessor’s notice of nonpayment.   Much like the earlier decision of Cimarex Energy Co., et al v. Katherine D. Mauboules 2009-1170 (La. 9/25/2009); 18 So.3d 97, the Second Circuit Court examined whether the use of concursus proceeding was proper, where there was no identifiable third party claims validly outstanding that had to be settled before the payment of royalty monies. Here, the Second Circuit court remarked that at the time of the filing, Samson was aware that the Estate was claiming past due royalty paid by Samson to the other heirs, and Samson failed to file third party claims against Mr. Smith, and his assignees, with regard to their overpayment of royalties for 8 months.  The court thus concluded that since there were no competing claims for the payment of royalties that existed, it was not prudent for Samson to file a concursus proceeding and deposit royalties from the new production into the court registry after the nullity of the 1996 Donation.


The Second Circuit court affirmed the ruling of the district court, upholding the award of damages in accordance with LSA–R.S. 31:139.


The author understands that during the drafting of this article, a Motion for rehearing was granted, and thus, the foregoing judgment by the Second Circuit in Samson, 2014 WL 7404070, is subject to review; however, regardless of the results of the rehearing, issues of timeliness of payment of royalties, and reasonable withholding of same need to be considered and monitored by each Lessee. In conclusion, Lessees should ensure that when questions regarding royalty payments arise, they are diligent in taking appropriate action to correct any errors, if possible. Moreover, Lessees and operators should invoke a concursus proceeding when the appropriate circumstances arise.







Created by: Martha Mills at 3/24/2015 12:21:24 PM | 0 comments. | 1191 views.

Oil Crisis: Horseshoes and Hand Grenades

 

With the downturn in commodity prices comes a reduction in drilling activity and capital expenditures. E&P Companies will be looking at their balance sheets to maximize value on what they already have in inventory. That will include PDP (Proved Developed Producing) as well as PUD (Proved Undeveloped). 

 

Prior to shale, a typical E&P would have 80% of their asset value in PDP and 20% in PUD. As late as 2010 this reversed to 20% in PDP and 80% in PUD. These PUD’s were valued on a per net mineral acre value. Therefore the vast majority of the value of the company was in their undrilled acreage. While this has been changing with drilling activity, even today it is common to see a company value its PUD at 50% of its total assets. With reduced drilling budgets these valuations will be with us for several more years.

 

Recently this was apparent when facilitating the acreage reconciliation of a sale where there was little producing acreage and the price was $6,000 per net mineral acre (the total sale was in excess of $150 million). With the commoditization of acreage within the shale plays being valued at dollar per net mineral acre on a formation by formation basis, valuation of the company not only becomes more complex, but more important than ever. This is especially relevant where the PDP and PUD overlap at different depths on the same acreage.

 

Somewhere along the way, the question was asked, “Are we the owner of the net mineral acres at all depths?” More and more the answer will be, “No, not at all formations.” In every shale play there are multiple formations with potential value. Just as companies sell or farmout their leased acreage based on formation severance, so too have the mineral owners began to insert both vertical as well as horizontal depth limitations and expirations by area and depth. These clauses, commonly known as “pugh clauses,” will greatly affect the company’s value over time. The next round of leasing will see even more of this.

 

If you look at any E&P company’s valuations you will see more focus on value of net mineral acres on a formation by formation basis. How many net mineral acres they own in the geographic area, like the field, county, shale play and more, is almost irrelevant. What is crucial now is how many net mineral acres they own, at each depth, within a specific geographic area. With “sweet spots” being identified in each active shale play, the net acres in these spots are valued higher than the surrounding acreage.

 

This, of course, means more and more responsibility will be placed on land departments for accurate acreage counts by formation. These E&P’s will become more reliant on either brokers or their own lease analysts to give them accurate net acre counts. With acreage trading anywhere from $6,000 to $15,000 per acre, per formation, unlike horseshoes and hand grenades, “close enough” will no longer be an adequate response.

 

Tim Supple is the President of iLandMan and has been in the oil and gas industry for nearly 40 years working as a landman, broker, and E+P operator, before entering the land software business in 2005.

 

About iLandMan: iLandMan has offices in Lafayette, Houston and Oklahoma City, and is an online, real-time, tract-based software tool for landmen to use every day.


Created by: Martha Mills at 3/24/2015 12:18:59 PM | 0 comments. | 1426 views.

LAPL Legal Update

March 2015

By:  John Kolwe and Brett Venn

Jones Walker LLP

 

The Southeast Louisiana Flood Protection Authority – East Lawsuit Dismissed

 

On February 13, 2015, Judge Nannette Jolivette Brown of the United States District Court for the Eastern District of Louisiana dismissed the lawsuit filed by the Southeast Louisiana Flood Protection Authority—East that charged nearly 100 oil and gas companies with causing erosion in Louisiana’s coastal wetlands. The authority is one of two regional boards set up by the state after Hurricane Katrina to better protect the New Orleans area from flooding.

 

In the complaint, which was originally filed in state court and then removed to federal court, the levee authority alleged that the oil and gas companies have caused coastal land loss by dredging and failing to maintain a network of canals used to access oil and gas wells and to transport products. The authority also identified ten other activities as purportedly contributing to coastal erosion: road dumps, ring levees, drilling activities, fluid withdrawal, seismic surveys, marsh buggies, spoil disposal/dispersal, watercraft navigation, impoundments, and propwashing/maintenance dredging.

 

In dismissing the lawsuit, Judge Brown determined that federal and state laws did not provide any avenue by which the levee authority could successfully bring suit. For reasons detailed below, Judge Brown rejected arguments by the authority that it had claims for damages and injunctive relief against the oil and gas companies for negligence, strict liability, public and private nuisance, and natural servitude of drain. She ruled that the levees were too far from, or too indirectly affected by, the alleged damage. Judge Brown also said the authority cannot succeed on a claim that it is an intended third party beneficiary of permits issued by the state or the U.S. Army Corps of Engineers that allowed the companies’ energy exploration or transportation activities in the first place.

 

Negligence and strict liability. Judge Brown determined that the oil and gas companies do not have a duty under Louisiana law to protect members of the public from the results of coastal erosion that were allegedly caused by the companies. She likewise rejected the levee authority’s argument that several federal statutes – the Rivers and Harbors Act, the Clean Water, and the Coastal Zone Management Act – imposed a duty on the companies to protect the authority from coastal erosion.

 

The Rivers and Harbors Act makes it illegal for any person to damage or impair a public work built by the United States to prevent floods. 33 U.S.C. § 408. The levee authority argued that a levee operator is a member of the class for whose benefit the Act was enacted, thereby imposing a duty upon the oil and gas companies for the protection of the authority. Judge Brown found that there was no support for the authority’s argument.

 

The Clean Water prohibits, among other things, the discharge of any pollutant into navigable waters unless authorized by a permit. 33 U.S.C. §§ 1311, 1344. Under Section 404 of the Act, the U.S. Army Corps of Engineers has authority to issue permits – called 404 permits – for the discharge of dredged or fill materials into navigable waters. The levee authority contended that the Corps’ permits impose a duty upon the oil and gas companies to 1) maintain canals and other physical alterations as originally proposed, 2) restore dredged or otherwise modified areas to their natural state upon completion of their use or their abandonment, and 3) make all reasonable efforts to minimize the impact of the companies’ activities. These duties, the levee authority alleged, imposed a standard of care upon the companies for the benefit of the authority. Judge Brown once again concluded that there was no support for the authority’s position.

 

The purpose of the Coastal Zone Management Act is to encourage and assist the states in preparing and implementing management programs to preserve, protect, develop, and (whenever possible) restore the resources of the coastal zones of the United States. 16 U.S.C. § 1451, et seq. The levee authority alleged that the Act imposed a duty upon the oil and gas companies for the benefit of the levee authority. But the authority did not identify a specific provision of the Act wherein specific duties or obligations are imposed upon the companies for the authority’s benefit. Judge Brown once again concluded there was no authority for the rule advanced by the authority.

 

Having concluded that neither Louisiana law nor the three federal statutes cited by the levee authority created any sort of duty owed by the oil and gas companies to the authority or its predecessor, Judge Brown dismissed the levee authority’s negligence and strict liability claims under Louisiana law.

 

Natural Servitude of Drain. In Louisiana a natural servitude of drain is a type of predial servitude, which is a charge on a servient estate for the benefit of the dominant estate, and requires that two estates must belong to different owners. Louisiana Civil Code article 655 provides that an estate situated below is bound to receive the surface waters that flow naturally from an estate situated above unless an act of man has created the flow. Article 656 states that the owner of the servient estate may not do anything to prevent the flow of the water, and the owner of the dominant estate may not do anything to render the servitude more burdensome. 

 

Judge Brown found that the levee authority “essentially urges this Court to expand Louisiana law by finding that a natural servitude of drain may exist between non-adjacent estates with respect to coastal storm surge.” In particular, the authority did not allege that it owned property adjacent to property owned by any of the oil and gas companies. Judge Brown declined to expand the law, noting that such an undertaking must come from the legislature or Louisiana Supreme Court, not from a federal district court. She accordingly dismissed the levee authority’s claim for natural servitude of drain.

 

Public and private nuisance.  The levee authority’s claims for public and private nuisance were rejected by Judge Brown because the authority is not a “neighbor” to the property of the oil and gas companies. The authority argued that neither adjacency or ownership of property is necessary to establish a cause of action for public or private nuisance under Louisiana law. The court disagreed, noting that Louisiana courts and the U.S. Fifth Circuit Court of Appeals appear to agree that a plaintiff must have some interest in an immovable “near” the defendant’s immovable.

 

Breach of contract – third party beneficiary claim. Finally, the levee authority asserted a claim for breach of contract, alleging that the oil and gas companies had violated permits issued by the U.S. Army Corps of Engineers and that the authority was entitled to enforce the permits as a third party beneficiary. Judge Brown did not decide whether Corps-issued permits are contracts. Rather, she dismissed the authority’s claim because it is not an intended third party beneficiary under the terms of the permits. As a result, the authority cannot enforce the permits. Judge Brown determined that any benefit that may flow to the authority pursuant to the permits was merely incidental, and the law does not permit mere incidental beneficiaries to enforce contracts. For these reasons, the authority’s claim was dismissed.

 

The levee authority has filed a notice of intent to appeal Judge Brown’s ruling to the U.S. Fifth Circuit Court of Appeals.

 

John Kolwe is a partner in Jones Walker LLP's Business & Commercial Litigation Practice Group and a member of the Energy Industry Team. Mr. Kolwe is directly involved in complex oil and gas and commercial litigation matters pertaining to exploration and development operations on land and in the Gulf of Mexico. He assists clients in transactions involving the purchase, sale, and financing of oil and gas properties. Mr. Kolwe has extensive experience in connection with the representation of exploration and production companies in the negotiation and preparation of leases, farmouts, participation agreements, seismic permit and lease option agreements, joint operating agreements, and various other contracts routinely used in the oil and gas industry. He also represents those clients in connection with title review activities, including preliminary drill site title opinions and division order title opinions.

 

Brett Venn is a partner in the Jones Walker LLP’s Business & Commercial Litigation Practice Group and practices from the firm's New Orleans office. His practice focuses on a variety of business and commercial disputes, including energy, general contract, and shareholder derivative litigation. He has recently represented companies in disputes under the Louisiana Oil Well Lien Act, in construction lien and contract disputes, and in litigation arising out of the Bayou Corne sinkhole in Assumption Parish, Louisiana. He also has experience in investigations involving allegations of commercial kickbacks and conflicts of interest.