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Created by: Martha Mills at 4/8/2014 6:08:26 AM | 0 comments. | 1501 views.

LOUISIANA LEGAL UPDATE

 

By Julie Deshotels Jardell and Kelly D. Perrier

Gordon Arata

Total E&P USA, Inc. v. Kerr-McGee Oil and Gas Corp. No. 11-30038, 719 F.3d 424 (June 20, 2013)

 

The Fifth Circuit Court of Appeals of the United States recently overruled the district court’s interpretation of an overriding royalty assignment’s “calculate and pay” clause.  The case involved a contractual dispute over whether overriding royalties were owed by the lessees during the period when no royalties were owed to the landowner.  The district court granted the lessees’ motion for summary judgment, holding that the “calculate and pay” clause in the assignment at issue clearly and explicitly requires that the payment of the overriding royalties be suspended during the suspension of the landowner royalty.  Therefore, the landowner and the overriding royalty interest (“ORRI”) owners would be paid royalties on parallel tracks that began with the same trigger: here, once production reached 87.5 million barrels of oil equivalent pursuant to the Outer Continental Shelf Deep Water Royalty Relief Act (“DWRRA”).  The ORRI owners appealed.  

 

In 1998, pursuant to the Outer Continental Shelf Lands Act, the United States issued a mineral lease covering certain lands.  In 1999 and 2001, various ORRI were carved out of the lessees’ working interests and assigned to seven individuals.  In particular, the instruments creating the over­riding royalties contained a clause stating that the overriding royalties “shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner’s royalty under the Lease.”  This clause is often referred to as a “calculate and pay” clause. 

 

The district court interpreted the language of the above “calculate and pay” clause to require that the ORRI owners be paid at the same time as the landowner, i.e. not until production reached 87.5 million barrels of oil equivalent, in addition to calculating the royalties owed to the ORRI owners in the same manner as the royalties owed to the landowner.  The United States Fifth Circuit Court of Appeals considered affidavits and parole evidence submitted by the ORRI owners and held that the intents of the parties regarding the possible suspension of royalty payments was not clear based upon the language of the “calculate and pay” clause; therefore, summary judgment was not warranted.

 

In rendering its decision, the Fifth Circuit relied upon the Louisiana rules of contract interpretation because Louisiana is the state adjacent to the portion of the outer continental shelf where the oilfield at issue is located.  Louisiana Civil Code art. 2046 articulates the most fundamental rule in interpreting contracts – simply, no further interpretation is necessary when the words of the contract are clear and explicit and do not lead to absurd consequences.  The Fifth Circuit held that the “calculate and pay” clause did not clearly establish parties’ intents that the royalty payments to the ORRI owners would be suspended under any circumstance.  The Fifth Circuit then held that a reasonable interpretation of the “same manner and subject to the same terms and conditions” language could be that the method of payment would be same but not the timing of the payment.

 

In support of its position, the majority recognized that ORRI and a lessor’s royalty interest possess many distinctions; therefore, there should be no presumption that the royalties should be treated the same under a “calculate and pay” clause.  The Fifth Circuit also considered the syntax of the clause.  And the Fifth Circuit dismissed the lessees’ interpretation of a footnote in the lease that referenced the potential application of the DWRRA due to the absence of the verb “shall.” 

 

After assessing the language from various viewpoints, the majority concluded that multiple reasonable interpretations of the “calculate and pay” clause existed, and the ambiguity presented a genuine issue of material fact.  Because “royalty suspension was not clearly and explicitly made a term or condition of the lease that was binding on the lease parties or third parties,” the district court’s decision was reversed, and the suit was remanded.

 

The dissent, on the other hand, asserted that the language of the “calculate and pay” clause clearly established that payments to the ORRI owners would be paid under all of the same conditions as royalty payments to the landowner.  While the majority largely dismissed the lessees’ reliance on a footnote, the dissent found that “[t]he footnote clearly stipulates that the lease’s provisions for payment of royalties are superseded by the DWRRA if the lease is eligible for royalty suspension, thus qualifying the lessee’s contractual duty to make royalty payments to the United States.”  Moreover, even though there are many circumstances in which ORRI owners and lessors are treated differently, the clear directive of the “calculate and pay” clause before the court establishes that these parties should be treated the same for all royalty payment purposes.  In short, the dissent disagreed with each ground on which the majority relied to establish ambiguity, and the dissenting judge would have affirmed the district court’s grant of summary judgment in the lessees’ favor.

 

In conclusion, the interpretation of the “calculate and pay” clause will be a matter for the trial on the merits.

 

Julie Deshotels Jardell’s practice is concentrated on oil and gas transactions and general, commercial and oil and gas litigation. Although a significant portion of her practice is dedicated to examining abstracts and rendering drilling and division order title opinions, Julie is also experienced in drafting agreements and contractual provisions on behalf of both operating and non-operating working interest owners, including the drafting and negotiating of provisions for joint operating agreements, drilling contracts, mineral leases, right-of-ways and servitudes as well as surface and subsurface use agreements.

As a litigator, Julie has gained extensive experience participating in lawsuits and drafting briefs focused on oil and gas issues, and has argued these issues before Louisiana District and Appellate Courts.

 

During law school, Julie served as Chairman of the Moot Court Board and as a Moot Court teaching assistant. She was awarded the Law Excellence Award in Law and Poverty, and was a member of the Loyola Maritime Law Journal. Upon graduation, she was elected into the Order of Barristers. She received her J.D. from Loyola University in 2007 and her B.S. from Louisiana State University in 2001.

 

Kelly Perrier practices in the areas of commercial litigation and oil, gas and energy litigation.  Her practice also includes employment disputes and environmental claims largely focused on legacy litigation. 

Kelly interned for Chief Judge Burrell J. Carter of the Louisiana First Circuit Court of Appeals while earning her J.D. and Diploma of Civil Law Studies from LSU Law School. Prior to law school, she worked as a media/political consultant for a small firm handling local and statewide campaigns. She is a 2004 cum laude graduate of the University of Georgia’s Grady School of Journalism and Mass Communication.

 

 

 

 

Created by: Martha Mills at 4/8/2014 6:04:37 AM | 0 comments. | 1542 views.

By Pat S. Ottinger

Ottinger Hebert L.L.C.

 

Imprescriptible Minerals Resulting from Acquisition

by a Legal Entity Vested With Power of Expropriation

 

In his excellent Legal Update in April 2013, entitled “Expropriation in Louisiana After 2012 Legislative Session,” my friend Matt Randazzo was limited by space restrictions and could not address yet another amendment resulting from Act No. 702 of 2012.  In order to address this amendment, this Update might be considered a supplement to Matt’s work.

 

Before reviewing this new legislation, let’s put forth a hypothetical title issue with which you will be presented – stay with me here – in 2023.  (If you can’t wait to find out why I’ve moved you at warp speed a decade hence, you can cheat and take a peak at the very last paragraph herein.).

 

You are examining title to two sections of land and find that, on September 1, 2012, John Doe sells Section 1 to American Natural Gas Pipeline Company, a Louisiana corporation, in which deed it was stated that “Vendor does hereby reserve all oil, gas and other minerals under such land.”  On the same day, John Doe sells Section 2 to American Pie and Cookie Company, a Louisiana corporation, and this deed also stated “Vendor does hereby reserve all oil, gas and other minerals under such land.” 

 

In the year 2023, you encounter these deeds and determine, after reviewing SONRIS, that no use has been made of either servitude since that date (either on the burdened lands or lands pooled therewith).  Let’s hold that thought for a moment and now take a further look at Act No. 702 of 2012.

 

On first blush, this legislation would not seem to have much relevance to oil and gas in that it amends certain sections of Title 19, Expropriation, including Section 2 which identifies the types of juridical persons[1] enjoying the power of expropriation.  This Act made numerous procedural and other changes to the law of expropriation (including a change to the so-called “St. Julien Doctrine”),[2] but for our immediate purposes, we wish to highlight only one change made to the statute.

 

Signed by the Governor on June 11, 2012, Act No. 702 amended La. Rev. Stat. Ann. § 19:2 so as to expand the “created for” standard of eligibility for the right of a private legal entity to expropriate, to now include a legal entity which is “engaged in” certain specified activities.

 

We must digress.  Article 149 of the Louisiana Mineral Code deals with “imprescriptible minerals,” that is, a mineral servitude which is not subject to the prescription of non-use.  Basically, if land is acquired by an “acquiring authority,” either consensually or by expropriation, and the vendor reserves minerals in such transaction, the “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.” 

 

As defined in Article 149, an “acquiring authority” includes, in addition to the Federal and State governments (and certain political subdivisions thereof), “any legal entity with authority to expropriate or condemn, except an electric public utility acquiring land without expropriation.”  Hence, this definition points us to Title 19 of the Revised Statutes.

 

La. Rev. Stat. Ann. § 19:2 specifies the types of “legal entity with authority to expropriate or condemn,” and, thus, which non-governmental legal entities would constitute an “acquiring authority” for purposes of Article 149.

 

Prior to this legislation, those included certain entities which were “created for” certain purposes, e.g., the construction of railroads, toll roads, or navigation canals; the construction and operation of street railways, urban railways, or inter-urban railways; the construction or operation of waterworks, filtration and treating plants, or sewerage plants to supply the public with water and sewerage; the piping and marketing of natural gas for the purpose of supplying the public with natural gas; the purpose of transmitting intelligence by telegraph or telephone; the purpose of generating, transmitting and distributing or for transmitting or distributing electricity and steam for power, lighting, heating, or other such uses, and piping and marketing of coal or lignite in whatever form or mixture convenient for transportation within a pipeline.

 

In view of the foregoing, prior to the legislation under consideration, it was both necessary and sufficient to examine the organizational papers of a legal entity involved in such a transaction (a legal entity being a vendee in a sale of land wherein the vendor reserves a mineral servitude) in order to determine if the legal entity had been “created for” any of the purposes stated in La. Rev. Stat. Ann. § 19:2. 

 


As noted, Act No. 702 expanded the “created for” standard of eligibility for the right to expropriate, to now include a legal entity which is “engaged in” the specified activities.[3]

 

Thus, it now appears that, if a corporation (for example) was created “for any lawful activity,”[4] but is in fact “engaged in” certain specified activities, a reservation of a mineral servitude in a sale to such entity might be imprescriptible.

 

When, prior to the adoption of Act No. 702, the standard was simply “created for,” a title examiner had the ability to find the entity’s articles[5] and could rather easily make a determination as to whether the vendee was an “acquiring authority,” and, hence, to determine if the vendor’s mineral servitude was or was not subject to prescription.

 

Now that the touchstone has been extended to an entity which is “engaged in” those specified activities (even if not explicitly “created for” such purpose), this is a factual matter not reflected by the public records and would seemingly require an inquiry as to the activities in which the entity is or has been “engaged.”

 

And worse, the transaction in question might be for unrelated purposes, but if that entity is “engaged in” a prescribed activity in another parish or state (unrelated to the transaction at hand), is that sufficient to vest the entity with the power of expropriation?  Nothing in the new statutory formulation requires that the land purchase (with attendant reservation of a mineral servitude) actually be effectuated in connection with a qualifying activity in which the vendee is then “engaged.”

 

In other words, a corporation which is created for the generic purpose of engaging in “any lawful activity” might be “engaged in” a qualifying activity in Bossier Parish, and thereby might enjoy the power of expropriation in Terrebonne Parish, even though its activities in that latter parish are unrelated to the conduct of (or “engaged in”) the specified activity.  Thus, if you are reviewing or examining title to land in Terrebonne Parish and find that the entity purchased property wherein the vendor reserved minerals, is the mineral servitude prescriptible or not?  What inquiry must the land man or title examiner make to ascertain the status or character of the reserved mineral servitude?

 

Admittedly, the concern expressed herein might be assuaged somewhat by the requirement in Subparagraph B of Article 149 that 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.” 

 

If there is no reference in the deed to the minerals’ “imprescriptibility as authorized under the provisions of this Section,” the inquiry should end there.  This conclusion is reinforced by Subparagraph G(2) of Article 149 which states that the “provisions of this Chapter shall not apply to:  *  *  * [a] transfer in which the acquiring authority neither expressly reserves or excludes nor conveys to the transferor a mineral right otherwise subject to prescription.”

 

However, even with compliance with this requirement (by making express reference to the imprescriptibility of the mineral servitude), it is still necessary to inquire into the relevant facts to determine that the vendee is in fact an “acquiring authority” by reason of the circumstance that it has “engaged in” a prescribed activity.  Said differently, merely stating, in the deed or judgment, that the reserved minerals are “imprescriptib[le] as authorized under the provisions of” Article 149, does not make it so.[6]

 

Back to our hypothetical situation, way back in September of 2012.  The issue presented is whether the vendee is an “acquiring authority” within the meaning of Article 149 of the Mineral Code such that the mineral servitude is not subject to prescription.  You first examine the articles of incorporation of each vendee to see if either is “created for” a purpose which would give it the power of expropriation. 

 

You find that the articles of the Pipeline Company state that it is “created for” the purpose “to engage in any lawful activity for which corporations may be formed under the Business Corporation Law.”  So, the Pipeline Company was not “created for” the purpose of “the piping and marketing of natural gas for the purpose of supplying the public with natural gas”  To your chagrin, you also find that the articles of the Pie Company state that it is created for the explicitly stated purpose of “the piping and marketing of natural gas for the purpose of supplying the public with natural gas.”  You made a wrong assumption, didn’t you?! 

 

So, seemingly, at least prior to Act No. 702 of 2012,[7] the Pie Company has the power of expropriation (and, thus, the servitude is imprescriptible), but the Pipeline Company does not enjoy the power of expropriation (and, thus, the servitude is not imprescripti­ble).

 

But, thanks to your Legislature way back in 2012, your inquiry does not end there.  With regard to the Pipeline Company, you need to discern if it is (or has been) “engaged in” the laying of pipelines.  Remembering that there are 64 parishes in the state, good luck with that!

 

One final digression.  Why the analysis of this issue a decade away from today?  The amendment to Act No. 702 could not conceivably be applied retroactively, so we have to wait until a full ten-year period of time – with no “use” of the servitude having occurred -- to determine if the reservations were subject to prescription or not.

 



[1]               “A juridical person is an entity to which the law attributes personality, such as a corporation or a partnership.  The personality of a juridical person is distinct from that of its members.”  Article 24, Louisiana Revised Civil Code.  Essentially, these are corporations, partnerships, limited liability companies and the like.

[2]               Taking its name from the decision in St. Julien v. Morgan Louisiana & Texas Railroad Company, 35 La.Ann. 924 (1883), this doctrine stands for the proposition that a landowner who acquiesces in the installation of facilities on its property by a party having the power of expropriation, forfeits the right to demand the removal of the facilities and is relegated to a claim for money damages.  It is now codified in La. Rev. Stat. Ann. § 19:14.  (Factual tidbit – this case involved lands now on Ambassador Caffery in the Broussard area.).

[3]               Although, prior to Act No. 702, La. Rev. Stat. Ann. § 19:2(11) listed, as an entity having the right to expropriate, “any domestic or foreign limited liability company engaged in any of the activities otherwise provided for in this Section,” this Subsection, by its explicit terms, did not reach or apply to corporations or partnerships.  Act No. 702 did expand it to include corporations and any “other legal entity.”

[4]               As permitted by La. Rev. Stat. Ann. § 12:24B(2), Articles of Incorporation must state, “In general terms, the purpose or purposes for which the corporation is to be formed, or that its purpose is to engage in any lawful activity for which corporations may be formed under this Chapter.”

[5]               The articles would be available in the office of the Secretary of State, La. Rev. Stat. Ann. § 12:25A(1), as well as “the office of the recorder of mortgages of the parish in which the registered office of the corporation is located,” La. Rev. Stat. Ann. § 12:25D.

[6]               Indulge me by ignoring the fact that, in our hypothetical situation, the deeds did not “reflect the intent to reserve or exclude the mineral rights from the acquisition and their imprescriptibility” under Article 149.  Although this certainly makes a difference, your author wishes to focus on the issue of whether the nature of the legal entity acquiring the property could give rise to an imprescriptible mineral servitude.

[7]               This legislation became effective on August 1, 2012.

Created by: Martha Mills at 4/8/2014 6:01:03 AM | 0 comments. | 1294 views.

 

By Jasmine B. Bertrand

Onebane Law Firm

 

Louisiana Supreme Court Swims Through “Sea of Flags” to Uphold Contractual Negligence Defense to Claim of Unilateral Error

 

The Louisiana Supreme Court decision in Peironnet v. Matador Res. Co., 2012-2292 (La. 6/28/13) concerns whether a lease extension was limited to cover a certain 168.95 acres which was, at the time of the execution of said extension, unlikely to be productive by the end of the primary term of the lease, or whether the extension covered the deep rights for the entire 1805 acres initially leased.  Matador had successfully developed the Cotton Valley formation for all of the acreage covered by the lease, except for a certain 168.95 acre tract, by the end of the primary term.  However, the lease at issue included both horizontal and vertical Pugh clauses.  Therefore, at the end of the three year primary term of the lease, both the 168.95 acre tract as well as the deep rights for the productive acreage would potentially be unleased without an extension of same.  Although there was evidence at trial that payment for the lease extension may have been calculated by a price based on the undeveloped 168.95 acres, the language used in the lease extension that was eventually executed extended the primary term of the entire lease as to all acreage and depths, including the deep rights, covered by the original lease.  In early 2008, the discovery of the Haynesville Shale formation was announced.  Soon thereafter, Matador gave notice to the plaintiffs of its intent to create several units in order to drill to the Haynesville Shale.  The plaintiffs then filed suit in which they claimed error in the lease extension insofar as to the deep rights to the developed acreage. 

 

The law at issue in this case is Louisiana’s law with respect to error as a vice of consent to a contract.  Louisiana Civil Code article 1949 provides that “error vitiates consent only when it concerns a cause without which the obligation would not have been incurred and that cause was known or should have been known to the other party.”  In its discussion of error, the Louisiana Supreme Court noted that error can manifest itself either mutually or unilaterally.  Louisiana courts have granted relief to a party claiming unilateral error only where the other party knew or should have known that the matter affected by the error was the reason or principal cause why the party claiming unilateral error made the contract.  Whereas the court can either reform or rescind the contract in the case of mutual error, rescission is the only remedy for unilateral error.  However, the court can refuse to rescind the contract “when effective protection of the other party’s interest requires the contract be upheld,” or the court may partially rescind the contract when the totality of the parties’ intentions are considered.  In determining whether to grant rescission, the courts consider “whether the error was excusable or inexcusable,” which is determined according to the circumstances surrounding a particular case.  Personal circumstances, such as age, experience, and profession, are to be taken into account.  However, where unilateral error is the result of a party’s failure to read the contract, such an error is inexcusable.  In such a case, the jurisprudence has recognized a contractual negligence defense to a claim of unilateral error.

 

In the case at hand, the plaintiffs sought rescission of the contract for unilateral error and, in the alternative, reformation for mutual mistake.  In setting forth their claim of unilateral error, the plaintiffs claimed that their agent executing the lease extension on their behalf did not understand that it extended the entire lease, and that the defendants knew or should have known of his misunderstanding. 

 

In response, the defendants advanced the defense of contractual negligence as to the unilateral error claim, bringing forth evidence demonstrating that the plaintiffs could show no excuse for failing to read and understand the clear terms of the lease extension, which was written “in plain English, without technical language or terms of art.” The Court found that the plaintiffs’ agents were “self-proclaimed experts in dealing with oil and gas matters, including oil and gas leases,” and the original lease was executed in the agent’s own lease form and plainly covered all depths during the primary term.  The Louisiana Supreme Court therefore found that the error could have been detected and rectified by “a minimal amount of care, i.e., by simply reading the document and/or by requesting simple changes to the written offer before acceptance.”  The agents negotiating on behalf of the plaintiffs were petroleum landmen with the level of education and experience that made such an error “difficult to rationalize, accept or condone.”  Moreover, the Court noted that these landmen did not dispute that the lease extension explicitly extended to the entire lease as to all acreage and depths.  Although the extension of the lease to the deep rights was not discussed by the parties, the Court found that it was clear through the written offers given to the plaintiffs from the defendants that Matador sought to extend the entire lease.  Additionally, evidence at trial demonstrated that one of the co-owners of the tract at issue, who was not a party at trial, after being presented with the same extension agreement, requested that same be limited to the undeveloped 169.95 acres, which request was denied by Matador.  Other evidence introduced at trial was testimony from one of the plaintiffs’ agents that even if the mistake was noticed, “he suspected ‘no one thought it mattered at the time.’”  The Court’s opinion of such comment was that “it was undeniably” the agent’s responsibility “to question the document.” 

 

The Court then went through the “sea of flags” that “should have been raised by these experienced landmen” concerning the true extent of the extension agreement, by pointing to specific language in the agreement, including (i) language that it was the mutual desire of the parties to extend the primary term of the lease; (2) language that the lease shall remain unchanged and re-letting language that referenced the lands described in the lease; (3) language that the existing lease was extended; and (4) language that the primary term was extended.  The Court found the  plaintiffs’ failure to question the lease extension, to seek clarification of what it covered, or even to discuss coverage of the deep rights demonstrated an inexcusable lack of simple diligence precluding rescission of the agreement.

 

With respect to the plaintiffs’ claim of mutual error, the Court found that the lease extension clearly and unambiguously covered all acreage and all depths, based upon the language in the agreement, the testimony of all agents of the defendants at trial, and the initial letters to the plaintiffs from Matador.  In addressing a notation of “169.95 acs. (lease ext.)” on one of the plaintiffs checks, the Court found the jury’s decision on this issue in the defendants’ favor was supported by the defendants’ explanation that the notation reflected the formula employed to calculate the agreed upon consideration and was not indicative of the acreage extended.  Such an explanation was consistent with the defendants’ position on how consideration was calculated by the parties. 

 

In reversing the decision of the Second Circuit and finding in favor of the defendants, the take-away from the Louisiana Supreme Court decision in Peironnet is that the courts should not look favorably upon any party claiming unilateral error based on failure to read the document, especially when the parties are sophisticated such as the players at issue in the case.

 

Jasmine Bertrand is a shareholder in the Lafayette office of the Onebane Law Firm.  Originally from St. Martinville, Louisiana, Jasmine graduated from Catholic High School in New Iberia, Louisiana in 1995. She received her bachelor’s degree from the University of Louisiana at Lafayette in 1999, graduating as an honors student, summa cum laude. In 2005, she earned her Juris Doctor magna cum laude from Tulane Law School in New Orleans, Louisiana, where she was a managing editor of the Tulane Law Review, was elected Order of the Coif, and received the Dean Rufus C. Harris Civil Law Award, as well as various other awards.

Jasmine’s practice focuses primarily oil and gas property title examination and immovable property/oil and gas property advice.  Jasmine also maintains an elder and special needs law practice, advising clients on matters concerning advanced planning, capacity issues and interdictions, and Medicaid planning and advice. She is a member of the Lafayette Parish, Louisiana State and American Bar Associations, National Association of Elder Law Attorneys (NAELA), Lafayette Association of Petroleum Landmen (LAPL), American Association of Professional Landmen (AAPL), the Professional Landmen’s Association of New Orleans (PLANO), and the Ark-La-Tex Association of Petroleum Landmen (ALTAPL). She is the author of "Comment: What's Mine Is Mine Is Mine: The Inequitable Intersection of Louisiana's Choice-of-Law Provisions and the Movables of Migratory Spouses,” 79 Tul. L. Rev. 493 (Dec. 2004), as well as various articles on immovable property and oil and gas related topics, and elder law issues. She has presented at numerous seminars, including the Louisiana Mineral Law Institute, Gulf Coast Land Institute, and LAPL, BRAPL, and AAPL sponsored events, on such topics as imprescriptible mineral rights, divisions of interest, roadbed issues, capacity and authority issues, and various other subjects. Jasmine resides in Lafayette with her husband, Louis Vale, and their two children, Violet, age 5, and Finn, age 3.

 

 

 

 

 

 

 

 
Created by: Martha Mills at 4/8/2014 5:57:29 AM | 0 comments. | 1512 views.

LOUISIANA LEGAL UPDATE

 

By Colleen C. Jarrott

Slattery, Marino & Roberts, PLC

 

Three recent decisions affecting the oil and gas industry have been issued and are of note: the first case involves some careless drafting of a quitclaim deed that releases “all interests in property,” including mineral interests, the second involves a battle of the experts in a “legacy” lawsuit wherein a defendant oil and gas company was granted summary judgment by the Louisiana Court of Appeal for the Third Circuit, and the third involves ambiguity over the interpretation of “calculate and pay” language as it relates to individual override owners.  A brief discussion of each is provided below.

 

First Case: Louisiana Court of Appeal

for the Second Circuit

 

In Franklin v. Camterra Resources Partners, Inc., Mr. Franklin owned separate property from his then-wife in DeSoto Parish.  In 2000, as part of his divorce, Franklin transferred the property to a family-named educational trust, reserving his mineral rights.  In 2001, the Arbuckles offered to purchase the property and ultimately obtained it.  At the time of the sale, Franklin’s mineral servitude was not discussed.  

 

In 2008, Haynesville Shale was an attractive play.  The Arbuckles granted a mineral lease to Camterra Resource Partners, who later assigned it to Petrohawk.  A few months later, Franklin transferred his “reserved” mineral rights to his current (second) wife.  She later sought a declaratory judgment as to who owned the mineral rights.  Franklin intervened.  Defendants filed motions for summary judgment that the Arbuckle deed conveyed both the mineral and surface rights to the Arbuckles.  The trial court agreed. 

 

On appeal, the Louisiana Court of Appeal for the Second Circuit affirmed the trial court’s ruling and found that the deed was not ambiguous.  In the first part of the deed, Franklin and his ex-wife appeared together as trustees and transferred what the trust owned subject to any mineral reservation.  In the second part, however, Franklin appeared alone and quitclaimed “all interest” in the property.  The court further found that because Franklin had experience transferring mineral interests and he had his attorney review the transfer at issue, error could not absolve them from overlooking the “all interest” language.

 

Second Case: Louisiana Court of Appeal

for the Third Circuit

 

In Andrepont v. Chevron USA, Inc., et al., several plaintiffs filed an oilfield contamination (“legacy”) lawsuit against a number of defendant oil companies claiming that defendants’ ongoing operations polluted their property.  One defendant, Radke Oil & Gas, an independent oil and gas company, filed a motion for summary judgment on the basis that the wells it operated were not near the property and that it did not use earthen pits for storage.  Radke attached plaintiffs’ discovery responses and an affidavit from Lee Day, a senior geologist with Toxicological & Environmental Associates, Inc., to its motion. 

 

Mr. Day determined that Radke never operated any of the wells set forth in plaintiffs’ petitions and that Radke could not have caused any contamination because Radke did not use open pits and, given the natural drainage of the property, contamination could not have flowed from Radke’s wells onto plaintiffs’ property.  In opposition, plaintiffs filed an affidavit from Greg Miller with ICON.  Mr. Miller noted that defendants (including Radke) used open earthen pits to store oilfield waste and that flowlines used to transport oil across plaintiffs’ property “appeared” to have originated from Radke’s wells.  In a supplemental affidavit from Mr. Day, he showed that the use of open pits along the Gulf Coast was discontinued in the 1920’s and that by the 1940’s steel storage tanks were used to store oil.

 

The trial court ruled in favor of Radke.  Plaintiffs appealed.  The Louisiana Court of Appeal for the Third Circuit affirmed the trial court’s ruling and found that plaintiffs could not prove that Radke was liable for any contamination, based on Mr. Miller’s assertion that the flowlines “appeared” to originate from Radke’s wells.

 

Third Case: United States Court of Appeal

for the Fifth Circuit

 

 In 1995, the U.S. adopted the Deep Water Royalty Relief Act (“DWRRA”) to encourage drilling in deep waters on the outer continental shelf.  DWRRA authorized the Department of Interior to suspend collection of certain royalties for deep water production under federal offshore leases between 1996 and 2000.  The suspension would apply until a certain threshold amount of production was obtained. 

 

In 1998, the federal government issued an offshore lease to Mariner Energy and Westport Oil and Gas.  Westport assigned overriding royalty interests (“ORRIs”) to several persons.  The assignments contained a “calculate and pay” clause that stated: “The overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner’s royalty under the Lease.”  Westport and Mariner later assigned their interests to Chevron, Total E & P, and Statoil.

 

In 2009, the new owners established production.  Because their well qualified for a royalty suspension, the owners did not pay royalties to the federal government, but Chevron began making payments to the ORRI owners and continued to do so.  In contrast, Total and Statoil took the position that, for purposes of the “calculate and pay” clause, the royalty suspension was a “term and condition” of their obligation to make royalty payments to the “landowner.”  Accordingly, their obligation to make ORRI payments was also suspended.  The ORRI owners disagreed and litigation ensued.

 

The district court granted summary judgment for Statoil and Total, but the Fifth Circuit reversed, concluding that the “calculate and pay” clause is ambiguous.  The Fifth Circuit stated that the clause could be interpreted as incorporating the federal regulations that define how royalties are calculated, without interpreting the clause as also incorporating the DWRRA suspension of royalty payment obligations.  Because of the ambiguity, the Fifth Circuit remanded for further proceedings. 

 

Colleen C. Jarrott is an attorney with the law firm of Slattery, Marino & Roberts in New Orleans, Louisiana.  Ms. Jarrott practices oil and gas law, in particular defending oil and gas companies in “legacy” lawsuits.  Ms. Jarrott has lectured previously on mineral law developments.  Ms. Jarrott received her Juris Doctor in 2002 from the The Catholic University of America, Columbus School of Law in Washington, D.C.  While in law school, Ms. Jarrott was a staff member for the Catholic University Law Review and a member of moot court.  Following law school, Ms. Jarrott clerked for the Honorable Robert H. Hodges, Jr. at the U.S. Court of Federal Claims.  She is admitted to practice in all state and federal courts in Louisiana, as well as the U.S. Court of Federal Claims and the United States Supreme Court.  Ms. Jarrott is the past President and a founding member of the Women’s Energy Network – Southeast Louisiana chapter.  Ms. Jarrott may be contacted at cjarrott@smr-lawfirm.com or (504) 585-7800. 

 

 

Franklin v. Camterra Resources Partners, Inc., _______ So.3d _______, 2013 WL 2217324 (La. App. 2 Cir. 2013).

 

Andrepont v. Chevron USA, Inc., et al., 2012-1100 (La. App. 3 Cir. 4/3/13); 113 So.3d 421.

 

 

Total E&P USA, Inc. v. Kerr-McGee Oil&Gas, 711 F.3d 478 (5th Cir. Mar. 12, 2013); see alsoTotal E&P USA Inc. v. Kerr-McGee Oil&Gas Corp., --- F.3d ----, 2013 WL 3104943 (5th Cir. Jun. 20, 2013) (vacating and superseding prior decision; substance of opinion is same).

 

 

 

             

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                      

 

 

Created by: Martha Mills at 4/8/2014 5:54:52 AM | 0 comments. | 1350 views.

By Andrea Knouse

Mayhall Fondren Blaize

 

The Louisiana Court of Appeal for the Second Circuit recently decided Cason v Chesapeake Operating, Inc.,  47,084, 2012 WL 1192404 (La. App. 2 Cir. 4/11/12), In said case, the Court discussed what constitutes “engaged in operations for drilling” on a lease premises so as to continue the lease beyond its primary term as well as interpreted the “adjacent land clause” found in numerous oil, gas and mineral leases.

Plaintiffs, Edgar and Flora Cason, appealed a Judgment from the District Court granting Defendants, Empress Louisiana Properties, et al, a preliminary injunction prohibiting Plaintiffs from interfering with the construction of a pipeline on Plaintiffs’ leased property.

Plaintiffs executed an oil, gas and mineral lease on about 7,200 acres of land in favor of Pride Oil & Gas which, with exercised extensions, would terminate on May 31, 2010. Also included in said lease was a clause which stated that the lease would remain in existence as long as the lessee is “engaged in operations for drilling”, another allowing ingress and egress to the lease tract on “adjacent lands” to construct necessary roads and pipelines, and the right to assign the lease in whole or in part. Through various assignments, Chesapeake, parent company of Empress, acquired said lease.  Plaintiffs argue that Defendants failed to engage in activities that would maintain the lease beyond May 31, 2010, as no drilling permit was obtained from the Office of Conservation and, thus, executed an oil, gas and mineral lease in favor of Goodrich.  However, on May 28, 2010, Defendants entered the lease tract, on May 29 and 30, Defendants entered onto the tract to cut trees and stack lumber. The well was not spud until July 22, 2010. Plaintiffs alleged to the District Court that the minor work performed between May 29 and 30 did not constitute “operations for drilling” which would maintain the lease beyond its primary term and refused to allow Defendants to lay pipeline on an adjacent tract  owned by Plaintiffs.

During the trial at the District Court level, Defendants offered testimony from various witnesses relative to its operations and activities on the leased premises. A senior landman testified that while Defendants did not obtain a drilling permit during the primary term of the lease, they did complete surveys that were vital to drilling within the primary term. A corporate representative for Defendants testified that Defendants hired a surveying company on April 26, 2010, surveyors were on the ground May 4 through 7 tying off corners, and were staking the pad May 26 through 28. A manager of gas sales for Defendants testified that he started researching production issues on May 10, and the only feasible option was to run the gas through a tract of Plaintiffs’ land adjacent to the leased premises. The District Court gave the most weight to the testimony of an expert oil and gas attorney, Philip N. Asprodites. Mr. Asprodites reviewed all of the Defendants’ activities prior to May 31, 2010 and concluded while it was not “standard practice” to engage so many activities-putting surveyors on the ground, staking the well and cutting trees to lay the road-and not obtain a drilling permit until 45 days after the end of the primary term, Defendants nonetheless “commenced drilling operations.” He further testified that it did not matter that the drilling permit was not obtained during the primary term, stressing that the lease tract posed special difficulities requiring extensive preparatory work. We note that the Judgment of the Second Circuit does not elaborate as to what may be the “special difficulties” relating the leased premises.

The District Court determined that Defendants were engaged in good faith drilling operations prior to the end of the primary term and granted a preliminary injunction against Plaintiffs. Plaintiffs appealed alleging, among other claims, Defendants failed to make a prima facia case for maintaining the lease beyond the primary term.

Engaging in Operations

Plaintiffs allege that Defendants failed to apply for a drilling permit during the primary term, surveryors failed to complete drilling surveys, no equipment was moved onsite, and no pits were dug in connection with the drilling of a well. Moreover, Plaintiffs contend that no Louisiana case has ever maintained a lease on such minimal conduct of the lessee. Defendants counter that courts have held preliminary acts began in good faith constitute commencement of drilling operations under the “engaged in operations” clause.

The Court states that the crucial question is whether Defendants’ activities on the leased premises amount to “engaged in operations for drilling” and cite Allen v Continental Oil Co.

The general rule seems to be that actual drilling is unnecessary, but that the location of wells, hauling lumber on the premises, erection of derricks, providing a water supply, moving machinery on the premises and similar acts preliminary to the beginning of the actual work of drilling, when performed with the bona fide intention to proceed thereafter with diligence toward the completion of the well, constitute a commencement or beginning of a well or drilling operations within the meaning of this clause of the lease.

If the lessee has performed such preliminary acts within the time limit, and has thereafter actually proceeded with the drilling to completion of a well, the intent with which he did the preliminary acts [is] unquestionable, and the court may rule as a matter of law that the well was commenced within the time specified by the lease.

255 So.2d at 845, quoting 2 Summers Oil & Gas, § 349, pp. 459–465.

The Court further held that where the lease provides for commencement of operations, the courts will hold that operations preliminary to the actual drilling of the well are sufficient compliance with the terms of the lease, provided, however, that such preliminary operations are continued in good faith, without undue delay, and with due diligence and dispatch, and thereafter the well is begun and completed.

Applying the above principals, the Court determined that although Defendants failed to obtain a drilling permit within the primary term, they performed sufficient preliminary acts by surveyors tying off section corners and gathering topographic data, finishing the survey and staking the site and access road, and logging the site. The Court placed much weight on Mr. Asprodites’ testimony that because of the “special difficulties” of the tract, extensive prep work was necessary, and the acts of the Defendants constitute “commenced operations.” Additionally, the Court states that Defendants spent 8.5 million to bring the well into operation which shows that the preliminary actions were done for the purpose of completing the well. Thus, the lease was maintained.

Adjacent Land Clause

Plaintiffs also alleged that the preliminary injunction preventing Plaintiffs from interfering with pipeline installation was improper, as Defendants, assignees of the original lease, had no right to the land adjacent to the lease tract in Section 13. Plaintiffs contended that Defendants’ assignment was limited to the leased tract which covered lands located in Section 24.

The Court maintains that the original lease in favor of Pride Oil & Gas Properties expressly granted the lessee the right to conduct operations on adjacent or adjoining lands deemed necessary by the lessee to produce and transport oil, gas and other substances. While the partial assignment of the original lease to the Defendants may have been limited to Section 24 lands, the Court held that partial assignments do not divide a mineral lease under R.S. 31:310; therefore, the partial assignment did not sever the adjacent land clause contained in the original lease from the assignment.  The Court held that Defendants had to right to lay pipeline through the adjacent land in Section 13.

ANDREA M. KNOUSE is an attorney with Mayhall, Fondren & Blaize, LLC. Her practice consists of title examination, division order work, and litigation. Ms. Knouse joined Mayhall, Fondren & Blaize in 2009 after graduating cum laude from the Paul M. Hebert Law Center at Louisiana State University. While in law school, Ms. Knouse was named to the Chancellor’s List five times and received the CALI Award twice for earning the highest grade in Tax Policy and Taxation of Capital Gains. Ms. Knouse graduated magna cum laude from Texas Christian University with a Bachelor of Science degree in Psychology.

 

 

 

 

 

 

Created by: Webmaster at 3/15/2014 10:43:00 AM | 0 comments. | 1622 views.

Exploration Land Services, LLC is currently seeking brokers with experience in title, abstracting, leasing, due diligence, and curative for jobs located in Louisiana and Texas.  If you or anyone you know who may be looking for work, please forward resumes to contact@explorationland.com and include at least 3 references. 

 

Natalie Holeman

Exploration Land Services, LLC

Office: 337.234.3500

Fax: 337.234.3525

Cell: 337.280.8457

Email: nholeman@explorationland.com

Created by: Martha Mills at 4/10/2013 10:00:41 AM | 0 comments. | 7622 views.

LOUISIANA LEGAL UPDATE

 By Matt Randazzo[1]

Randazzo, Giglio & Bailey

 

EXPROPRIATION IN LOUISIANA AFTER 2012 LEGISLATIVE SESSION

 

With the boom for demand for more and more oil, natural gas, natural gas liquids, other petroleum products and various non-petroleum based products (i.e. hydrogen, CO2 and oxygen), both domestically and internationally, more and more pipelines are being proposed in Louisiana.  As other states have grappled with expropriation in areas that had never had pipelines and the controversy over the right of a private expropriating entity to exercise the right of eminent domain or condemnation (in Louisiana, the right of expropriation) the laws giving such right have been evolving and changing at a rapid pace. In the 2012 Louisiana Legislative Session, the legislature decided to review and amend the pertinent portions of the Louisiana Revised Statutes pertaining to the right of expropriation by a private expropriating entity, such as a utility or pipeline company. Some of the changes require additional action prior to the filing of an expropriation proceeding, which such action used to occur after the expropriation proceeding was filed.  Because the right of expropriation is solely dependent upon strict compliance with each and every pre-filing requirement specified in the Louisiana Constitution and the Revised Statutes, it is important for LAPL members to know what must now be done in order to make sure that an expropriation suit is not dismissed for failure to timely and properly comply with the laws of expropriation. 

 

Over the years the right to take property from a private landowner has expanded from the state to a plethora of state, parish and municipal entities and agencies and, in more recent times, to non-governmental entities such as, but not limited to, utility, telephone, cable, fiber optic and pipeline companies who can meet the stringent requirements set forth in the Louisiana Constitution and the Revised Statutes.

 

Pursuant to Article 1, Section 4, of the Louisiana Constitution:

 

Property shall not be taken or damaged by any private entity authorized by law to expropriate, except for a public and necessary purpose and with just compensation paid to the owner; in such proceedings, whether the purpose is public and necessary shall be a judicial question.

 

Accordingly, a private expropriating entity seeking to avail itself of the right to expropriate is subject to the particular requirements and standards that are germane and which must each be satisfied as a prerequisite to the commencement of an expropriation proceeding in Louisiana. (See Dixie Pipeline Co. v. Barry, App. 3 Cir.1969, 227 So.2d 1, writ refused, 255 La. 145, 229 So.2d 731, Texas Pipe Line Co. v. Stein, App. 4 Cir.1966, 190 So.2d 244, writ issued 249 La. 841, 191 So.2d 641, reversed on other grounds 250 La. 1104, 202 So.2d 266, and Interstate Natural Gas Co. v. Louisiana Public Service Commission, E.D.La.1940, 34 F. Supp. 980, all of which discuss common carrier status generally).

 

Act 702 of the 2012 Louisiana Regular Legislative Session[2] (“Act 702”) amends Louisiana Revised Statutes Sections 19:1, et seq. (“Louisiana Expropriation Statutes”). Act 702, which became effective as of August 1, 2012,[3] places additional pre-suit requirements on private expropriating authorities (excluding the state and/or its political subdivisions).

 

Most significant are the revisions to Section 19:2 of the Louisiana Expropriation Statutes, which now require private expropriating authorities to obtain an appraisal/evaluation before “exercising the rights of expropriation,” and  provide the landowner with:  (a) the name, address, and qualifications of the person or persons preparing the appraisal or evaluation; (b) the amount of compensation estimated in the appraisal or evaluation; and (c) a description of the methodology used in the appraisal or evaluation.  Prior to Act 702, only the state and its political corporations or subdivisions were required to do this.

 

In addition, Act 702 also requires private expropriating authorities (but not the state and/or its political subdivisions) to send a certified letter (return receipt requested) thirty (30) days before filing suit setting forth in detail or attaching the following: (1) the basis on which the expropriating authority exercises its power; (2) the purpose, terms, and conditions of the proposed acquisition; (3) the compensation to be paid for the rights sought to be acquired; (4) a complete copy of all appraisals of, or including, the subject property previously obtained by the expropriating authority; (5) a plat of survey signed by a Louisiana licensed surveyor illustrating the proposed location and boundary of the proposed acquisition, and any temporary servitudes or work spaces; (6) a description and proposed location of any proposed above-ground facilities to be located on the property; and (7) a statement by the entity of considerations for the proposed route or area to be acquired.

 

Prior to Act 702, the Louisiana Expropriation Statutes only required the “state or its political corporations or subdivisions” to obtain an “appraisal or evaluation” of the amount of compensation due and to provide the information contained in the appraisal/evaluation report to a landowner before “exercising the rights of expropriation.”  This requirement was codified in Section 19:2.2 of the Louisiana Expropriation Statutes.  Under Act 702, all Private Expropriating Authorities who are entitled to expropriation must comply with La. R.S. 19:2.2.

 

It is paramount to remember that an expropriation suit may be dismissed as being premature if the expropriating authority has not first negotiated with and been refused by the landowner to enter into a conventional agreement in the form of such agreements offered to and accepted by other landowners in the area.  See, LA. R.S. 19:2; Texas Gas Transmission Corporation v. Pierce, 192 So.2d 561 (La.App.3d Cir. 1966). The requirement of negotiation before suit is met, however, when the expropriating authority makes a ‘good faith’ attempt to acquire the property by conventional agreement prior to filing an expropriation suit. Evidence as to the amount which may have been offered to the landowner is material only insofar as it may have some bearing on the question of whether the expropriating authority was in good faith. There is no requirement that negotiations be conducted to a conclusion, or that the expropriating authority increase the initial offer which it made for the property. Forced arbitration in expropriation cases is not contemplated by our law, and, prior to the passage of Act 702, courts had held that it was not essential that a formal appraisal of the property or rights be made before suit was filed. The test to be applied in determining whether bona fide negotiations were conducted prior to suit is: “Did condemnor make a ‘good faith’ attempt to acquire the property or rights by conventional agreement before the expropriation suit was filed?”  See, Central Louisiana Electric Company v. Brooks, 201 So.2d 679 (La.App.3d Cir. 1967); Louisiana Power & Light Company v. Ristroph, 200 So.2d 14 (La.App.1st Cir. 1967).

 

In conclusion, only time will tell just how much Act 702 will impact expropriation proceedings in Louisiana.  Even under the amendments, expropriation cases are supposed to be given summary treatment – i.e. priority settings.  After reviewing Act 702, I have the following observations: (i) the new requirements imposed upon the entity seeking to expropriate will result in expropriation cases taking longer now than in the past to obtain a judgment allowing expropriation; (ii) certain costs will now be shifted to the entity seeking to expropriate and (iii) more fees will be incurred, prior to the filing of an expropriation proceeding, by the entity seeking to expropriate for attorneys, landmen and experts due to the additional steps in the pre-suit stage of the expropriation process.  LAPL members, who seek to obtain servitudes for clients who purport to have the right to expropriate, should pay close attention to the amended and new requirements imposed by Act 702 and consult and work closely with the client and its attorney, so as make sure that the negotiating timeline, the project timeline and the new expanded expropriation timeline are all considered and/or to avoid having an expropriation proceeding dismissed as being premature for failure to meet and satisfy each and every prerequisite to the filing of an expropriation proceeding.  Please email or call me with any questions.

 

Matthew (Matt) J. Randazzo, III is a founding Member of Randazzo Giglio & Bailey LLC and his practice includes all aspects of onshore and offshore oil and gas, environmental, pipeline operations, permitting and expropriation at the state and federal levels, commercial and litigation matters. Contact info: matt@rgb-llc.com, 900 East Saint Mary Blvd., Suite 200, Lafayette, LA 70503, 337-291-4900.



[1] ©2013 Matthew (Matt) J. Randazzo, III of Randazzo Giglio & Bailey LLC.  I would like to acknowledge and thank Shawn A. Carter, a member of Randazzo Giglio & Bailey LLC, for his contribution to the substance and assistance in the preparation of this update.

[2]       If you would like a copy of the Act 702 of 2012 showing the additions and deletions to the old law, please send me an email and I will reply with Act 702 attached.

[3]       Act 702 does not contain a statement as to its effective date. Pursuant to Louisiana Constitution Article III, Section 19, unless an earlier or later effective date is specified, all laws enacted during a regular session of the legislature “shall take effect on August first of the calendar year in which the regular session is held.”  Accordingly, the effective date of Act 702 was August 1, 2012.

Created by: Martha Mills at 3/14/2013 2:53:30 PM | 0 comments. | 2026 views.

DEADLINES

2013 LAPL GOLF TOURNAMENT

SPONSORSHIP AND ENTRY FORM

 

All paid entries must be received on or before Monday, April 15, 2013, with the exception of all paid HOSPITALITY and GOLD golfing sponsorships which must be received on or before Monday, April 8, 2012. 

 

All properly paid Hospitality and Gold level golfing sponsorships are guaranteed entry into the tournament.  Only one (1) entry form per envelope will be granted entry into the tournament other than Hospitality sponsorships which cover two (2) foursomes.  Any envelope containing more than one entry form will not be considered until after all compliant entries have been accepted. 

 

Any entries received after April 15, 2013 will only be considered on a space available basis. 

 

Remember, only the first 144 paid entries are guaranteed to receive “ditty bags”. 

 

Any changes to your original and/or subsequent player entries made after 5 p.m., Friday, April 19, 2013, will result in your team participating in the “Funnzie Flight” of the tournament.  A gag prize will be awarded to the winner of the “Funnzie Flight”.  The tournament committee reserves the right to adjust flighting for all entries.

 

See the March and April 2013 issues of the newsletter or the Event announcement on the website for more information.

 

Created by: Martha Mills at 3/14/2013 2:23:11 PM | 0 comments. | 2326 views.

Local Company Seeking Petroleum Engineer

 

Mack Energy Co., a privately-held, E&P company based in Oklahoma, is seeking to expand their Lafayette, LA, office with the addition of a Petroleum Engineer.

 

Candidates will have a BS in Engineering; 5+ years experience in drilling and production operations in the Mid-continent and Gulf Coast areas.

 

Salary DOE; excellent benefits package.

 

Send resume and references to:

 

 hr@mackenergy.com

 

or

 

P.O. Box 400

Duncan, OK 73534

 

EOE

Created by: Martha Mills at 3/12/2013 12:13:05 PM | 0 comments. | 3338 views.

LOUISIANA LEGAL UPDATE

by Megan E. Donohue

Jones Walker

The Louisiana Supreme Court’s Latest Interpretation of Legacy Lawsuits and the Law: the Vermilion Parish School Board Case

State of Louisiana and the Vermilion Parish School Board vs. The Louisiana Land and Exploration Company, et al., 2012-0884, (La. 01/30/2013) --- So.3d ----, 2013 WL 336004. 

The Louisiana Supreme Court recently issued an opinion that could have a significant impact on legacy lawsuits.  Where previously courts did not award plaintiffs “excess” remediation damages in the absence of a contractual provision requiring them, the Court has created the possibility of an award of those excess damages even in the absence of a contractual provision.  Pursuant to this decision, defendants may become obligated to restore the surface of a mineral lease to its pre-lease conditions, even where the mineral lease is silent concerning restoration of the surface. 

In the VPSB case, the State of Louisiana and the Vermilion Parish School Board filed a Petition for Damages to School Lands.  This sixteenth section property, located in the East White Lake Field in Vermilion Parish, is owned by the State and managed by the VPSB for the benefit of the local schools.  The property was allegedly polluted by oil and gas exploration and production performed pursuant to certain leases.  The lease at issue before the court did not include an express contractual provision related to remediation. 

Defendants filed a motion for partial summary judgment, asserting that Plaintiffs had no right to seek remediation damages in excess of those found necessary by the Court to fund the plan for remediation mandated under Act 312.  Defendants contended that Act 312 acted as a substantive cap on remediation damages resulting from a tort or the implied restoration obligation of a mineral lease.

The trial court granted the motion.  The Third Circuit reversed the trial court.  The Louisiana Supreme Court granted writs, and ultimately agreed with the Third Circuit, reversing the trial court.  The Court held that Act 312 is a solely procedural statute that does not strip landowners of their substantive rights and concluded that the substantive right to recover excess remediation damage existed and was not changed by the procedural Act 312. 

In reaching its conclusion that the substantive right to recover excess remediation damage existed and was not changed by the procedural Act 312, the Court described, at length, the history of the relevant provisions of general lease law under the Civil Code, lease obligations under the Mineral Code, related case law, including Castex, Roman Catholic Church, Coleman, Hornsby, Corbello, and how it all led to the enactment of Act 312. 

Particularly important in the Court’s interpretation were Subsections D and H of the Act.  Subsection D provides how the most feasible plan is implemented.  The Court interpreted Subsection H to state “that the procedure enacted by this Section shall not preclude a landowner from pursuing a judicial remedy or receiving a judicial award for private claims other than those remediation damages necessary to fund the feasible plan to remediate the land to a standard that protects the public interest, i.e., ‘except as otherwise provided in this Section.’” Thus, according to the Court, if a trial court awards remediation damages greater than the amount that is ordered to be placed into the trial court’s registry to fund the remediation plan, then the landowner is entitled to those “excess” remediation damages.  Likewise, “any award” for “additional remediation” may be kept by the landowner, as well.  If the money judgment for remediation exceeds the amount necessary to fund the plan, the plaintiff is granted a personal judgment for the “excess” remediation damages; plaintiff is also granted a personal judgment on his other non-remediation private claims (if he prevailed on such claims at trial).  All of these determinations are made part of a single judgment, and any party aggrieved by any aspect of this single judgment may appeal.  Citing the Third Circuit’s decision in the VPSB case, the Court agreed that the Third Circuit correctly determined that “[t]he clear language of the statute contemplates the landowner receiving an award in addition to that provided by the feasible plan.”

Although the Court cited various cases in an attempt to support its finding, it failed to explain the source of the “substantive right” that the Court concluded the plaintiffs may have to receive excess remediation damages.  Ultimately, the Court concluded that the court of appeal correctly reversed the ruling of the trial court on the motion for partial summary judgment.

Justice Victory’s dissent highlights the major deficiencies in the Court’s logic and its conflict with its prior decisions.  The following are expansions from select excerpts from Justice Victory’s dissent:

La. R.S. 30:29, in several clear provisions, limits the recovery of remediation damages to those awarded by the trial court in its determination of the most feasible regulatory plan, unless there is an express contractual provision providing otherwise.  The general rule established by La. R.S. 30:29(D)(1) is that all damages for evaluation and remediation of environmental damage shall be paid exclusively into the registry of the trial court to fund the clean up of the environmental damage.  Act 312 does contain an exception to its rule that “all remediation damages” must be paid into the registry of the court.  The first sentence of La. R.S. 30:29(H) provides that La. R.S. 30:29 does not preclude an award “for private claims suffered as a result of environmental damage, except as otherwise provided in this Section.”  The Court concluded that these “private claims” include claims for excess remediation damages.  But if this were true, there would be no need for the second sentence of 30:29(H), which specifically covers claims for damages for “additional remediation in excess of the requirements of the plan adopted by the court pursuant to this Section,” and allows such damages “as may be required in accordance with the terms of an express contractual provision.”  As an exception to the “all remediation damages” rule of 30:29(D)(1), these awards for “additional remediation” are not required to be paid into the registry of the court.

The majority opinion in VPSB effectively ignored the second sentence of La. R.S. 30:29(H), which limits claims for excess remediation damages to cases where the excess damages are allowed by an express contractual provision.  And by giving the landowner the substantive right to collect excess remediation damages in the absence of an express contractual provision, the Court conflicts with 30:29(H), which states that “[t]his Section shall not be interpreted to create any cause of action or to impose additional implied obligations under the mineral code or arising out of a mineral lease.”  By referencing these new “implied obligations,” the Court is doing exactly what is prohibited in La. R.S. 30:29(H), not to mention creating substantive rights under what this Court has already held is a procedural statute. That these “implied obligations” are newly created substantive rights is evident because the Court held in Marin that remediation to 29B standards was all plaintiffs were entitled to, even though the defendants acted unreasonably under their lease.  The court of appeal in Marin held that, in the absence of an express contractual provision, the plaintiffs were not entitled under the Mineral Code or the Civil Code to anything more than a regulatory cleanup, even though they had proven defendants’ conduct was unreasonable and excessive. 

Because the Court has heretofore held that there are no implied obligations under either the Mineral Code or the Civil Code to provide anything more than a regulatory remediation in compliance with La. 30:29 in the absence of an express contractual provision, the Court’s holding that a landowner is indeed entitled to such excess remediation damages in the absence of an express contractual provision amounts to the creation of new substantive rights.  This is in conflict with both Marin and M.J. Farms, which held that La. R.S. 30:29 is a procedural, not substantive, statute.  As a result, the Court has misconstrued Act 312 and created new substantive rights for landowners that never previously existed.

The defendants in the VPSB case have applied for rehearing before the Louisiana Supreme Court.  It will be important to see what action, if any, the Supreme Court takes on the application for rehearing.  Considering the 2012 changes in the law relating to legacy cases, it will also be interesting to see whether the Louisiana legislature takes any action in response to the VPSB case. 

 

A copy of the case discussed above, or any other cases referenced above, may be obtained upon request from Megan E. Donohue by fax (337-593-7601) or e-mail (mdonohue@joneswalker.com). 

Megan E. Donohue is an associate in Jones Walker’s Business & Commercial Litigation Practice Group and practices from the firm’s Lafayette office.  Ms. Donohue’s practice includes a wide range of business and commercial litigation cases as well as environmental/legacy litigation.  She has represented clients in the oil, insurance, and telecommunications industries. Ms. Donohue has been involved in many aspects of litigation, including traditional discovery and complex e-discovery, drafting substantive pleadings, taking and defending depositions, oral argument, and trial. Her experience also extends to various types of complex litigation, including multi-district litigation.

For Ms. Donohue’s full biography, please visit Jones Walker’s website: http://www.joneswalker.com/professionals-366.html. 

 

Created by: Martha Mills at 3/11/2013 2:52:46 PM | 0 comments. | 1789 views.

The Office of Conservation is seeking comments to minimize costs to handle and store Well Log data through the use of available technology, and to provide more efficient public access to the electric well log data via the SONRIS system.  Please see the attached potpourri published on February 20, 2013 in the Louisiana State Register.

A copy of the current rules can be found online at this web address:http://dnr.louisiana.gov/assets/OC/43XIX_Nov2011.pdf
Please submit your comments via email to this address or through the US Mail to the address below.
Office of Conservation
Department of Natural Resources
P.O. Box 94275
Baton Rouge, LA 70804-9275

 

POTPOURRI

Department of Natural Resources

Office of Conservation

Electric Well Logs

(LAC 43:XIX.107 and LAC 43:XIX.1305)

 

LAC 43:XIX.107.B requires that electrical logs, when run, of all test wells, or wells drilled in search of oil, gas, sulphur and other minerals, shall be mailed in duplicate to the district office. In addition, LAC 43:XIX.1305.B.1 requires multiple completion applications to be filed in duplicate with the district office. In an effort to reduce the costs of handling and maintaining these records, further align office requirements for data submittal with the standard practices now common in the ordinary business practices of the regulated community while simultaneously maintaining compliance with La. R.S. 44:1(B), and improving public access to this data, the Office of Conservation announces that it intends to promulgate revised rules for LAC 43:XIX.107.B and LAC 43:XIX.1305.B.1, and solicits comments from the public prior to promulgating the amended rule. The intent of these rule amendments is to minimize the cost of compliance, and agency costs to handle and store this data through the use of available technology, and to provide more efficient public access to the electric well log data via the SONRIS system. A copy of the current rules can be found online at this web address:

 

http://dnr.louisiana.gov/assets/OC/43XIX_Nov2011.pdf.

 

For more information, contact Tyler Gray, at (225) 342-5570. This notice is available on the Department of Natural Resources, Office of Conservation's website.

 

Created by: Martha Mills at 3/8/2013 8:50:02 AM | 0 comments. | 1664 views.

 NAPE East logo

If you are, please consider sending any photos you make take at the event (especially your own booth) to marthamills22@gmail.com.

Created by: Martha Mills at 3/6/2013 12:06:59 AM | 0 comments. | 1946 views.

Education Events

Landman 411 Series: ALL SESSIONS

Wednesday, January 23, 2013 - Monday, December 16, 2013

Field Landman Seminar - Corpus Christi, TX – ONSITE REGISTRATION ONLY

 Thursday, March 07, 2013
2 CE credits

  Pooling Seminar- Pittsburgh, PA – ONSITE REGISTRATION ONLY

 Friday, March 08, 2013
5 CE credits

 
Landman 411 Series: Encumbrances - Fort Worth, TX – ONSITE REGISTRATION ONLY

 Monday, March 11, 2013
3 CE credits

  Oil and Gas Land Review, CPL/RPL Exam -Bakersfield, CA – ONSITE REGISTRATION ONLY

 Wednesday, March 13, 2013 - Saturday, March 16, 2013
18 General CE credits / includes 1 Ethics

  2013 Mining & Land Resources Institute- Reno, NV – ONLINE REGISTRATION CLOSES 3/5/13 AT 12:00 PM

 Thursday, March 14, 2013 - Friday, March 15, 2013
14 General CE credits / Includes 1 Ethics

JOA Workshop - Midland, TX

Wednesday, March 20, 2013 - Thursday, March 21, 2013
14 CE credits

 

Field Landman Seminar - Amarillo, TX

Thursday, March 21, 2013
2 CE credits

  Fundamentals of Land Practices & OPTIONAL RPL Exam - Wichita, KS

Monday, March 25, 2013 - Tuesday, March 26, 2013
7 CE credits / Includes 1 Ethics

  Landman 411 Series: Parties - Fort Worth, TX

 Wednesday, April 03, 2013
3 CE credits

  WI/NRI Workshop - Reno, NV

Thursday, April 04, 2013
6 CE credits

  Due Diligence Seminar- Grand Rapids, MI – NEW OFFERING!

 Thursday, April 04, 2013
5 CE credits

  Fredericksburg Land Seminar - Fredericksburg, TX – Various Topics and Speakers!

 Friday, April 05, 2013 - Saturday, April 06, 2013
9 General CE credits / Includes 1 Ethics

 

Field Landman Seminar - Oklahoma City, OK

 Thursday, April 11, 2013
2 CE credits

  Pooling Seminar- Oklahoma City, OK – Filling up fast!

 Monday, April 15, 2013
5 CE credits

  Oil and Gas Land Review, CPL/RPL Exam - Washington, PA

 Tuesday, April 16, 2013 - Friday, April 19, 2013
18 General CE credits / Includes 1 Ethics

  Applied Land Practices - Denver, CO

 Thursday, April 25, 2013
7 General CE credits / Includes 1 Ethics

  WI/NRI Workshop - Billings, MT

 Thursday, April 25, 2013
6 CE credits

  Fundamentals of Land Practices & OPTIONAL RPL Exam - Fort Worth, TX

 Thursday, April 25, 2013 - Friday, April 26, 2013
7 General CE credits / Includes 1 Ethics

 
Field Landman Seminar Jackson, MS

 Thursday, April 25, 2013
2 CE credits

 

WI/NRI Workshop - Denver, CO

 Friday, April 26, 2013
6 CE credits

  2013 Southwest Land Institute - Dallas, TX

 Tuesday, April 30, 2013
7 General CE credits / Includes 1 Ethics

 

WI/NRI Workshop - Oklahoma City

 Thursday, May 02, 2013
6 CE credits

  Applied Land Practices - Tyler, TX

 Thursday, May 02, 2013
7 General CE credits / Includes 1 Ethics

 

WI/NRI Workshop - Roswell, NM

 Friday, May 03, 2013
6 CE credits

  Intro To Field Land Practices - Evansville, IN

 Wednesday, May 08, 2013 - Thursday, May 09, 2013
13 General CE credits / Includes 2 Ethics

 
Landman 411 Series: Conveyances - Fort Worth, TX

 Monday, May 13, 2013
3 CE credits

 

Oil and Gas Land Review, CPL/RPL Exam - Houston, TX

 Tuesday, May 14, 2013 - Friday, May 17, 2013
18 General CE credits / Includes 1 Ethics

 

Pooling Seminar- Denver, CO

 Friday, May 17, 2013
5 CE credits

 

JOA Workshop - Washington, PA

 Tuesday, May 21, 2013 - Wednesday, May 22, 2013
14 CE credits

 

Basics of Geographic Information System - Houston, TX

 Wednesday, May 29, 2013
5 CE credits


 

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Created by: Martha Mills at 2/19/2013 11:19:55 PM | 0 comments. | 3056 views.

LOUISIANA LEGAL UPDATE

 

James H. Dupuis, Jr.

Dupuis & Polozola, LLC

 

Commissioner of Conservation Memorandum on Cross Unit Lateral Wells

 

On November 2, 2012, the Commissioner of Conservation issued a memorandum addressing cross unit lateral wells.  The memorandum sets forth the internal policy of the Office of Conservation governing the application for and docketing of administrative hearings to consider horizontal cross unit lateral wells, and also the manner in which production proceeds are allocated to owners within each unit penetrated by the cross unit lateral well.  The new policy makes it much more feasible for an operator to obtain permission to drill cross unit lateral wells.

 

A cross unit lateral well is a well drilled with a horizontal lateral that is completed in more than one unit.  The policy requires that an applicant seeking permission to drill a cross unit lateral well must obtain the consent of a majority of owners having the right to drill, including working interest owners and unleased mineral owners, if applicable, for each unit penetrated by the proposed well, and also including the current unit operators of all units penetrated by the proposed well.

 

Production from a cross unit lateral well will be allocated first to each unit based on the “perforated length of the lateral” located in each unit, specifically in the same proportion as the perforated length of the lateral in each unit bears to the total length of the perforated lateral as determined by an as drilled survey.  Then, within each unit, production will continue to be shared on a surface acreage basis.  “Perforated length of the lateral” is defined in the memorandum as the length of horizontal lateral wellbore wherein perforations have been made, regardless of the number of perforated stages or individual perforations, which is measured from the lesser measured depth perforation, or “top of perforations” to the grater measured depth perforation or “base of perforations”.

 

The new policy applies only to cross unit lateral wells proposed in “shales, tight gas sands, and unconventional reservoirs.”

 

Commissioner of Conservation Authorized to Approve Alternate Unit Wells

 

A lawsuit was filed by the owners of land subject to a mineral servitude against the Commissioner of Conservation alleging that he was not authorized to approve alternate unit wells.  The First Circuit Court of Appeal, in an opinion not yet released for publication, ruled against the plaintiffs and held that approving alternate unit wells was within the statutory authority of the Commissioner of Conservation.  Walker v. J-W Operating Company, 2012 WL 6677913, (La.App. 1 Cir. 12/21/12).

 

The power and authority of the Commissioner of Conservation stems from the Conservation Act, found in La. R.S. 30:1, et seq.  The Court framed the plaintiff’s argument as follows.  Because La. R.S. 30:9 defines a drilling unit as “the maximum area which may be efficiently and economically drained by one well”, the Commissioner is not authorized to approve more than one well in each unit.  Plaintiffs also stressed that the words “alternate wells” are not found anywhere in the Conservation Act until 1999, when La. R.S. 30:5.1(I), which pertains to deep well pools.

 

The Court analyzed the various provisions in the Conservation Act, stating that the Commissioner has the authority to make reasonable rules, regulations, and orders, and to take any action as reasonably appears to him to be necessary to enforce the Act.  When new technology and findings indicate that a unit cannot be drained by one well, these provisions allow the Commissioner to authorize alternate unit wells, after holding a hearing on the matter.

 

Several other justifications were offered by the Court in support of its holding.  It noted that that the Commissioner had been approving alternate wells since 1963, for almost 50 years, stating that because the Commissioner is charged with administering the Conservation Act, his construction of the statute is to be given substantial weight in its interpretation by the Courts.  The Court also viewed the 1999 amendment to La. R.S. 30:5.1(I) as simply recognizing the Commissioner’s longstanding authority to approve alternate unit wells.  Finally, the Court rejected the plaintiff’s notion that the Commissioner should have instead reconfigured the units to create smaller units once it was determined that one well could not efficiently and economically drain the units, stating that doing so would be inequitable and would not maintain the equity of the mineral owners.  Instead, “an alternate unit well provides a reasonable method of insuring the continuation of the just and equitable sharing of production within the unit.”

 

 Act 312 Does Not Cap Remediation Damages in Legacy Lawsuits

 

In State of Louisiana and the Vermilion Parish School Board v. The Louisiana Land and Exploration Company et al., 2013 WL 360329 (La. 1/30/2013), the Louisiana Supreme Court interprets Act 312 of 2006 (codified in La. R.S. 30:29) as permitting courts to award damages in a legacy lawsuit in excess of the amounts necessary to fund the court-approved remediation plan. 

 

The State of Louisiana and the Vermilion Parish School Board filed the suit seeking damages and remediation of property allegedly polluted by oil and gas exploration and production in East White Lake Field. The oil, gas, and mineral lease at issue was granted in 1935 and did not contain a contractual provision regarding restoration of the surface.  The defendants filed a motion for partial summary judgment asserting that the plaintiffs had no right to seek remediation damages in excess of those found necessary to fund the remediation plan approved by the trial court pursuant to Act 312.  The defendants contended that such “excess” damages could only be awarded under the terms of an express contractual provision regarding the lessee’s remediation obligation, which the 1935 lease did not contain.  The trial court agreed with the defendants. Review of the case by the Court of Appeal, and then by the Louisiana Supreme Court, followed.

 

The Louisiana Supreme Court begins by detailing the legal and historical development of Act 312, including a discussion of the Corbello case (Corbello v. Iowa Production, 850 So.2d 686 (La. 2003)).  In Corbello, the Court noted that the legislature had not implemented a procedure to ensure that landowners will use the money obtained in a remediation suit to clean the property and that, in response, the Legislature passed Act 312 in 2006. 

 

The Court then analyzes the procedure for a remediation suit under Act 312.  First, a suit seeking damages covered by the act is filed.  Notice is provided to the Commissioner of Conservation and the state attorney general, who may intervene in the case if they wish.  The case proceeds to trial in the same manner as any other proceeding, utilizing normal trial procedures.  If it is determined at trial that environmental damage exists and the defendants are legally responsible for them, the statute prescribes additional, mandated procedures to be used for the determination of a remediation plan after the trial.  In short, the trial court orders the responsible parties to develop a remediation plan to be submitted to the court and the Department of Natural Resources (“DNR”).  DNR holds a public hearing on the submission and determines the most feasible plan to accomplish the remediation of the environmental damage while protecting the health, safety, and welfare of the public.  DNR then sends its plan to the trial court, who then adopts the plan (unless a party proves that another plan is more feasible) and orders the responsible parties to fund the implementation of the plan.  In making this determination, the court decides how much of the damages are to be used for remediation of the property. 

 

Subsection D of La. R.S. 30:29 provides how the plan is to be implemented.  It states that “except as provided in Subsection H of this Section, all damages . . . for the evaluation or remediation of environmental damages shall be paid exclusively into the registry of the court . . . .”  The defendants in this case argued that this provision acts to cap remediation damages as the amount determined necessary to fund the court-approved plan. 

 

The Louisiana Supreme Court rejected the defendants’ argument.  The Court notes that the defendants failed to take into account the provisions of Subsection H, which the Court interprets as not precluding a landowner from pursuing a remedy or receiving an award for private claims other than those remediation damages necessary to fund the court-approved plan.

 

If a court awards remediation damages pursuant to an express contract provision that is a greater amount than that ordered to be placed into the court’s registry to fund the remediation plan, then the landowner is entitled to those “excess” remediation damages.  Likewise, “any award” for “additional remediation” may be kept by the landowner, as well. If the money judgment for remediation exceeds the amount necessary to fund the plan, the plaintiff is granted a personal judgment for the “excess” remediation damages; plaintiff is also granted a personal judgment on his other non-remediation private claims (if he prevailed on such claims at trial).   

   

In short, the Court has interpreted Act 312 as providing a procedural mechanism to ensure that the remediation plan approved by the trial court gets funded, but otherwise allows plaintiffs to collect “excess” remediation damages.

 

 

 

 James H. Dupuis, Jr. is a member of the law firm of Dupuis & Polozola, L.L.C.  His practice focuses on oil and gas law, including drill site and division order title examination, contract negotiation, and due diligence in connection with the acquisition and divestiture of oil and gas properties.  He is licensed to practice law in Louisiana, Texas, and Kansas.

 

Before co-founding Dupuis & Polozola, L.L.C., Mr. Dupuis was a shareholder in the Lafayette office of Liskow & Lewis, where he practiced in the energy and natural resources section.  He received a B.S. from the University of Louisiana at Lafayette in 1994, an M.S. from the University of Memphis in 1998, and a J.D. in 2001 from the Louisiana State University Paul M. Hebert School of Law, where he was a member of the Order of the Coif and the Louisiana Law Review.

 

Mr. Dupuis is a member of the Louisiana Mineral Law Institute Advisory Council, and has given numerous seminar presentations to various land and legal associations.  He also routinely provides training and gives seminars in-house at energy companies on a variety of topics related to oil and gas law.  Since 2005 he has been an adjunct professor at the University of Louisiana at Lafayette, where he teaches part of a course on petroleum land management.

 

 

 

 

 

 

 

Created by: Martha Mills at 1/15/2013 2:05:13 PM | 0 comments. | 2183 views.

Judicial Ascertainment Clause

 

B.A. Kelley Land Co., L.L.C. v. Questar Exploration and Prod. Co., 47,509 (La. App. 2 Cir.11/14/12); 2012 La. App. LEXIS 1460.

 

This case involves the applicability of a so-called “judicial ascertainment” clause in a mineral lease.  The lessors, B.A. Kelley Land Co. and Augton Land Co., filed suit in 2009 seeking a declaration that a 1971 mineral lease had terminated.  The 1971 lease covered a 40 acre tract, and was granted for a primary term of two (2) years with a customary habendum clause providing that the term of the lease would continue so long as minerals were produced thereafter from the leased premises or lands pooled therewith.  The lease also contained a shut-in rental provision allowing the lessee to pay shut-in rentals to maintain the lease in the event production was shut in by reason of force majeure, lack of market at the well, or lack of an available pipeline outlet in the field.  The lease further contained the following “judicial ascertainment” provision:

 

After production of oil, gas, sulphur, or other mineral has been secured from the land covered hereby or land pooled therewith, this lease shall not be subject to forfeiture or loss, either in whole or in part, for failure to conduct operations in compliance with this contract except after judicial ascertainment that Lessee has failed to conduct such operations and has been given a reasonable opportunity after such judicial ascertainment to prevent such loss or forfeiture by complying with and discharging its obligations as to which Lessee has been judicially determined to be default.

 

A well was drilled on acreage pooled with the leased premises in 1974, which remained a producing well at the time suit was filed; however, the lessors alleged that there was no production or operations sufficient to maintain the lease during an eleven month period in 1988 and 1989.  The lessors further alleged that the lease terminated automatically due to this lack of production in paying quantities, and that, if the lease terminated automatically in this manner, the judicial ascertainment clause was null and void.

 

In response to the plaintiffs’ petition, the defendants filed answers that separately raised the judicial ascertainment clause as a dilatory exception of prematurity and as an exception of no cause of action.  The defendants conceded that the lessee received no royalty checks for the time period at issue, but claimed that the gas purchaser halted purchases at the time due to the collapse of the gas market, causing the operator to go bankrupt, and that the lessee received a proportionate share of a settlement between the bankruptcy estate and the gas purchaser.  Thus, the defendants asserted, production did not simply cease such that the lease would automatically terminate.

 

At trial, the court ruled that the matter was premature as to both sets of defendants–those raising the exception of prematurity and those raising the exception of no cause of action–dismissing the plaintiffs’ claims without prejudice but barring the plaintiffs from amending their petition to assert a claim for judicial ascertainment because it would be inconsistent with a claim for lease termination.

 

On appeal, the plaintiffs asserted, among other assignments of error, that the exception of no cause of action cannot apply to a theory of prematurity based on a judicial ascertainment clause when a dilatory exception of prematurity was waived by certain defendants who did not raise the dilatory exception in a timely fashion.  Although the court recognized the Louisiana Supreme Court’s admonition against conflating the two exceptions, the plaintiffs’ assignment of error in this respect was held to be without merit because those defendants raising the no cause of action exception did so on their own, setting forth the bounds of the controversy and focusing the court’s attention on the true issue, rather than the trial court simply supplying the exception on its own.

 

Turning to the judicial ascertainment clause, the plaintiffs argued that the lease terminated automatically upon the occurrence of an express resolutory condition.  Namely, failure to produce in paying quantities.  They further argued that this occurrence terminated the lease without the necessity of a putting in default, a long line of Louisiana cases hold that a “notice and cure” provision such as the judicial ascertainment clause does not apply when the lease automatically terminates, and that the provision violated the public policy of Louisiana and similar states that limit the terms of mineral leases without operations.  Finally, plaintiffs cited a Louisiana Supreme Court decision, Melancon v. Texas Co., 89 So. 2d 135 (La. 1956), rejecting the lessee’s reliance on a similar provision as “anomalous, if not ridiculous.”

 

The defendants’ counterargument, in essence, was that the Louisiana Supreme Court in Melancon recognized the validity of the judicial ascertainment provision, even though it was inapplicable in that case, and that in cases where a bona fide dispute exists as to whether the lease terminated the provision should be applicable as an agreement between the parties that automatic termination cannot occur without first getting a judicial ascertainment.  In this case, the bona fide dispute was characterized by the defendants as whether the events during the eleven month period were a cessation of production or a pipeline curtailment.

 

In finding that the judicial ascertainment provision was valid and applicable, the court first compared the provision to a shut-in clause, which the court noted to be a contractual innovation to forestall the harsh consequence of automatic termination.  However, unlike Melancon, where the lessee was found to have been withholding rental payments in order to induce the lessor to agree to increase the size of a unit, a bona fide dispute actually existed in this case as to whether the lease would have been maintained under the shut-in clause due to the gas purchaser’s conduct.  Further, the court noted that Melancon superseded earlier cases that simply declared judicial ascertainment clauses inapplicable when a lease automatically terminates.   Finally, the court rejected the public policy arguments made by plaintiffs in light of the bona fide dispute as to whether the lease was maintained under the shut-in clause and prior judicial approval of shut-in provisions as valid mechanisms to preserve a lease against forfeiture.

 

Although the court upheld the trial court’s decision finding the suit premature insofar as it sought a declaration that the lease had terminated instead of a judicial determination that the lessee was in default, it allowed the plaintiffs to amend their petition to assert a claim for judicial determination as being consistent with a claim for termination, characterizing the claims as two steps of the same process.

 

Unilateral Error in a Lease Extension

 

Peironnet v. Matador Resources Co., 47,190 (La. App. 2 Cir.8/1/12); 2012 La. App. LEXIS 1014.

 

This case involves error on the part of one party to a lease extension agreement regarding the scope of the amendment.  The mineral lease at issue covered roughly 1800 acres.  Nearing the time of the expiration of the original three (3) year primary term, all but 168.95 acres covered by the lease were included in Cotton Valley units that were either being operated or producing.  The lease contained both a horizontal Pugh clause (concerning the deep rights) and vertical Pugh clause (concerning acreage outside of producing units).  The lessors alleged that Matador and its agents sought from them an eighteen (18) month extension of the lease “as to the 168.95 acres” using a bonus calculated on that acreage amount; however, the extension agreement ultimately executed by the lessors extended the primary term of the lease by substituting the primary term of “three (3) years” with “four (4) years and six (6) months” without modifying any of the remaining terms of the lease.  This resulted in an apparent extension of the lease as to all acreage and as to all depths, not merely the 168.95 acres outside of the active Cotton Valley units.

 

After the discovery of the Haynesville Shale, the lessors filed suit seeking reformation of the extension to make it applicable to only the 168.95 acres and not to the deep rights below unitized production for the remaining acreage, claiming that the extension was procured by fraud or that error required its reformation.  Petrohawk, a third party top-lessee of the deep rights, intervened in the suit as a plaintiff.  The defendants claimed that the extension agreement was clear and unambiguously extended the lease as to all acreage and as to all depths. 

 

At trial, a partial summary judgment determined that the extension was unambiguous and eliminated all claims other than fraud, mutual error, and a claim that the lease was not maintained after the expiration of the primary term.  The jury decided that mutual error was not proven, the parties stipulated that fraud was not proven, and the court held that production activity extended the lease in its entirety beyond the expiration of the primary term.

 

On Appeal, concerning the error-as-a-vice-of-consent issue, the plaintiffs alleged, among other assignments of error, that the trial court erred in finding the extension to be unambiguous and that the trial court erred in excluding the plaintiffs’ claim of unilateral error.

 

The court found the extension to be unambiguous.  But, the court noted that error as a vice of consent is an exception to the “four corners” rule prohibiting introduction of testimonial or other evidence outside of document itself as to the intent of the parties.  Error, as defined by Civil Code article 1949, vitiates consent where it concerns a cause without which the obligation would not have been incurred and that cause was known or should have been known to the other party.  In this case, the court found that the plaintiffs’ cause or reason for granting the additional lease rights was limited to the 168.95 acres and that Matador should have known that the cause or reason for the extension was so limited.  As a result of this unilateral error, the court reformed the extension to include only those 168.95 acres.  However, for the one plaintiff who settled with the defendants prior to Petrohawk’s intervention, the extension was valid as to all of the leased premises notwithstanding her execution of the top lease.    

                      

Created by: Martha Mills at 12/14/2012 8:20:48 AM | 0 comments. | 1809 views.

NOTE TO LAPL NAPE EXHIBITORS:  If you'd like a photo taken of you and your NAPE booth, please email marthamills22@gmail.com. We'll print as many photos as possible in the following issue of the LAPL newsletter.

Created by: Martha Mills at 12/12/2012 2:29:47 PM | 0 comments. | 3225 views.

LOUISIANA LEGAL UPDATE

Does a Formal Dedication of a Public Road Convey a Servitude or Fee Title?

 

By Lauren Gardner

Dennis, Bates & Bullen

 

John Creighton Webb, Jr., et al v. Franks Investment Co., et al, 47, 321 (La. App. 2 Cir. 10/29/12), 2012 La. App. LEXIS 1340.

 

The Second Circuit Court of Appeal teed up this issue for the Louisiana Supreme Court to take up. In John Creighton Webb, Jr., et al v. Franks Investment Co., et al, two cases were consolidated concerning the issue of whether a servitude or fee title was given in the formal dedication of the roads. In both cases, in the early 1900s, a strip of land was dedicated for a public road. Both tracts were bisected by the roads. The ownership of the roadbeds is critical in determining who now owns the minerals underlying the roads and whether the mineral servitudes have prescribed through non-use.

 

The Webb Tract and Flournoy-Lucas Road

 

The Webb case involves a strip of land across a 1,750 acre tract in south Caddo Parish. On September 11, 1913, J. W. Railsback executed a standard form dedication with the preprinted language, “I...do hereby dedicate to the public use for a public road, the following described land,” ...“part of what is known as the Lucas-Forbing Road[,]”... “The said property to be used for public road purposes only.” On June 14, 1914, F. F. Webb executed an identical standard form dedication. On February 22, 1924, F. F. Webb executed yet another standard form dedication. The strip of land described in these dedications is now known as Flournoy-Lucas Road, which runs east-west across the middle of the tract. In May 1979, Webb’s successors partitioned the tract but retained the minerals; wells drilled north of the Flournoy-Lucas Road have been maintained without any 10 year lapse. By cash deeds in 1985 and 1997, Franks Investment acquired mineral rights and surface rights, in the tract, and leased them to Twin Cities Development, which subleased to Chesapeake. These entities maintained that the dedications conveyed to Caddo Parish full ownership of the roadbed of Flourney-Lucas Road, thus splitting the mineral servitude pursuant to La. R.S. 31:73, which provides that a single mineral servitude may not be created on two or more noncontiguous tracts of land. This article codified pre-code jurisprudence, particularly Lee v. Giauque, 154 La. 491, 97 So. 669 (1923). In accordance with this article, Franks Investment, et al, contended that operations conducted north of Flournoy-Lucas Road did not interrupt prescription as to the land south of the road and that the mineral servitude south of the road had prescribed for nonuse. Webb’s successors countered that Caddo Parish only had a right of passage or servitude that did not divide the tract and therefore the operations north of the road maintained the servitude to its south because the mineral servitude was contiguous. 

 

The Allen Tract and Blanchard-Furrh Road

 

On January 31, 1928, Jacobs Land Company executed the same standard form dedication as in the Webb case with the same preprinted language, “I...do hereby dedicate to the public use, for a public road, the following described land,”..., “known as the Blanchard-Furrh Road[,]” creating a northwest and southwest portion. The form provided, “The said property to be used for public road purposes only.” In 1991, Jacobs Land Co. sold the tract but retained the minerals; Allen and 42 others are the current surface owners. In 2003, Jacobs Land Co. sold the mineral rights to Huddleston Energy Reserves, which later leased the minerals to Chesapeake. Allen and the other surface owners maintained that the 1928 dedication conveyed to Caddo Parish full ownership of the roadbed of Blanchard-Furrh Road, thus splitting the mineral servitude.

 

The Majority Opinion

 

The trial court found that Caddo Parish owned both roadbeds, thus the mineral servitudes on both tracts were divided. The Second Circuit disagreed with the trial court and found that these dedications only conveyed servitudes, not fee title. The instruments in question have no language either conveying or reserving title to the property. The proponents of public fee ownership relied on St. Charles Parish School Bd. v. P&L Inv. Corp., 95-2571 (La. 05/21/96), 674 So. 2d, claiming that “all formal dedications are, as a matter of law, conveyance of full ownership unless some contrary expression of grantor’s intent is provided.” The Second Circuit did not agree and found that the St. Charles Parish School Board case involved a tacit dedication, rather than a formal one and therefore was not controlling in the cases sub judice. The court also noted that the parties had historically treated the land underlying the roads as servitudes. Also, in 1957, the Caddo Parish Police Jury passed a resolution stating that “in order to clear the title to the ownership of the mineral rights under a public road the Caddo Parish Police Jury hereby declares that it makes no claim to the ownership of the mineral rights by virtue of the deed.” In 1983, the Police Jury passed another resolution stating:

 

[A]ll dedications of public road rights-of-way...where the dedication instruments contained statements that the property was to be used for public road purposes only and where the instruments cited no financial consideration in favor of the grantors, shall be henceforth considered by Caddo Parish only to constitute grants of public servitudes and rights-of-way,...and Caddo Lease ... will cover and affect the lands and depths described in the Prior Lease only Parish does hereby waive all present and future claims to fee title and to mineral rights relating to the property described in such instruments.

 

This Resolution was immediately recorded in the Conveyance Records of Caddo Parish on April 25, 1983. The court noted that obviously for the past thirty years this Resolution has influenced title work in Caddo Parish. The Second Circuit held that the dedications in the cases sub judice clearly support the conclusion that only a servitude was given because (1) there was no language dedicating fee title to Caddo Parish; (2) there was no compensation given; (3) there were specific limitations on the purpose for which the property could be used; and (4) the dedications have been historically treated as servitudes. The court further found that the intent of the dedications can be known from the deeds, but if ambiguous, the extrinsic evidence make clear the intent to give only a servitude, because the 1983 resolution was a formal act sufficient to relinquish the Parish’s alleged and contested fee ownership and mineral rights to the strips of land in favor of a servitude.

 

The Concurring Opinion

 

Judge Caraway opined that he would have held that the formal dedications, on the face of the instruments alone, would place complete ownership in Caddo Parish. However, he concurred with the majority’s opinion that only servitude was conveyed in these dedications because of the 1983 resolution by Caddo Parish. He further noted that his opinion was also persuaded by the significant effect upon land and mineral transactions subsequent to 1983 which the recorded resolution certainly caused.

 

The Dissenting Opinion

 

Judge Moore dissented because in his opinion, the St. Charles Parish School Bd. case decided by the Louisiana supreme court was controlling and therefore these formal dedications would transfer ownership of the property to Caddo Parish because they did not contain any express or implied retention of ownership. Likewise, he was unpersuaded by the extrinsic evidence in these cases because he found it to be hearsay without any probative value.

 

Conclusion

 

Throughout this Opinion, the Second Circuit notes that this issue needs to be taken up by the Louisiana Supreme Court. The majority and concurrence feel that this is a res nova issue, while the dissent believes the court needs to either affirm, clarify or reverse its ruling in St. Charles Parish School Bd. v. P&L Inv. Corp., 95-2571 (La. 05/21/96), 674 So. 2d. Either way, we should all follow this case as it moves forward because this decision may have a significant impact on mineral ownership throughout our state.

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Created by: Martha Mills at 11/14/2012 7:39:38 AM | 0 comments. | 4011 views.

The Transfer of Lands Fronting Waterways, Highways, Etc.

 

By Ashley Green

Gordon Arata Law Firm

 

Last year, for the LAPL November 2011 Legal Update, a former colleague and I wrote an article entitled To Fee Or Not Fee, That Is The Question; Distinguishing Between Acts Of Sale And Rights Of Way. Within that article, we illustrated the importance of being able to distinguish a right of way deed from an act of sale, as the ownership of minerals in and to roads, canals and railbeds may not necessary lie with the adjacent landowner. Our note that the tiniest pieces of land often cause the biggest complications still rings true. The acquisition by Lamson Petroleum in the mid-1990’s, for example, of certain leases covering various roadbeds spawned multiple lawsuits that lasted years. As a brief background to the Lamson cases, various companies, including Hallwood Petroleum, began exploring for oil and gas in the Scott area. Aware of this, Lamson researched the public records and found that certain roadbeds in the area covered by Hallwood’s mineral leases may not have been owned by Hallwood’s lessors. Lamson then secured mineral leases from the people it believed to be the proper owners of the roadbeds, filed petitory actions against those Hallwood claimed owned and/or received oil, gas and mineral royalties from the Scott Field production, and asserted its ownership claim and/or right to share in the production proceeds. Lamson was successful in many instances.

 

Prior to 1956, a sale of land by fixed boundaries was known as a sale per aversionem, principled upon the theory that in a sale, the purchaser acquires only the land included within the designated boundaries. The principle applied with equal force when a sale designated a right of way as a boundary. For instance, if a sale described the property being sold as bounded to the north “by a right of way” or “by a public road,” the sale did not include the roadbed. Ignoring the lack of any practical benefit to the grantor of title retention to small pieces of land, courts found this rule to have a sound basis:  It effectuated the intent of the parties, who had definitely fixed the perimeter of the property by contract. State Through Dept. of Highways v. Tucker, 247 La. 188, 170 So.2d 371 (La. 1965). The sale per aversionem principle also applied in interpretation of property conveyed through will and acts of partition. Lamson Petroleum Co. v. Hallwood Petroleum, Inc., 770 So.2d 786 (La. App. 3 Cir. 2000).

 

While courts may have thought the theory to be “sound,” the unfortunate effect was the creation of small fractional strips of land and confusing land titles. In 1956, the Louisiana legislature attempted to correct this problem by enacting La. R.S. 9:2971, et seq. La. R.S. 2971 provided that any transfer, conveyance, surface lease, mineral lease, mortgage or any other contract, or grant affecting land described as fronting on or bounded by a waterway, canal, highway, road, street, alley, railroad, or other right-of-way, shall be held, deemed and construed to include all of grantor's interest in and under such waterway, canal, highway, road, street, alley, railroad, or other right-of-way, whatever that interest may be, in the absence of any express provision therein particularly excluding the same therefrom.

 

The Legislature further required that persons affected by the statute had set certain period of time within which to preserve their rights:

 

Any person who has made a transfer or other grant affecting land so described, their heirs or assigns, whose rights may be affected hereby, shall have a period of one year from August 1, 1956, within which to preserve and protect such rights, by: (a) filing suit in each parish where such land is situated, asserting such rights, or (b) by recording a notarized declaration asserting such rights in the conveyance records of each parish where such land is situated within such one year period; and in case neither said method of preserving such rights is followed within one year from August 1, 1956, said rights shall be forever barred. (La. R.S. 9:2973)

 

However, in State Through Dept. of Highways v. Tucker, 247 La. 188, 170 So.2d 371 (La. 1965), the Louisiana Supreme Court rejected the preservation requirement and found that the statute could not be applied retroactively. The Court reasoned that to do so would unconstitutionally impair the obligation of contracts and divest owners of vested rights in property.

 

La. R.S. 9:2971 had other problems as well. Under the version of La. R.S. 9:2971 before its 2003 amendment, a property description that simply referred to a right of way but did not state that it is bounded by or fronting on a right of way was not subject to the conclusive presumption. In Crown Zellerbach Corp. v. Heck, 407 So.2d 770, 773–74 (La.App. 1 Cir.1981), a case involving mineral rights, the First Circuit interpreted the phrase “described as fronting on or bounded by” in R.S. 9:2971 and found that the presumption did not apply. In Crown, the property description in the deeds did not describe the property as “fronting on or bounded by” the highway or right-of-way. The court found that the omission evidenced the intent to convey only the property included within the exact and precise limits of the surveyed description. In 2003, the legislature amended the statute to provide for other means of describing the property. The legislature added: “or as described pursuant to a survey or using a metes and bounds description that shows that it actually fronts on or is bounded by” before the phrase “a waterway, canal, highway, road, street, alley, railroad, or other right-of-way[.]”  Again, this conclusive presumption does not have retroactive effect for surveys prior to 2003.

 

Created by: Martha Mills at 11/12/2012 4:46:51 PM | 0 comments. | 2304 views.

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Created by: Martha Mills at 7/30/2012 10:50:30 AM | 0 comments. | 2551 views.

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