Burns v. Louisiana Land & Exploration Co., 88-2566
| Decision Date | 25 April 1989 |
| Docket Number | No. 88-2566,88-2566 |
| Citation | 870 F.2d 1016 |
| Parties | Kittie West BURNS and Emma Searcy Burns Lennox, Plaintiffs-Appellants, v. The LOUISIANA LAND & EXPLORATION CO. and McMoran Production Co., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Calhoun Bobbitt, Thomas Drought, Brite, Drought, Bobbitt & Halter, San Antonio, Tex., for plaintiffs-appellants.
Frank L. Heard, Jr., James D. Thompson, III, Vinson & Elkins, Houston, Tex., for defendants-appellees.
Appeal from the United States District Court for the Southern District of Texas.
Before POLITZ and JOLLY, Circuit Judges, and HUNTER, * District Judge.
This case presents a question of construction of a mineral lease. We hold that, under this lease, the defendants' reworking operations performed on a dry hole did result in an extension of the lease.
Kittie West Burns and Emma Searcy Burns Lennox own undivided interests in a piece of real estate in Texas that they inherited from their mother. On May 31, 1976, this property was leased to Jake Hamon for a five-year term. In 1978, the operators of the Hamon lease, including McMoran Production Company, drilled a deep test well in search of natural gas. Their efforts were unsuccessful, and they subsequently filed a completion report with the Texas Railroad Commission reporting that the well had been "completed" as a dry well. This lease was kept alive for the remainder of the term by the payment of rental under a dry-hole clause, but no further operations were conducted, and the lease expired on May 31, 1981.
On July 20, 1981, Mrs. Burns' trustee executed a new oil and gas lease, leasing the property to McMoran for a primary term of three years. The Louisiana Land and Exploration Company ("LL & E") also had an interest in this lease. The lease contained the following provisions:
IX.
If, prior to the discovery of oil or gas on the leased premises, Lessee shall drill and abandon a dry hole or holes thereon, or if, after discovery of oil or gas the production thereof should cease, this lease shall not terminate if Lessee commences reworking or additional drilling operations within ninety (90) days thereafter, or if it be within the primary term commences or resumes the payment or tender of rentals or commences operations for drilling or reworking on or before the rental payment date next ensuing after the expiration of ninety (90) days from the date of completion of the dry hole or cessation of production. If at the expiration of the primary term, oil or gas is not being produced from the leased premises, but Lessee is then engaged in drilling or reworking operations thereon or shall have completed a dry hole thereon within ninety (90) days prior to the end of the primary term, the lease shall remain in force so long as drilling or reworking of such well or of an additional well or wells are prosecuted in good faith, with no cessation of more than ninety (90) consecutive days, and if they result in production of oil or gas so long thereafter as oil or gas is produced, subject to the provisions of Paragraph X hereof.
X.
....
If after the expiration of the primary term this lease is being maintained in force and effect, in whole or in part, it shall, except as specifically provided below, nevertheless terminate as to all of the acreage and depths covered hereby except as following:
....
(3) This lease shall remain in full force and effect insofar as it covers all acreage then covered hereby, if at the expiration of the primary term or less than ninety (90) days prior to the expiration of the primary term Lessee is engaged in actual drilling or reworking operations on a well located on the leased premises, or on acreage pooled therewith, and shall continue so long as Lessee prosecutes such operations with due diligence and in a good and workmanlike manner in a good faith effort to establish oil and gas production from the leased premises, and so long thereafter as Lessee does not allow more than ninety (90) days to elapse between the completion or abandonment of one well drilled under the provisions hereof and the commencement of actual drilling operations of another well on said land, or acreage pooled therewith, such operations being deemed "continuous drilling operations" under the terms of this lease....
The lessees, of course, were aware of the open wellbore on the property, and the lease explicitly allowed them to use that open wellbore. The operators of this lease, McMoran and LL & E, did no drilling during the primary term of the lease, nor did they achieve any production. The only operation conducted by McMoran or LL & E during the primary term of the lease was a reworking of the open wellbore. They did this work between October 1983 and June 1984. This reworking operation was extensive, resulting in a total expenditure of approximately $1.2 million, but did not result in production. On June 20, 1984, the well was plugged and abandoned as a dry hole. No operations were in progress when the primary term of the lease expired on July 20, 1984.
On September 2, 1984, within ninety days of the termination of the reworking operations, LL & E entered the property and drilled a new well. LL & E did not have the landowners' permission, aside from the lease, to drill this second hole. The well did not produce, and was plugged and abandoned as a dry hole in April 1985.
The landowners, alleging that the lease had expired before LL & E drilled the hole, brought a suit in state court for trespass against McMoran and LL & E, claiming as damages the destruction of the speculative value of the oil and gas leasehold estate in the land. The defendants removed the case to federal court. Agreeing that the lease is unambiguous and that no material issues of fact were in dispute, both sides moved for summary judgment on the issue of liability. The district court granted the defendants' motion, holding that the reworking operations in June 1984 extended the lease so that it was still in effect when LL & E drilled in September 1984.
We first determine the appropriate standard of review. This case presents a question of construction of a lease. Generally, contract interpretation is a matter of law reviewable de novo on appeal. City of Austin, Texas v. Decker Coal Co., 701 F.2d 420, 425 (5th Cir.1983). Ambiguous contracts may require consideration of evidence beyond the four corners of the contract in order to determine the parties' intent, thus involving questions of fact, but whether a contract is ambiguous is itself a question of law. Id. at 425-26. Neither party here argues that the lease is ambiguous, nor did the district court rely on extrinsic evidence in granting summary judgment to the defendants when presented with cross-motions. Therefore, although the parties sharply disagree as to the effect of the lease in this case, we treat it as unambiguous and proceed to construe it de novo.
The ultimate question for us to determine is whether the lease was in effect when the defendants began drilling on September 2, 1984. The primary term of the lease ended on July 20, 1984. Thus, the lease was in effect at the time the drilling began only if the term was extended by some provision of the lease. The defendants rely on the second sentence of Paragraph IX:
If at the expiration of the primary term, oil or gas is not being produced from the leased premises, but Lessee is then engaged in drilling or reworking operations thereon or shall have completed a dry hole thereon within ninety (90) days prior to the end of the primary term, the lease shall remain in force so long as drilling or reworking of such well or of an additional well or wells are prosecuted in good faith, with no cessation of more than ninety (90) consecutive days, and if they result in production of oil or gas so long thereafter as oil or gas is produced, subject to the provisions of Paragraph X hereof.
(Emphasis added.) This sentence allows for an extension of the lease under two circumstances: (1) when drilling or reworking operations are underway at the time the primary term expires; and (2) when a dry hole has been completed fewer than ninety days before the primary term expires. It is undisputed that no drilling was being done and that reworking operations ended on June 19, 1984, a month before the end of the primary term. Thus, the lease was extended only if the termination of the unsuccessful reworking operations constituted, within the meaning of the lease, the completion of a dry hole.
We begin by examining the lease for a definition of "completion of a dry hole." The lease in Paragraph X states:
For purposes hereof the date of completion of a well shall be the date on which the initial potential test is run or forty-five (45) days following the date on which the drilling rig is released from the location, whichever is earlier, and the date of abandonment of a dry hole shall be the date indicated on the Railroad Commission Plugging Report for such well or forty-five (45) days after the release of the drilling rig (or workover rig) from such location, whichever is earlier.
By this definition, the date of completion of a well occurs (1) when an initial potential test is performed on a well or (2) forty-five days after a drilling rig is released from a well. The district court, however, noted that the subsequent clause defines the date of abandonment of a dry hole, suggesting that the definition of the date of completion refers to the completion of producing wells. We agree with the district court's reading. Although the definition of "date of completion of a well" does not explicitly limit application of the phrase to producing wells, the juxtaposition of this clause with the definition of "date of abandonment of a dry hole" in the same sentence, in addition to the similarity of the definitions, leads to the conclusion that the "date of completion of a well" more likely than...
To continue reading
Request your trial
-
Xxi v. New Tech Eng'g
...same well bore to reach a new reservoir after production from the original reservoir has been abandoned.’ ” Burns v. La. Land & Exploration Co., 870 F.2d 1016, 1021 (5th Cir.1989) (quoting Williams & Meyers, Manual of Oil and Gas Terms 160, 163 (7th ed.1987)) (second alteration in original)......
-
Neal v. Hardee's Food Systems, Inc.
...to de novo review by this court. See Huggs, Inc. v. LPC Energy, Inc., 889 F.2d 649, 651 (5th Cir.1989); Burns v. Louisiana Land & Exploration Co., 870 F.2d 1016, 1018 (5th Cir.1989). A party cannot be compelled to submit a dispute to arbitration unless there has been a contractual agreement......
-
Roemer Oil Co. v. Aztec Gas & Oil Corp.
...justify that the lessee's treatment and activities were sufficient to constitute good faith reworking activities. Burns v. Louisiana Land & Exploration Co., 870 F.2d 1016, 106 O. & G.R. 547 (5th Cir.1989), concluded that in the context of the specific use of the phrase "completion of a dry ......
-
Sandefer Oil & Gas, Inc. v. Duhon
...on extrinsic evidence in granting summary judgment to the [lessees] when presented with cross-motions." Burns v. Louisiana Land & Exploration Co., 870 F.2d 1016, 1018 (5th Cir.1989). Therefore, although the parties each assign a different interpretation to the lease provision, we treat it a......