Arkansas Louisiana Gas Co. v. Southwest Natural Production Co., 40512

• Decision Date: 03 July 1952
• Docket Number: No. 40512,40512
• Citation: 221 La. 608,60 So.2d 9
• Parties: ARKANSAS LOUISIANA GAS CO. v. SOUTHWEST NATURAL PRODUCTION CO. et al.
• Court: Louisiana Supreme Court

Page 9

60 So.2d 9

221 La. 608

ARKANSAS LOUISIANA GAS CO. v. SOUTHWEST NATURAL PRODUCTION CO. et al.

No. 40512.

Supreme Court of Louisiana.

July 3, 1952.

Blanchard, Goldstein, Walker & O'Quin, Robert Roberts, Jr., and George Conger, Shreveport, for Arkansas Louisiana Gas Company et al., plaintiff-appellant.

Simon & Carroll, Barham & Elder, Tucker, Bronson & Martin, Shotwell & Brown, Monroe and Elmo P. Lee, Jr., Shreveport, for Southwest Natural Production Company et al., defendants-appellees.

FOURNET, Chief Justice.

The Arkansas Louisiana Gas Company, the designated producer and operator of the well drilled in Section 29, T. 19 N., R. 2 W., Lincoln Parish, under the terms of the operating agreement entered into by all of the lease and mineral contract owners for the development of this section, pursuant to Order No. 164 of the Commissioner of Conservation establishing 640-acre units for the exploration of the Bodcaw and Vaughn sand reservoirs in the Ruston Field, instituted this suit under Louisiana's Uniform Declaratory Judgments Act, Act No. 22 of the Extra Session of 1948, now Sections 13:4231-4246 of the LSA-Revised Statutes of 1950, for the purpose of obtaining a judgment settling the dispute existing among the various parties with respect to the basis for calculating the royalties to be paid the mineral and royalty owners.

No factual issue is involved in the case. The sole legal question for our determination is: Are the royalty owners throughout the unit entitled to be paid on the basis of the return from the sale of all gas and distillate produced from the unit, or only on the basis of the amounts realized by their own lessees from the sale of the proportion of the production allocated to the tract in which they have an interest?

The argument advanced by the plaintiff-appellant, the proponent of the former view, is that immediately upon the issuance of the Commissioner's order establishing drilling units of 640 acres for the exploration of the Bodcaw and Vaughn sands in this field, the entire structure of the mineral ownership was, as to the lands included in these units, converted, and the rights and obligations of the lessees and lessors under the leases affecting the land within each unit recast, with the result that each and every royalty owner was given a definite interest in every foot of gas and every barrel of distillate produced from the well and not merely in that portion allocated to the tract in which he has an interest, the fact that this changes the contractual rights and obligations of the lessors and lessees under the several leases being of no moment since it was contemplated, when the contracts were entered into, that these rights and obligations would be subject to the superior compulsion of a valid order of the Commissioner, and the possibility that the terms and provisions of the contracts and the rights and obligations of the parties would be thus altered was implied in every contract. To support this contention, reliance is placed on the cases of Placid Oil Co. v. North Central Texas Oil Company, Inc., 206 La. 693, 19 So.2d 616; Hunter Co. v. McHugh, 202 La. 97, 11 So.2d 495; Hunter Co. v. Shell Oil Co., 211 La. 893, 31 So.2d 10; Hardy v. Union Producing Co., 207 La. 137, 20 So.2d 734; Alston v. Southern Production Company, Inc., 207 La. 370, 21 So.2d 383; Crichton v. Lee, 209 La. 561, 25 So. 229; Hunter Co. v. Vaughn, 217 La. 459, 46 So.2d 735; and Everett v. Phillips Petroleum Co., 218 La. 835, 51 So.2d 87.

It is the contention of the defendants, on the other hand, that the unitization of the several tracts under lease, pursuant to the valid orders of the Commissioner, has no other effect than to allocate to each tract its pro rata share of the production from the entire unit, based on the proportion the acres contained in the individual tract bears to the total number of acres in the unit; consequently, that the lessees of the tracts contained in this unit are obligated to account to their royalty owners only on the basis of the proceeds realized by them from the marketing of the production thus allocated to the tract, and in accordance with the terms of the individual lease contracts existing between the respective lessors and lessees. In this view they were sustained by the trial judge, who rendered judgment in their favor, setting out in detail the procedure for calculating the amount due each royalty acre in the tract.

While it is true that certain language in the cases above cited would seem to lend support to the plaintiff's theory, an examination of these opinions discloses they involved the effect of unitization orders on the contractual rights of the lessor and lessee only in so far as the division, use, or development of the mineral servitude created was concerned, and that the effect of such orders on the structure of the mineral ownership, as such, or, more specifically, on the contractual rights of the parties with respect to the royalty due and the proper method of computing and paying it, was never at issue. They are not, therefore, controlling. In fact, they are authority...