Blanchard v. Pan-Ok Production Co., Inc.

• Decision Date: 05 April 2000
• Docket Number: No. 32,764-CA.,32,764-CA.
• Citation: Blanchard v. Pan-Ok Production Co., Inc., 755 So.2d 376 (La. App. 2000)
• Parties: James H. BLANCHARD, Jr., et al., Plaintiffs-Appellants, v. PAN-OK PRODUCTION COMPANY, INC., et al., Defendants-Appellees.
• Court: Court of Appeal of Louisiana

755 So.2d 376

James H. BLANCHARD, Jr., et al., Plaintiffs-Appellants, v. PAN-OK PRODUCTION COMPANY, INC., et al., Defendants-Appellees.

No. 32,764-CA.

Court of Appeal of Louisiana, Second Circuit.

April 5, 2000.

Klotz, Simmons & Reeks by F. John Reeks, Jr., Shreveport, Counsel for Appellants.

G. Tim Alexander, III, Lafayette, Counsel for Appellee, Pan-OK Production Co., Inc.

Shuey, Smith & Reynolds by John M. Shuey, Jr., Shreveport, Counsel for Appellees, Newiel, Inc. and Loutex Production Co.

Tucker, Jeter, Jackson & Hickman by T. Haller Jackson, III, Shreveport, Counsel for Appellees, Margaret C. Agurs Tucker and Mary Betty Rogers.

Before WILLIAMS, STEWART and GASKINS, JJ.

STEWART, J.

At issue in this appeal by James H. Blanchard, Jr., Gary E. Patterson, and Melodye Tanner Patterson (hereinafter referred to collectively as "plaintiffs") is the interpretation of a mineral lease granted by the plaintiffs' ancestors in title in favor of Newiel, Inc./Loutex Production Company ("Newiel") and its assignee, Pan-OK Production Company, Inc., (hereinafter referred to collectively as "defendants"). The plaintiffs filed suit after the defendants refused to release from the lease certain depths pursuant to a "Release of Lower Strata" clause included within the lease. The plaintiffs also sought injunctive relief and damages from alleged trespasses by the defendants over property adjacent to the leased premises. After the trial court's denial of their claims, the plaintiffs filed the instant appeal. We affirm.

FACTS

On May 1, 1996, the plaintiffs executed a cash sale deed for the purchase of approximately 1,000 acres of land located in Sections 14 and 15 of Caddo Parish for a price of $375,000. The sellers, Margaret Cornelia Agurs Tucker and Barbara Fletcher Dudley as administratrix of the Succession of Peggy Fletcher Agurs (hereinafter referred to as the "Agurs family"), reserved all of the oil and gas royalty in the two tracts of land until May 1, 2001 and reserved one-half the royalty thereafter from May 1, 2001 until May 1, 2006. At the time of the sale, Section 15, which consists of approximately 620 acres of land, was subject to an oil, gas, and mineral lease granted by the Agurs family on August 1, 1995, to Newiel. The lease had a primary term of one year. During the primary term, Newiel drilled two gas wells in the Paluxy formation at depths of approximately 2,850 feet. Effective June 1, 1996, Newiel executed an Assignment and Bill of Sale transferring all of its interest in the lease as to the Cotton Valley "D" ("CVD") formation to Pan-OK.

According to records from the State of Louisiana, Office of Conservation, rules for development of the CVD formation of the Greenwood Field in Caddo Parish were promulgated by Order No. 193-B on January 5, 1954.¹ The Greenwood Field included the land in Section 15. Records indicate that Stanolind Oil and Gas Company (also referred to in the record as "Amoco") began drilling on October 22, 1955 and completed a gas well in the CVD formation at depths in the area of 8,400 feet on January 4, 1956. Production began on February 6, 1956. This well, referred to as the Agurs B No. 1 well ("Agurs well"), is located in Section 15 and is at the center of this appeal.

The Agurs well produced until 1994, when production ceased. It remained nonproductive at the time Newiel obtained its lease for Section 15. Newiel attempted to re-establish production from the Agurs well, but was unsuccessful. Thereafter, Newiel transferred its lease interest in the CVD zone, which included the Agurs well, to Pan-OK through the assignment and bill of sale. Pan-OK first attempted to obtain production from the Agurs well by hooking a test compressor to the system and then by placing a wire line rig on it. The Agurs well produced for a few days and then "salted up" and would no longer produce. Kurt Carleton, the president of Pan-OK, concluded that the Agurs well needed to be "worked over." According to Carleton, a workover rig was used to clean out the Agurs well. Six hours were spent jarring on the well. Tubing was removed from the well hole. A bailer was used to remove approximately fifteen to twenty feet of fill consisting of frack, salt, and other grit that had covered roughly half of the perforations in the well casing. Tubing was placed back in the well, swabbing operations were conducted using the workover rig, and flow testing was conducted for two hours. Pan-OK conducted these operations from July 24, 1996 through July 31, 1996, prior to expiration of the primary term of the lease, at a cost of $46,741. Production in commercial quantities resulted from Pan-OK's efforts.

In early September 1996, Blanchard became aware that Newiel had assigned its lease interest in the CVD formation to Pan-OK. Blanchard, representing himself and the Pattersons, wrote to Pan—OK on September 11, 1996 to inform Pan—OK that he could not locate any right-of-way authorizing road access through Section 14 to reach the Agurs well located in Section 15. Pan—OK and Newiel, as well as prior lessees and operators of wells in Section 15, had since 1955 traversed an old oil field road running through Section 14 to access wells in Section 15. Blanchard also informed Pan—OK of his belief that as of August 1, 1996, the expiration date of the primary term of the lease, rights to the CVD zone were no longer held under the lease. Blanchard wrote that the lease required the "release of all depths below 100 feet below the deepest producing strata drilled during the primary term." According to Blanchard, the deepest producing strata drilled during the primary term was the Paluxy formation, which was the depth of the two wells drilled by Newiel during the primary term of the lease. The Agurs well from which Pan—OK obtained production had been drilled in 1955. Therefore, Blanchard believed that he was entitled to a release of all depths below 100 feet below the Paluxy formation, which would include release of rights to the CVD formation and the Agurs well.

In response to Blanchard's demands, Newiel granted a partial release on October 7, 1996 of its rights 100 feet below the base of the CVD formation. Blanchard found this partial release inadequate, and in a letter dated October 23, 1996, he again demanded release of all depths below 100 feet below the Paluxy formation. Blanchard further demanded that Newiel and Pan—OK cease crossing Section 14 to access Section 15 and that Pan-OK both cease operation of the Agurs well and remit a percentage of the proceeds from any sales therefrom. Pan-OK contended in a response on November 4, 1996, that the lease clause at issue did not require drilling as a condition to hold the lease rights. Pan-OK asserted that the Agurs well was not producing at the time of the lease and that through its efforts, restoration of production was achieved. Furthermore, Pan-OK asserted that it was the intent of the original lessors that efforts be made to restore production in the CVD formation.

In subsequent correspondence, Blanchard continued to contend that Pan-OK's activities with regard to the Agurs well did not satisfy the terms of the lease and to demand release of depths below the Paluxy formation. It was Blanchard's position that the language of the lease was clear and very specific. As such, Blanchard did not believe that the intent of the parties to the lease was relevant. Pan-OK continued to insist that restoration of production was sufficient to hold the lease as to depths 100 feet below the CVD formation. In an effort to resolve the dispute, Pan—OK offered to lease from Blanchard and the Pattersons their mineral interests in Section 15 and to purchase a right of way across Section 14. Blanchard rejected the offer.

On December 27, 1996, the plaintiffs filed a suit against the defendants to enforce the lease and obtain release of depths 100 feet below the Paluxy formation, specifically all depths below 2,815 feet. The plaintiffs also sought payment of a percentage of the revenues from sales of production from the Agurs well. Additionally, the plaintiffs sought relief from the alleged trespass by the defendants who used the old oil field road located on Section 14.² The plaintiffs reasserted their claims in a supplemental and amending petition filed August 6, 1997, and prayed for a preliminary injunction to enjoin the defendants from utilizing Section 14 for access to Section 15.

A hearing on the request for a preliminary injunction was held on September 15, 1997. In a written opinion, the trial judge denied injunctive relief upon finding that the defendants showed a right under the Newiel lease to utilize the road in Section 14.

The matter proceeded to a trial on the merits. At issue was the meaning of the "Release of Lower Strata" clause in the lease, specifically whether Pan-OK's operations which restored production from the Agurs well were sufficient to hold the lease to depths of 100 feet below the CVD formation, and whether the defendants had a right of way across Section 14 allowing access to Section 15. The trial court ruled in the defendants favor on both claims. The trial court determined that Pan-OK's rework or recompletion of the Agurs well, which resulted in restoring production at commercial levels, was sufficient to hold the lease to a depth of 100 feet below the CVD formation. The trial court also determined, in accordance with the earlier ruling on the preliminary injunction, that the defendants, as lessees and assignees, had a contractual right under the lease to use the oil field road in Section 14 to access Section 15.

DISCUSSION

The plaintiffs contend that the "Release of Lower Strata" clause in the lease is clear and unambiguous, that parol evidence regarding the intent of the parties to the lease should not have been admitted into evidence, and that the operations conducted by Pan-OK were not sufficient to hold the lease to a depth of 100 feet below the CVD formation. The...