Articles

Created by: Martha Mills at 8/5/2015 3:34:48 PM | 0 comments. | 889 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. | 1023 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. | 1433 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. | 984 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. | 1064 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. | 933 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. | 1106 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. | 1272 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. | 1183 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. | 1092 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. | 1366 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. | 1139 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. | 1355 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.

 

 

Created by: Martha Mills at 1/29/2015 9:50:22 AM | 0 comments. | 1366 views.

LOUISIANA LEGAL UPDATE

 

By Joshua G. McDiarmid

Dupuis & Polozola, L.L.C.

Another Taste of Champagne:

Term Servitudes Revisited in Moffett v. Barnes

 

In Moffett v. Barnes, 49,280 (La. App. 2 Cir. 10/1/14) 149 So. 3d 475, the court was tasked with interpreting a mineral reservation contained within an act of credit sale.  The sellers, Clyde and Marla Barnes, conveyed two tracts of land to Dewey and Jeanne Moffett on February 28, 2000, reserving the minerals.  The act of sale stated, “Vendor retains all oil, gas and other mineral rights in the land herein conveyed for ten (10) years.”  In 2002, the Barneses executed a mineral lease affecting one of the tracts; during the term of the lease, the lessee drilled, obtaining production in August 2007.  In 2009, the Barneses executed a separate mineral lease affecting the other tract; during the term of this lease, the lessee drilled, obtaining production in March 2010. 

 

The issue revolved around an interpretation of Louisiana Mineral Code article 74, which provides that “parties may either fix the term of a servitude or shorten the applicable period of prescription of nonuse or both.”  The district court identified the issue as whether the reservation created a fixed, ten-year term, or whether it was merely a reaffirmation of the parties’ adoption of the regular ten-year prescriptive period, which is subject to interruption.  The lower court ruled in favor of the Barneses, finding that without an affirmative intention or statement that the servitude would not be subject to prescription, it was subject to prescription by default.

 

By their first assignment of error, the Moffetts argued that the language used in the mineral reservation created a term, and was not a mere restatement of the law of prescription of nonuse.  The Barneses responded that the lower court’s ruling was factually and legally correct, relying upon the decision of the Third Circuit Court of Appeals in St. Mary Operating Company v. Champagne, 2006-984 (La. App. 3 Cir. 12/06/06), 945 So. 846.  The following is a brief recapitulation of the court’s decision in Champagne, which we believe is instructive to this discussion.

 

In Champagne, at issue was the validity of a mineral servitude created on June 22, 1993, which was created by the following language: “Vendors reserve unto themselves all of the minerals underlying or which may be produced from the above described tracts for a period of ten (10) years…” (emphasis added).  In Champagne, St. Mary began drilling operations on the servitude premises on or about March 3, 2003.  The landowners contended that the servitude terminated on June 22, 1993, irrespective of the fact that sufficient operations and production occurred which could have interrupted prescription of nonuse, because the servitude was for a fixed term.  The mineral servitude owners argued that the servitude was subject to the rules of prescription, because unless an instrument creating a mineral servitude clearly provides a statement to the contrary, it is subject to the rules of prescription. 

 

While the court in Champagne acknowledged that the June 22, 1993 deed did not mention prescription, the instrument also did not state in clear terms that the ten-year period would be a term servitude, and not subject to the rules of prescription of nonuse.  In addition to relying on Mineral Code article 74, discussed above, the court referred to the comments thereof, specifically, the statement that the parties are “free to specify that the stated number of years is the term of the interest and not a prescriptive period.”  Accordingly, the court in Champagne held that the phrase “for a period of ten (10) years” was not sufficient to create a fixed term mineral servitude.  Instead, it was a mere restatement of the default prescriptive period that is the default rule in all mineral servitudes.  Thus, the court found that the mineral activities that took place beginning in March 2003 were sufficient to interrupt prescription of nonuse running against the servitude.

 

Returning to our discussion of Moffett, the appellate court found that the lower court correctly analyzed the mineral reservation and the law applicable to mineral servitudes and prescription of nonuse, approving the lower court’s reliance on Champagne.  As a counter argument, the Moffetts posited that the phrasing of the reservation somehow converted it to a fixed term servitude instead of a servitude subject to the normal rules of prescription.  In particular, they believed that the fact that it applied “for ten (10) years,” instead of “for a period of ten years,” removed it from the purview of Champagne.  The court disagreed with this position, holding that the reservation merely confirms the normal ten-year initial period for a mineral servitude, and does not renounce or reject the normal operation of nonuse and interruption provided by law.

 

By their second assignment of error, the Moffetts urged that the lower court should have allowed testimony as to the intent of the parties, relying upon dicta from St. Mary Operating Co. v. Guidry, 2006-1495 (La. App. 3 Cir. 4/4/07), 945 So. 2d 397, writ denied, 2007-0962 (La. 6/29/07), 959 So. 2d 500.  In Guidry, the Third Circuit was again confronted with a similar issue.  In this case, members of the Guidry family executed an instrument which contained the following paragraph: “All of the parties hereto agree that this exchange of minerals, which creates a mineral servitude, will last a period of seven (7) years …”  Yet again, the question presented to the court was whether the mineral servitude was subject to a fixed term of seven years, or whether the parties were simply shortening the ten year prescriptive period provided by law.

 

Mark and Mathew Guidry, the land owners, took the position that the servitude was for a fixed term and not subject to interruption.  They also believed that the language in the instrument was clear and unambiguous, and no parole evidence should be admitted to alter the agreement.  The district court disagreed, finding that since there was no indication in the instrument whether the default laws relating to mineral servitudes were to be avoided, it was necessary to determine the intent of the parties through parole, or extrinsic, evidence.  The pertinent instrument was executed by Mark and Mathew Guidry, as well as their other siblings, and after review of the testimony, the district court was convinced that no agreement existed among the parties as to the question presented to the court.  Many of the Guidry family members never read the instrument and had little or no knowledge of mineral law at the time.  The lower court ruled against Mark and Matthew, reasoning that since there was no express agreement relating to the interruption issue, the parties did not have the intent to alter the law relating to mineral servitudes.  On appeal, Mark and Matthew Guidry claimed it was in error for the trial court to look beyond the four corners of the document in order to ascertain the intent of the parties.  The court of appeals upheld the ruling of the trial court, finding the agreement among the Guidry family ambiguous, and, therefore, it allowed extrinsic evidence to be considered

 

Based upon their reading of Guidry, the Moffetts contended that since the reservation was unclear, the court should have considered the extrinsic evidence submitted by the parties.  Specifically, they urged that the lower court’s judgment should be reversed for the admission of their testimony.  Although the Moffetts urged that the reservation created something other than a mineral servitude subject to the statutory rules of prescription, the district court found the reservation was clear and unambiguous.  When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties’ intent.  See also, La. C.C. art. 2046.  In light of the plain reading of the instrument, and the law applicable to the admission of extrinsic evidence, the court of appeals found no error in excluding the Moffetts’ testimony as to their understanding of this reservation.

 

So where are we now?  Well, it looks like we have simply had another glass of Champagne.  The refusal to consider extrinsic evidence signals a reluctance to stray away from Champagne, and a rejection of the lower court’s approach Guidry—at least when the instrument creates what might appear to be a term servitude.  The lesson to learn is that if you intend to create a mineral servitude with a fixed term, you must be explicit and you must show the requisite intent within the four corners of the document.

 

Joshua G. McDiarmid is an associate with the law firm Dupuis & Polozola, L.L.C.  His practice focuses on oil, gas and mineral law in Louisiana and Texas, and centers on oil and gas property title examination.  Mr. McDiarmid graduated from Rhodes College with a B.A. in 2010 and from the Louisiana State University Paul M. Hebert Law Center, cum laude, in 2013.  In preparing this article, the author would like to thank James H. Dupuis, Jr., for his ever invaluable assistance.

 

 

 

 

 

 

 

 

 

 

 

 

 

Created by: Martha Mills at 1/27/2015 4:50:20 PM | 0 comments. | 1283 views.

Oil Crisis: Danger or Opportunity?

By Tim Supple

 

The Chinese symbol for crisis is composed of two sino-characters that can represent “danger” and “opportunity”. So which applies to the present state of the oil business? The answer is both.

 

The good thing about getting older is that nothing surprises you anymore. While the drop in oil prices may have taken everyone by surprise, it is of no surprise... that we were surprised. We have been here before. And while almost everyone has an opinion on when or if it will it recover, I do not. I can honestly say I have no idea what is going to happen.

 

Here is what I do know; this may be the best opportunity to enter the oil and gas business that I’ve seen in my career (my very, very long career). Sounds nuts right? Well let me explain.

 

BUY LOW. SELL HIGH. Any acquisition of oil and gas assets at this time will be based on the “current” price, not some price we wish it to be. If you look at crude futures you see March 2023 deliver at $68.26/barrel (+/-). Lenders will use the lesser of futures prices or even lower to fund exploration and production, but effective yield rates will be the same. Whatever the future brings, investing now at $50/barrel is much less riskier than investing at $100/barrel.

 

DEBT WILL CREATE A “BUYER’S” MARKET. From WSJ Aug 4, 2014: “The E&P sector in 2007 was carrying $28.84 of net debt per barrel of oil equivalent produced, according to data from IHS, roughly equal to operating cash flow. By last year, net debt per barrel had jumped 36 percent to more than $39, while cash flow was essentially flat.”

 

Even before the drop in oil prices, E&P debt was at an all-time high and has not decreased, but the drop in price has decreased the companies’ ability to pay debt. They will be forced to sell. Many of their leases have multiple pay horizons not yet exploited, and at current prices, little value. This creates the opportunity for future value, when and if prices come back.

 

HERE’S THE GOOD NEWS. There will be a lot of new capital coming into the oil and gas business to take advantage of this “buying” opportunity. New companies that no one has heard of, with capital from new sources, will enter the market with low debt/barrel ratios and therefore they will be more stable than their predecessors.

 

These companies will be shedding old methods and looking for new technology to create efficiencies and lower administration costs. Some will even begin using the “virtual” model, meaning there will be no “corporate” office in the traditional sense. They can now lean on a network of skilled and professional oil and gas personnel operating in the cloud. Technology will open up opportunities to hire the best and brightest, wherever they live. The company President can be located in New York, Geophysics, Geology and Engineering in Houston, Operations in Tulsa, Land in Dallas, and Land Service Companies all over the map.

 

Is there danger? Yes, but opportunities for new E&P’s are boundless. Our focus is on supporting those companies willing to take on the challenge and embrace these exciting opportunities.

 

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 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 1/26/2015 11:54:21 PM | 0 comments. | 1278 views.

Former First Lady Laura Bush: Now is the time to reinvest in the surface


(EDITOR’S NOTE:  In case any of our readers have not yet read Laura Bush’s recent letter to the AAPL’s Director of Publishing, the LAPL has decided to print it in this issue of our newsletter.)


To: Le’Ann P. Callihan

American Association of Professional Landmen

Senior Director of Publishing,

Marketing & Media Relations

4100 Fossil Creek Blvd.

Fort Worth, Texas 76137


Dear Ms. Callihan,


I enjoyed reading “Native Seeds for Right-of-Way Restoration: What Every Landman Should Know” by Colleen Schreiber in the July/August 2013 issue of Landman. Schreiber highlights the importance of conserving wildlife habitat in the Eagle Ford Shale region of Texas.


My childhood in Midland taught me to appreciate both the oil and gas industry and the beauty of the natural world. The Eagle Ford Shale’s location in South Texas, along migratory bird routes and its huge expanse of contiguous habitat, is unparalleled in Texas in its species richness. And while we prosper from the development of the underground resources, we must work together to reinvest in the surface that sustains and enriches our quality of life.


To many people, grass is grass and dirt is dirt. That’s why the nonprofit I founded with friends, Taking Care of Texas, is working with a collaborative group of oil and gas companies, landowners and wildlife experts to educate people to take care of land and wildlife in the Eagle Ford. We want to make sure that more landowners and oil and gas companies have the information they need to conserve land and wildlife. Conservation practices are already being implemented on many sites, and we are committed to expanding on these successes.


In June, I visited an active drilling rig on a ranch where the landowner and the lessee were conserving topsoil with the goal of successfully reclaiming the native habitat. I look forward to visiting again in the spring to see what new grasses and flowers have sprung up in the shadow of a brand new pumpjack. Many key partners joined us on that tour and are working with us, including The South Texas Energy and Economic Roundtable, South Texas Natives, Texas Parks and Wildlife Department and Texas Wildlife Association. Through collaboration, we can make Texas a leader in meeting the nation’s energy needs while conserving critical soil and habitat.


When George and I bought our ranch in Central Texas, we began to restore the wild prairie that once flourished there, and to date, we’ve restored over 120 acres. Seeing the land and wildlife blossom even during extended drought proves that public efforts for conservation must be complemented by private endeavor — that means corporations, organizations and people like you and me, who are willing to take responsibility for our land.


During this time of prosperity, we have the opportunity and obligation to reinvest in Texas’ land, wildlife and people. I hope the Landman magazine and all landmen will join me in taking care of Texas.


Sincerely,

Laura W. Bush

Honorary Chair Taking Care of Texas

 

 

 

For native seed supplier and technical assistance, see information below.

DOUGLASS W. KING SEED COMPANY

San Antonio, TX • 210-661-4191

www.dkseeds.com

POGUE AGRI PARTNERS

Kenedy, TX • 830-583-3456

www.pogueagri.com

NATIVE AMERICAN SEED

Junction, TX • (325) 446-3600

www.seedsource.com

TURNER SEED COMPANY

Breckenridge, TX • 1-800-722-8616

www.turnerseed.com

BAMERT SEED COMPANY

Muleshoe, TX •1-800-262-9892

www.bamertseed.com

Photo by Grant Miller

Technical Assistance:

• USDA NRCS Plant Materials Centers in Kingsville 361.595.1313 and Knox City, Texas - 940-658-3922

• USDA NRCS Field Offices

• Regional/District Texas Parks and Wildlife Department Biologists

• South Texas Natives/Texas Native Seeds Projects of Caesar Kleberg Wildlife Research Institute


Created by: Martha Mills at 1/4/2015 4:15:21 PM | 0 comments. | 1387 views.

 

LOUISIANA LEGAL UPDATE

By Jeffrey D. Lieberman

Liskow & Lewis APLC

 

MINERAL LEASES FROM INDEPENDENT EXECUTORS AND INDEPENDENT ADMINISTRATORS

 

Landmen are frequently tasked with obtaining mineral leases from heirs or legatees of a deceased mineral owner.  Where a succession proceeding has been opened and an independent executor or independent administrator has been appointed, it is commonly understood that the independent executor or independent administrator is fully authorized to execute a mineral lease on property included in the succession without court approval or consent by the heirs or legatees.  That common understanding was affirmed by Davis v. Prescott, 47,799 (La. App. 2 Cir. 02/27/13); 110 So. 3d 625, writ granted by 2013-0669 (La. 05/17/13); 118 So. 3d 374, writ recalled and denied by 2013-0669 (La. 11/05/13); 130 So. 3d 849.

 

In that case, Prescott, the duly appointed independent executor of the succession at issue,  granted a mineral lease burdening property included in the succession for a three year primary term in favor of AIX Energy without first seeking court approval and without seeking the consent of the legatees.  Shortly thereafter, Davis, a legatee, entered into an agreement to sell his undivided interest in the property unaware that it had been leased.  Davis learned of the AIX lease after the sale and filed suit, alleging that Prescott breached his fiduciary duty as independent executor by granting the AIX lease without his consent. Davis contended that he would have been able to sell his undivided interest for a much higher price had he known of the lease and the valuable mineral deposits underlying the property.

 

Davis based his argument on Louisiana Code of Civil Procedure article 3226, which states:

 

When it appears to the best interest of the succession, the court may authorize a succession representative to grant a lease upon succession property after compliance with Article 3229. No lease may be granted for more than one year, except with the consent of the heirs and interested legatees.

 

The court may also authorize the granting of mineral leases on succession property after compliance with Article 3229. The leases may be for a period greater than one year as may appear reasonable to the court. A copy of the proposed lease contract shall be attached to the application for the granting of a mineral lease, and the court may require alterations as it deems proper.

 

The order of the court shall state the minimum bonus, if any, to be received by the executor or administrator of the estate under the lease and the minimum royalty to be reserved to the estate, which in no event shall be less than one-eighth royalty on the oil and such other terms as the court may embody in its order.

 

Davis argued that the first paragraph of Article 3226 required the legatees to consent to the execution of a lease with a term greater than one year, even though Prescott, as an independent executor, was relieved of the requirement to petition the court for approval in accordance with Article 3229.  The trial court agreed.

 

On appeal, the Second Circuit correctly found that the first paragraph only applied to surface leases.  The second paragraph, specific to mineral leases, governed the requirements for a succession representative to grant a lease on succession property.  Because Prescott was an independent executor relieved of the requirement to petition the court for approval of the lease in accordance with Article 3229, he was free to grant the AIX lease for a term greater than one year without the surface-lease-specific requirement of obtaining the consent of the legatees.

 

This case thus affirms the common practice of obtaining mineral leases with terms exceeding one year from an independent executor or independent administrator without petitioning the court for approval and without the consent of the heirs or legatees.


The subsequent history of this case, however, raises a note of caution for landmen taking such leases and the independent executors and independent administrators who execute them on behalf of a succession.  After the Second Circuit rendered its opinion, the Louisiana Supreme Court granted a writ to review the decision.  This writ was ultimately recalled and denied, but Justice Knoll dissented noting that a succession representative may still breach his fiduciary duty by concealing the existence a mineral lease burdening succession property from the heirs or legatees even though there is no requirement that the heirs or legatees consent to the lease, stating:

 

Despite Article 3396.15's significant relaxation of the procedural rules for administering estates, an independent executor is, above all else, "a fiduciary and  is responsible for his actions." La. Code Civ. Proc. art. 3396.15, Official Revision Comments (b). Although the Court of Appeal correctly concluded Prescott did not breach any fiduciary duty by failing to obtain Davis's approval for the AIX lease, its analysis failed to consider that Prescott may have breached a broader fiduciary obligation by failing to make good faith, managerial disclosures to the legatees, specifically Davis. Prescott  breached this broader obligation when he neglected to notify Davis of the AIX Energy lease prior to Davis's sale of his 1/5 interest in the succession property…


Louisiana courts, as well as courts in other jurisdictions, have recognized this duty of good faith disclosure extends specifically to independent executors. The Second Circuit, for instance, has recognized that while Louisiana's independent-administration-of-estates law allows an independent executor to act without court authorization, the executor's fiduciary obligations still require "good faith dealings and managerial disclosure with the heirs and legatees for whom he represents." Succession of Davis, 43,096 at pp. 9-10, 978 So.2d at 611. This general obligation of good faith disclosure exists so as to  avoid disputes between the executor and the legatees and to fulfill the executor's fiduciary obligations. Id. Likewise, the Texas Supreme Court has recognized an independent executor owes "a fiduciary duty of full disclosure of all material facts" known to him that might affect the beneficiary's interests in the succession. Montgomery v. Kennedy, 669 S.W.2d 309, 313 (Tex. 1984). Specifically, the Texas Supreme Court found the executor's failure to disclose the existence of a mineral lease on succession property concealed a material asset of the estate from the beneficiary. Id.

 

In light of this jurisprudence and the general obligation of disclosure owed by all who serve in a fiduciary capacity, Prescott, at the very least, had a duty to inform Davis of the AIX lease. This lease produced substantial returns, making its existence a fact which would materially affect Davis's 1/5 interest in the Claiborne Parish property. As evidenced by this litigation, Davis's ignorance of the AIX lease lead him to accept a much lower price than his interest was worth in the sale to SOTJ, L.L.C. Prescott, therefore, violated the fiduciary's special relationship of confidence and trust by failing "to render  a full and fair disclosure to the beneficiary of all facts which materially affect his [Davis's] rights and interests."  130 So. 3d 849 (J. Knoll Dissent).

 

The lesson to be gleaned from this dissent is that, even though an independent succession representative may execute a mineral lease burdening succession property without the consent of the heirs or legatees, the succession representative remains a fiduciary and he may be personally liable if the heirs or legatees can show that the existence of the lease was concealed from them.  Further, if the heirs or legatees are unhappy with the terms of the concealed lease, they may attempt to challenge the validity of the lease itself.  Although a challenge to the validity of the lease solely on the basis that its existence was concealed from the heirs or legatees may not be successful, landmen taking leases from independent succession representatives should consider encouraging those representatives to disclose the existence and terms of any leases taken on succession property to the heirs and legatees whose interests are subject to those leases.

 

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

 

Mr. Lieberman practices in the oil and gas section of the firm's the Lafayette office.  His practice focuses on oil and gas non-litigation matters, including title examination, unitization and other regulatory matters before the Louisiana Office of Conservation and the State Mineral Board, contract negotiation, and acquisition and divestiture of oil and gas properties.

 

 

 

 

 

 

 

 

 

 

 

Created by: Martha Mills at 12/8/2014 6:31:57 PM | 0 comments. | 1467 views.

LOUISIANA LEGAL UPDATE

By Tom McKowen

Dennis, Bates & Bullen

 

 

 

Hayes Fund v. Kerr-McGee, No. 13-1374 (3d Cir. 10-1-14, rehearing denied 11-12-14)

 

 

In the instant proceeding, plaintiffs contend that Kerr-McGee Rocky Mountain, LLC, and other defendants, failed to follow the proper, customary, and industry-wide accepted protocol for drilling two oil and gas wells. Such actions allegedly resulted in valuable hydrocarbons being unrecoverable resulting in substantial pecuniary damages to the plaintiffs.

 

The trial consumed twenty-five days over a ten-month period. It was a battle of experts as to whether Kerr-McGee properly drilled the wells. The trial judge dismissed all of the plaintiffs’ claims with prejudice. He went with the defendant’s experts. The Court of Appeal unanimously reversed. Plaintiffs asserted that the trial judge’s determination of six different issues of fact were each manifestly erroneous. The Court of Appeal agreed in every instance, apparently finding numerous instances of negligence on behalf of the defendants, including cementing stuck pipe and thereby not providing effective zonal isolation, simultaneous use of multiple permanent packers in a depletion drive well, and failure to use sand control resulting in the well sanding up.

 

The Court of Appeal accepted the testimony of the plaintiffs’ expert on damages. He had prepared a spreadsheet outlining the actual income generated from production versus the income that would have been generated had the well been prudently operated. He found such difference on one well to be $6,963,898 and on the other to be $6,473,998. Damages were awarded in such amount.

 

The instant decision also addressed two legal issues. In determining the quantum of damages, the boundaries of the reservoir were at issue. Plaintiffs asserted that the area of the reservoir was established by the unit order establishing a drilling and production unit for the Hackberry Zone, Reservoir A, one of the wells at issue being the unit well. Defendants presented evidence that the actual reservoir was smaller and that there were no damages to the remaining hydrocarbons that could be produced by a replacement to such well. The trial judge found that presenting such evidence was not a collateral attack on the Order of the Commissioner of Conservation. The Court of Appeal reversed, finding that despite this order being geographic and not geologic, its determination of reservoir boundaries were not subject to collateral attack.

 

Plaintiffs also asserted that they did not have to prove that defendants’ actions were imprudent, but only had to prove causation and damages. Such position was based upon the deletion of the words “to timber and growing crops of Lessor” in Paragraph 8 of the Oil, Gas and Mineral Lease, which originally provided in pertinent part: “The Lessee shall be responsible for all damages to timber and growing crops of Lessor caused by Lessee’s operations.” The trial judge held that such change in language did not result in strict and/or absolute liability. The Court of Appeal reversed. It quoted such provision and additional language in an exhibit to the lease providing that the Lessee is responsible for all damages caused by Lessee’s operations “including, but not limited to damages to the surface of the land, timber, crops, pastures, . . . water wells and improvements.” It ruled as follows:

 

Based on our review of the jurisprudence, lease, and trial record, we find that Kerr-McGee was absolutely liable when it knowingly agreed that “Lessee shall be responsible for all damages caused by Lessee’s operations.” This absolute liability was initially limited to damages to Hayes Fund’s timber and growing crops. Those limitations, however, were struck from the lease. By adding Exhibit A, which includes paragraph EE, Kerr-McGee’s responsibilities were expounded upon rather than limited. Since the words of the lease are clear and explicit and lead to no absurd consequences, “no further interpretation may be made into the parties’ intent.” Id. [Corbello-Iowa Prod., 850 So. 2d 686, 693 (La. 2003)].

 

It is quite common to strike such language from a mineral lease. That doing so results in absolute liability to the Lessee would certainly be surprising to most oil companies. From a reading of the opinion, which is difficult to follow in many places, it would appear that this ruling is dicta. The main part of the opinion finds negligence in almost all instances. The defendant’s liability would appear to be the same, whether pursuant to negligence or pursuant to absolute or strict liability.

 

This case is not final. The delays for filing a writ application in the Louisiana Supreme Court have not expired.

 

THOMAS C. McKOWEN, IV, born in Baton Rouge, September 13, 1953; admitted to bar, 1977, Louisiana; U.S. District Court, Middle, Eastern and Western Districts of Louisiana; U.S. Court of Federal Claims; U.S. Supreme Court.  Education: Louisiana State University and A. and M. College (B.S. 1974; J.D. 1977).  Phi Alpha Delta; Order of the Coif; Phi Kappa Phi.  Law Clerk to the Honorable C. Lenton Sartain, Court of Appeal First Circuit, 1977-1978.  Member: Baton Rouge, Feliciana (President, 1983-1984), Louisiana State (Member, Sections of Trust Estates, Probate, Immovable Property Law; Civil Law; and Mineral Law) Bar Associations.  Mineral Law, Probate, Estate Planning, and Real Estate Law.

 

 

 

Created by: Martha Mills at 11/11/2014 7:25:02 PM | 0 comments. | 2489 views.

iLandMan Job Openings

 

https://www.ilandman.com/about/careers/

 

Land Data Analyst

iLandMan is in need of Land/Lease Data Analyst’s for an ongoing client project. Ideal candidate has 3+ years experience in Land related work, i.e. leasing, title, due diligence and/or curative. This candidate should have iLandMan experience and has taken the web-based training course or has used iLandMan for verifiable client. Knowledge of lease terms and clauses as well as title verification is a must. This is a temporary contract lasting 2-3 months.

Web Developer/Data Analyst

 

Design, develop, and implement customized web applications, web services, and enterprise solutions for clients using SQL Server, C#, .NET, MVC and JQuery. Interface with customers to identify, develop, and implement transitioning of data from product to product. Work closely with other developers to design and develop public-facing web sites for the management, manipulation, and visualization of spatial data. Assist with application development estimating, planning, and progress tracking.

 

Project Manager

 

This position will report to the Operations Manager. Ideal candidates will work with iLandMan clients to get projects done efficiently and effectively. Candidates must be proficient in iLandMan have a strong background in various aspects of land work. Ideal candidates must have a take charge personality and be available for local and traveling projects.

 

GIS Technician

 

This position will report to the GIS Program Development Manager. Ideal candidates must be proficient in ArcGIS Server and/or ArcMap. Skills in AutoCad are a plus. Ideal candidates must have ability to work independently and within work groups.

 

Training/Marketing Assistant

 

Design, develop, and implement customized training manuals, brochures, online help guide instructions with a strong literary and design background. Interface with Training and Marketing managers to identify, develop, and implement transformative training and helpful data concerning product knowledge retention for everyday use. Work closely with software developers to design and develop public-facing user guides, training manuals and brochures.

 This position could be part-time or full-time in our Lafayette, LA office.

 

Please contact Richard Hines @ 337-234-1125 or send resume to careers@ilandman.com.

Created by: Martha Mills at 11/9/2014 1:18:04 PM | 0 comments. | 1565 views.

LOUISIANA LEGAL

UPDATE

By David J. Rogers

Gordon Arata


 Louisiana Title Examiners,
Take Note of Recent Change in the Mineral Code on Prescription

A recent change in the Mineral Code should be noted by all title examiners and title researchers in Louisiana.  Subsection (I) was added to Article 149 of the Louisiana Mineral Code (Louisiana Revised Statute 31:149) effective August 1, 2014.  Subsection I provides as follows:

When land is acquired from any person by an acquiring authority or other person, through act of sale, exchange, donation, or other contract, as part of an economic development project pursuant to a cooperative endeavor agreement between the acquiring authority and the state through the Department of Economic Development, as evidenced in a certification by the secretary of the Department of Economic Development attached to the instrument by which the land is acquired, and a mineral right subject to the prescription of nonuse is reserved in the instrument by which the land is acquired, the prescription of nonuse shall be for a period of twenty years from the date of acquisition whether the title to the land remains in the acquiring authority or is subsequently transferred to a third person, public or private.[1]

An analysis of Article 149 suggests that the newly added Subsection I is a narrowly tailored variation of the previously existing Subsection B of Article 149, which provides as follows:

When land is acquired from any person by an acquiring authority through act of sale, exchange, donation, or other contract, or by condemnation or expropriation, and a mineral right subject to the prescription of nonuse is reserved in the instrument or judgment by which the land is acquired, prescription of the mineral right is interrupted as long as title to the land remains with the acquiring authority, or any successor that is also an acquiring authority.  The instrument or judgment shall reflect the intent to reserve or exclude the mineral rights from the acquisition and their imprescriptibility as authorized under the provisions of this Section and shall be recorded in the conveyance records of the parish in which the land is located.[2]

While similar, Subsections B and I provide certain differences that could create title ambiguities in certain circumstances.  Below is an analysis of these differences:

Acquiring Authority:

Under Subsection I, the transfer may be between any person and an acquiring authority or other person.  This differs from Subsection B, which applies only when land is being acquired from any person by an acquiring authority.

 

Type of Transfer:

Subsection I pertains only to a narrow set of transfers, namely, those that are part of an economic development project pursuant to a cooperative endeavor agreement between the acquiring authority and the state through the Department of Economic Development.  By contrast, Subsection B is much broader in nature and includes acts of sale, exchanges, donations, or other contracts, or transfers by condemnation or expropriation between a person and any qualifying acquiring authority.  An exception to the type of transfers applicable to Subsection B includes tax sales or other types of transfers resulting from the enforcement of obligations.[3]

Certificate Required:

The form requirements under Subsection I include the attachment of a certificate issued by the secretary of the Department of Economic Development attached to the instrument by which the land was acquired.  The certificate must evidence that the transfer is part of a cooperative endeavor agreement.  Title examiners, in particular, should be aware of this requirement and confirm that these certificates are attached to such conveyances.  This may be the only hint in the conveyance records that a transfer falling under Subsection I has occurred.  No such requirement exists under Subsection B.

Reservation Language:

The reservation language required for a valid mineral reservation in the instrument of conveyance is also different under Subsections B and I.  Under Subsection I, it appears that as long as “a mineral right subject to the prescription of nonuse is reserved in the instrument,” then a valid reservation under Subsection I has occurred.

By contrast, the language required for a valid mineral reservation is much more onerous under Subsection B.  The requisite language under Subsection B must “reflect the intent to reserve or exclude the mineral rights from the acquisition and their imprescriptibility as authorized under the provisions of this Section and shall be recorded in the conveyance records of the parish in which the land is located.”

Prescriptive Period:

The commencement of the tolling of the period of prescription of nonuse differs between Subsections I and B.  Also, the term of the prescription of nonuse is different under Subsections I and B. Under Subsection I, the prescriptive period begins to run from the date of the acquisition whether or not the acquiring authority or other person transfers the property to a third person who may be public or private.  The period of nonuse under Subsection I is for twenty (20) years.  By contrast, under Subsection B, the mineral rights are held in perpetuity and the ten (10) year prescriptive period of nonuse does not begin to run until such time as the public body transfers the land back into the private domain.

The difference in the period of prescription of nonuse under Subsections I and B could create ambiguity in a situation where an acquiring authority acquires property and the mineral rights have been reserved pursuant to the requirements under Subsection I, whereby a mineral servitude was created by the transfer with a valid reservation, and all the requirements of Subsection B have also been met.  The question arises whether the prescription of nonuse on the transferor’s servitude would begin to run upon the date of the transfer with a 20-year prescriptive period, as stated under Subsection I or instead whether the prescriptive period would be interrupted for as long as title to the land remains with the acquiring authority, or any successor in title that is also an acquiring authority as applicable under Subsection B.  Although the answer is not clear, any transferor in the above factual scenario should make certain that the mineral reservation in the instrument of conveyance is stated as being made under Subsection B in order to ensure that the intention to reserve the minerals for the period of nonuse allowed under Subsection B is clear.

Reversionary Interests:

Generally, under Louisiana mineral law, the expectancy of a landowner in the extinction of an outstanding mineral servitude cannot be conveyed or reserved directly or indirectly.[4]  But Subsection D to Article 149 is an exception to this general rule.  Subsection D provides that “if a mineral right subject to prescription has already been established over land at the time it is acquired by an acquiring authority, the mineral right shall continue to be subject to the prescription of nonuse to the same extent as if the acquiring authority had not acquired the land.  Upon the prescription or other extinction of such mineral right, the transferor of the land shall without further action or agreement become vested with a mineral right identical to that extinguished, if (1) the instrument or judgment by which the land was acquired expressly reserves or purports to reserve the mineral right to the transferor, whether or not the transferor then actually owns the mineral right that is reserved, and (2) the land is still owned by an acquiring authority at the time of extinguishment.”[5]

Based on the language of Subsection D, it is unclear as to what the result would be where an acquiring authority acquires land under Subsection I and the mineral reservation made by the transferor in the instrument making the transfer is one of a reversionary interest.  The outcome of such a reservation upon the extinguishment of the prior reservation is not clear under the newly revised Article 149.  As above, a transferor should express the intent to be bound by Subsection B with regard to the prescriptive period in the mineral reservation language in the instrument of transfer.

In short, the change to the Mineral Code with the addition of Subsection I to Article 149 needs clarification.  Why the legislature felt the need to stray from a ten year prescriptive period to a twenty year period is unclear.  We can only hope that this is not the beginning of a trend of creating multiple prescriptive periods for different scenarios in Louisiana.  Over time some clarity on the changes to Article 149 should emerge.  In the meantime, all title examiners and researchers should keep an eye out for scenarios where Article 149 is applicable and act accordingly to protect their client’s interests.



[1] La. R.S. 31:149(I).

 

[2] La. R.S. 31:149(B).

[3] Id. See Comments.

[4] La. R.S. 31:76.

 

[5] La. R.S. 31:149(D).