Frazier v. Justiss Mears Oil Co., Inc.

• Decision Date: 28 October 1980
• Docket Number: No. 14290,14290
• Citation: 391 So.2d 485
• Parties: Cyrus W. FRAZIER, Plaintiff-Appellee, v. JUSTISS MEARS OIL COMPANY, INC., Defendant-Appellant.
• Court: Court of Appeal of Louisiana — District of US

Page 485

391 So.2d 485

Cyrus W. FRAZIER, Plaintiff-Appellee, v. JUSTISS MEARS OIL COMPANY, INC., Defendant-Appellant.

No. 14290.

Court of Appeal of Louisiana, Second Circuit.

Oct. 28, 1980.

Writ Refused Dec. 15, 1980.

Garahan & Wilson by Joseph Wilson, Jena, for defendant-appellant.

Cameron C. Minard, Columbia, for plaintiff-appellee.

Before HALL, MARVIN and FRED W. JONES, JJ.

MARVIN, Judge.

Defendant appeals a judgment cancelling the effect of defendant's oil and gas lease on 100 of the 160 acres leased. We find that the lower court erred in concluding that the defendant-lessee failed to diligently develop the leased property as a reasonably prudent operator and reverse the judgment. LRS 31:122.

Plaintiff landowner leased the 160 acres to defendant Justiss Mears on a Bath form La. Spec. oil, gas and mineral lease 14-BR1-2A-PX 10-65 for a primary term of five years and for

"... as long thereafter as ... oil, gas, sulphur or other minerals is produced from said land ..."

The lease form did not contain the Pugh clause, but the lessee was nevertheless obligated by law to perform the contract in good faith and to develop and operate the leased property as a reasonably prudent operator for the mutual benefit of the lessor and lessee. ¹ § 122, supra. This obligation, of course, will vary with the circumstances of each case and with whether the development is to be directed toward a proven formation or toward an unproven formation. See Carter v. Arkansas Louisiana Gas Co., 213 La. 1028, 36 So.2d 26 (1948). See also and compare Nunley v. Shell Oil Company, 76 So.2d 111 (La.App. 2d Cir. 1954); Dupree v. Relco Exploration Co., Inc., 354 So.2d 1083 (La.App. 2d Cir. 1978); Vetter v. Morrow, 361 So.2d 898 (La.App. 2d Cir. 1978); Saulters v. Sklar, 158 So.2d 460 (La.App. 2d Cir. 1963).

In any event, the burden of proving grounds for the cancellation of a mineral lease is on the lessor. Cox v. Cardinal Drilling Company, 188 So.2d 667 (La.App. 2d Cir. 1966).

All of the circumstances of the particular case should be considered in determining whether the lessee has breached the obligation. Especially pertinent are the six factors mentioned in Vetter :

Geological data;

Number and location of wells drilled on or near the leased property;

Productive capacity;

Cost of drilling compared with profit reasonably expected;

Time interval between completion of last well and demand for additional operations, and

Acreage involved in the lease under consideration.

GEOLOGICAL DATA

Proven production in the immediate area of plaintiff's 160 acres is from the Wilcox formation which ranges generally between 1600-3500 feet below the surface. Two dry holes had been drilled in the immediate area before the Wilcox proved productive of gas in late 1972. The discovery well (Hadden) was drilled by Justiss-Mears and a 200 acre production unit (Hadden A) was established to the south of plaintiff's land. Justiss-Mears then completed a well on plaintiff's land to the same formation and a second 200 acre production unit (Hadden B) was ordered by the Commissioner of Conservation. The second unit contains 60 acres of plaintiff's leased property. A third production unit was created in 1977 to the southeast (Hadden C). Several dry holes were drilled in the area before and after plaintiff leased his property. Justiss-Mears drilled many of these dry holes and participated in other dry holes. This map depicts the mineral exploration activity in the immediate area:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The only geological expertise offered at the trial was by defendant. Defendant's geologist testified that any drilling on plaintiff's property would prove dry because of a down-dip in the subsurface reservoir, that the production from this reservoir was declining, and that production from the Wilcox formation (Hadden sand) was not very profitable. The unit well on plaintiff's property here produced $200,000 in revenue since production began, $10,000 of which has been paid to plaintiff. When production declines to the extent that it no longer is economically feasible to operate the well, defendant plans to drill a substitute well on the unit in an effort to obtain maximum recovery of the gas in the reservoir. The cost of drilling a well to the required depth is approximately $65,000.

Other dry holes were drilled in the area as late as 1978 to further verify the opinion of defendant's geologist.

Plaintiff made the demand on defendant for diligent development in a letter dated January 15, 1979. On February 20, 1979, defendant "farmed out" the remaining 100 acres of plaintiff's lease to Spooner, who drilled several wells in the area. At the top of the predicted reservoir and just below the southern boundary of the 100 acre portion of plaintiff's property, Spooner drilled a well to the Hadden sand in accord with the farm-out agreement. This well was dry, further proving the validity of the opinion of the defendant's geologist. The farm-out agreement was executed before...