May 2017 Legal Update by Andrea Tettleton, Mayhall Fondren Blaize

by: Martha Mills at 5/30/2017 8:52:36 AM | Viewed 307 times.

LOUISIANA LEGAL UPDATE

By Andrea Tettleton

Mayhall Fondren Blaize

 

Smith vs Andrews, 2017 WL 603992

(La. App. 2 Cir. 2/15/17)

 

In the Smith case, the mineral servitude owners brought an action against the surface owners alleging that the surface owners were attempting to usurp their rights under the mineral servitude. The case discusses many legal issues, but we will focus on the arguments and decisions of the court regarding mineral servitude maintenance.

 

The defendants, Billy and Betty Ruth Andrews, owned several tracts of land located in Sections 23 and 33, Township 13 North, Range 14 West in DeSoto Parish. Ameritas Life Insurance Corporation owned a mineral servitude burdening part of the land, and the plaintiffs, the Smiths, owned a mineral servitude burdening some of the same property. Ameritas and the Smiths executed oil, gas and mineral leases in 1966 on the servitudes. Four wells were drilled, but only one well continued to produce, the Rogers No. 1 Well. This case concerns operations on and production from the Rogers No. 1 Well.

 

David Ogwyn, dba Quest Energies, LLC, acquired the 1966 Leases and was designated as operator of the Rogers Well. In 1994, the Smiths and Ameritas executed oil, gas and mineral leases in favor of Ogwyn. In 2001, Terry Dale Jordan was named operator of the wells, and Quest assigned the leases to Mr. Jordan. Sometime in 1990, Quest and Mr. Andrews entered into a verbal agreement whereby Mr. Andrews would serve as pumper on the Rogers Well, and would share in the net profits from the well. In May of 1997, Mr. Andrews reported that the Rogers Well was having difficulties and stopped pumping; however, evidence was presented that the well continued to use electricity through September of 1998. Further, on May 21, 1999, oil was sold from the storage tanks, and the Smiths and Ameritas received royalty payments as a result of said production and sale.

 

In 2007, the Smiths and Ameritas executed oil, gas and mineral leases in favor of Beusa. In 2008, Mr. Andrews presented evidence to the Louisiana Office of Conservation that production on the Rogers Well had stopped producing in 1997, that the servitude owners were aware of the lack of production, and the Office of Conversation amended the records to show that the well did not produce after 1997. Mr. Andrews then contacted Beusa and informed Beusa that all mineral rights will be united in the Andrews and to hold off on drilling any additional wells. Mr. Andrews then contacted the Smiths   and  Ameritas  demanding  acknowledgment that the mineral  servitudes had since terminated. The Smiths filed a lawsuit against the defendants, Quest, Mr.  Jordan  and  Mr.  Ogwyn  alleging that the defendants were attempting to usurp their mineral servitude. Mr. Andrew filed a reconventional demand asserting that the Rogers Well ceased producing in 1997; therefore, the mineral servitudes have terminated. After several summary judgments and writ applications, a bench trial was    held whereby the court determined that Mr. Andrews was not credible, had presented false evidence to the court regarding the lack of production from the Rogers Well and ruled in favor of the mineral servitude owners. Mr. Andrews appealed claiming numerous assignments of error, but we will focus on the arguments relating to prescription of the mineral servitude.

 

Termination Due to Nonuse

 

Mr. Andrews argued that even if his testimony is disregarded, there is sufficient evidence to prove that the mineral servitude terminated through nonuse. To contradict the defendants assertion, the plaintiffs presented evidence that that the well used electricity through September of 1998 to power the pump. Further in October of 1997, 69 barrels of oil were sold from the storage tank attached to the well, and testimony was presented that no oil was brought from any other place and stored in the tank. Also, an engineer testified that the only way to get the oil levels measured in the tank in May of 1999 was through production from the Rogers Well. The court agreed with the evidence presented by the plaintiffs that there was production from 1997 through 1999.

 

Intent to Act for Servitude Owner

 

Mr. Andrews also argued that the actions of Mr. Jordan, the operator of the well, were not carried out on behalf of the mineral servitude owners, because there was no legal relationship between them. Citing La. R.S. 31:42 and 31:43, the court found that argument to be meritless. La. R.S. 31:42 states that “except as provided in Articles 44 through 52, use of a mineral servitude must be by the owner of the servitude, his representative or employee, or some other person acting on his behalf.” La. R.S. 31:43 provides that “a person is acting on behalf of a servitude owner only when there is a legal relationship between him and the servitude owner…or when there is clear and convincing evidence that he intended to act for the servitude owners. Silence or inaction by the servitude owner will not suffice to establish that a person is acting on behalf of the servitude owner.” Mr. Andrews argued there was no legal relationship, because when the Smith lease was assigned to Mr. Jordan, it had terminated under the 90 day continuous operations clause due to lack of operations. While the court found this to be true, it held that the plaintiff provided clear and convincing evidence that Mr. Jordan intended to act of the servitude owners.

 

Mr. Jordan testified that he had made a deal with Ogwyn and Quest to take over the Rogers Well to get it pumping again.  He testified that he knew the wells were subject to a lease and that any production obtained  as a result of his efforts would benefit the royalty owners. He testified that he believed the assignment of the leases from Ogwyn gave him the right to produce the Rogers Well and that he was acting for his own benefit and for anyone else who had an interest in the lease. Further, the assignment clearly referenced that the leases were executed by mineral servitude owners. The court held that this evidence was sufficient to show that Mr. Jordan was aware that the Smiths, as mineral servitude owners, had rights to any production and that he was acting to make money for himself and the mineral owners.

 

Production Under R.S. 31:38

 

Mr. Andrew’s third argument was that production obtained by Mr. Jordan was insufficient to interrupt the running of prescription, as only a small amount was obtained, and it was never proven to be oil. The court rejected the argument by citing La. R.S. 31:29, 31:36 and 31:38. Prescription of nonuse running against a mineral servitude is interrupted by good faith operations for the discovery and production of minerals. To interrupt prescription, it is not necessary that minerals be produced in paying quantities. It is only necessary that minerals be produced in good faith with the intent of saving or otherwise using them for some beneficial purpose. Mr. Jordan utilized a bumping process to get the well producing oil again. He went to the well every other day, and each time the well was operational and was pumping oil. Mr. Jordan stated that the well produced between five to nine barrels of oil, but it was never enough to flow into the storage tank. The evidence showed that Mr. Jordan obtained production from the well from late 2001 through January 14, 2002. The court held that the defendants were incorrect in arguing that the amount of oil obtained was insufficient to satisfy the requirements of La. R.S. 31:38. The statute only requires that minerals actually be produced in good faith with the intent of saving them for a beneficial purpose. Mr. Jordan testified that he intended to achieve enough production to make money for himself and the mineral owners, and the court held that was sufficient to meet the requirements of La. R.S. 31:38.

 

Operations Under R.S. 31:39

 

Mr. Jordan testified that the pump was hung down, and he jarred it loose by causing the rods to strike the pump. The process is called “bumping” and took several days. The defendants argued that “bumping” the well to restore production was not a sufficient operation under La. R.S. 31:39 to interrupt prescription. The comment to La. R.S. 31:39 states that operations should be construed to include any good faith reworking operations or operations for recompletion of the well in another sand that involve use of equipment in the well bore. Gathering of geological information does not suffice. The defendant argued that “operations” require the use of equipment in the well bore to be classified as a “good faith” operation and that bumping the well was not enough. In its decision, the court utilized the Jardell v Hillin Oil Co., 485 So.2d 919 (La. 1986) which discussed reworking operations. The court in Jardell held that reworking is any process or procedure you may undertake to either regain, increase or create new production in a well or activity to restore or increase production from a well that has been drilled. For reworking to occur, it is necessary first that production has ceased or slowed down or has never been achieved. Reworking need not involved additional drilling. The court in Jardell made it clear that reworking operations encompass essential preparatory steps. The court in Jardell ultimately held that timely essential preparatory steps directly related to resolving the issue were part of reworking operations. The court held that Mr. Jordan’s actions in jarring the well in order to cause the pump to function constituted a sufficient good faith reworking operation to interrupt prescription under La. R.S. 31:39. The court affirmed the decision of the trial court and held that the mineral servitudes were still in effect.

 

Andrea K. Tettleton is a partner of Mayhall Fondren Blaize. Andrea represents major and independent oil companies in title examination, division order work and contract negotiation. She graduated magna cum laude from Texas Christian University with a Bachelor of Science in Psychology. She earned her Juris Doctorate cum laude from the Paul M. Hebert Law Center at Louisiana State University in 2009.

 

 

 

 

 

 

     

 

 

 

      

 

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