Peironnet v. Matador Res. Co.

Decision Date30 August 2013
Docket NumberNos. 2012–C–2292,2012–C–2377.,s. 2012–C–2292
PartiesCynthia Fry PEIRONNET and Elizabeth Fry Franklin v. MATADOR RESOURCES COMPANY.
CourtLouisiana Supreme Court

144 So.3d 791

Cynthia Fry PEIRONNET and Elizabeth Fry Franklin
v.
MATADOR RESOURCES COMPANY.

Nos. 2012–C–2292, 2012–C–2377.

Supreme Court of Louisiana.

June 28, 2013.
Rehearing Denied Aug. 30, 2013.


[144 So.3d 795]


Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Michael Beatty Donald, Liskow & Lewis, PLC, Lawrence Paul Simon, Jr., Lafayette, LA, Robert Louis Theriot, Wiener, Weiss & Madison, APC, John M. Madison, Jr., Shreveport, LA, Patton Boggs, LLP, David Patrick Long, Pro Hac Vice, for Applicant (No. 2012–C–2292).

Davidson, Jones & Summers, APLC, Randall Stephen Davidson, Allison Anne Jones, Grant Ernest Summers, William Lake Hearne, Jr., Shreveport, LA, Phelps Dunbar, LLP, Harry Alston Johnson, III, Daina Bray, Baton Rouge, LA, Porter & Hedges, LLP, Eugene M. Nettles, Pro Hac Vice, M. Harris Stamey, Pro Hac Vice, for Respondent (No. 2012–C–2292).


Phelps Dunbar, LLP, Harry Alston Johnson, III, Daina Bray, Baton Rouge, LA, Porter & Hedges, LLP, Eugene M. Nettles, Pro Hac Vice, M. Harris Stamey, Pro Hac Vice, for Applicant (No. 2012–C–2377).

Davidson, Jones & Summers, APLC, Randall Stephen Davidson, Allison Anne Jones, Grant Ernest Summers, William Lake Hearne, Jr., Shreveport, LA, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Michael Beatty Donald, Liskow & Lewis, PLC, Lawrence Paul Simon, Jr., Lafayette, LA, Robert Louis Theriot, Wiener, Weiss & Madison, APC, John M. Madison, Jr., Shreveport, LA, Patton Boggs, LLP, David Patrick Long, Pro Hac Vice, for Respondent (No. 2012–C–2377).

KNOLL, Justice.*

This mineral rights case presents seminal issues concerning our civilian doctrine

[144 So.3d 796]

of error and the reformation of written contracts for errors vitiating consent. It arises out of an extension of a three-year primary term oil and gas lease, covering 1805.34 acres in the southern part of Caddo Parish, to four and one-half years. Plaintiffs, Cynthia Fry Peironnet (“Peironnet”), Elizabeth Fry Franklin (“Franklin”), and Eleanor Baugnies de St. Marceaux (“Marceaux”), sued the lessee, Matador Resources Company (“Matador”), to rescind or reform the extension agreement making it applicable only to 168.95 nonproducing acres. Following several preliminary partial summary judgment rulings by the District Court, the jury found in favor of the lessee for the extension of the entire 1805.34 acres upon a showing of no mutual error. On summary judgment, the District Court then held the lease had been extended beyond the primary term by continuous drilling operations. The Court of Appeal affirmed in part and reversed in part, reforming the lease to extend the term for the 168.95 acres only based on plaintiffs' unilateral error and judicially suspending the running of the lease for 220 days following the rendition of judgment. We granted writs to address the correctness vel non of the Court of Appeal's ruling on error. Peironnet v. Matador Resources Co., 12–2292, 2377 (La.1/11/13), 106 So.3d 541, 542. For the following reasons, we find plaintiffs are precluded from rescinding the agreement based on “inexcusable error.” We also find no manifest error in the jury's factual conclusions on the issue of mutual error, nor do we find the District Court erred in its ruling on lease maintenance through continuous drilling operations. Accordingly, we reverse the judgment of the Court of Appeal and reinstate the District Court's judgment in its entirety.

FACTS

Plaintiffs are owners of an undivided five-sixths interest in large tracts of land in Caddo Parish.1 Pamela Jeter Comegys (“Comegys”), who owns the remaining one-sixth interest, is not a plaintiff herein. On June 22, 2004, plaintiffs and Comegys executed an oil and gas lease (“Lease”) to Prestige Exploration, Inc. (“Prestige”), an independent landman group. The Lease was for a three-year primary term and covered 1805.34 acres of land in the Elm Grove/Caspiana Field, ending on June 22, 2007. The initial bonus for the Lease was calculated on a total acreage basis at $100 per acre.

The ownership interests of two plaintiffs, Peironnet and Franklin, were managed by Regions Bank, whose representative, Joseph E. Hand, Jr., acted on their behalf in the Lease negotiations. Prestige acquired the Lease on behalf of Matador and then assigned the Lease to Matador on September 24, 2004.

The various tracts of the Lease extended into eight governmental sections of land consisting of Sections 23, 24, 25, 26, 35, and 36 in Township 15 North, Range 12 West, and Sections 29 and 31 in Township 15 North, Range 11 West. During the primary term of the Lease, Matador successfully explored and developed the Cotton Valley formation 2 in five of the eight sections, providing production royalties to

[144 So.3d 797]

plaintiffs for their acreage in Sections 23, 24, 25, 26, and 36. By the late spring of 2007, as the Lease approached the end of its primary term, Matador had not yet developed plaintiffs' tracts in the three remaining sections, Section 29, 31, and 35, and the operation of the Pugh clause 3 in paragraph 7 of the Lease presented an obstacle to Matador's maintenance of the Lease in those sections beyond the primary term. Because Matador was able to begin operations in Section 29 on June 15, 2007, with the spudding of its Peironnet 29 Well, 4 only the 168.95 acres (“168.95 acres”) in Sections 31 and 35 were still undeveloped by June 22, 2007. This dispute concerns Matador's negotiations with plaintiffs in the spring and summer of 2007 to extend its rights under the Lease by the execution of a lease extension agreement.

Relevant herein, the Lease contained the typical habendum clause providing that, at the end of the primary term on June 22, 2007, the Lease shall extend and be maintained “for so long thereafter as oil and/or gas is produced in paying quantities from the leased premises, or land pooled therewith as herein permitted.” Nevertheless, modifying this extended term and providing for lease division after the primary term, the Pugh clause of the Lease provided, in pertinent part:

7. After the expiration of the primary term hereof, this lease shall remain in force and effect as to all of the lands covered thereby so long and only so long as Lessee shall conduct continuous drilling operations on the leased premises or on land pooled therewith as hereinafter provided. The term “continuous drilling operations” shall mean not more than ninety (90) days shall expire between the completion as a producer or the abandonment as a dry hole of a preceding well and the commencement of actual drilling operations for the next well.

If Lessee fails to conduct continuous drilling operations on the leased premises or on land pooled therewith, this lease shall thereupon terminate as to all of the leased premises, except as follows:

a) If Lessee has completed a well (or wells) on the leased premises or on land pooled therewith that is producing or capable of producing oil or gas in paying quantities and is included within a pooled unit (or units), then this lease shall continue in effect as to the lands covered hereby that is within the bounds of such unit (or units), but only to the depth specified herein; [“horizontal Pugh clause”]

* * *

[144 So.3d 798]

d) In each such above case the acreage around such oil or gas well so held is to be limited from the surface to the depth of 100 feet below the stratigraphic equivalent of the deepest depth drilled; provided, however, that if any governmental rule or authority prescribes or permits a spacing pattern for the orderly development of the field or allocates a producing allowable based in whole or in part on acreage per well, then any acreage retained hereunder may include as much additional acreage as may be so prescribed, permitted or allocated, but only to the depth herein specified; [“vertical Pugh clause”]

* * *

f) It is the intention of the parties hereto that upon the cessation of continuous drilling operations by Lessee upon the leased premises pursuant to this Paragraph 7, each such area containing a well producing or capable of producing oil or gas in paying quantities shall be treated as constituting a separate lease, and neither production from nor operations on any such area shall maintain this lease in force as to any other area. [“divisibility provision”]

The Lease defined “actual drilling operations” in Section 8:


8. Whenever used in this lease, the words “drilling operations” or “operations” shall mean operations for and any of the following: actual pad construction, drilling, testing, completing, reworking, recompleting, deepening, side-tracking, plugging back or repairing of a well in search for or in an endeavor to obtain production of oil or gas. The words “actual drilling operations” shall mean having the bit in the ground and rotating same.

Additionally, Section 9 contained a voluntary pooling clause, which provided:


9. Lessee is hereby granted the right to pool or unitize the leased premises ... with any other land ... for the production of oil and gas from vertically drilled wells, (but not from horizontal drainholes without Lessor's specific written consent), when in Lessee's judgment it is necessary or advisable to do so in order to properly develop and operate said leased premises or to promote the conservation of oil and gas.... Lessee shall file written unit designations in the parish in which the leased premises are located, and shall forward to lessor a copy of such unit designation.

Consequently, in May 2007, when Matador began negotiations with the plaintiffs to extend the Lease, there existed the potential the undeveloped acreage in Sections 31 and 35 would be affected by the division of the Lease described in the horizontal Pugh clause, causing Matador to lose its lease rights for those sections. Furthermore, the undeveloped depths below the Cotton Valley formation in the producing sectional units (“Deep Rights”) would also then be released from the coverage of the Lease in accordance with the vertical...

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