Indigo Minerals, LLC v. Pardee Minerals, LLC, No. 45,160-CA (La. App. 5/28/2010)
| Decision Date | 28 May 2010 |
| Docket Number | No. 45,160-CA.,45,160-CA. |
| Parties | INDIGO MINERALS, LLC AND MARTIN TIMBER COMPANY, LLC, Plaintiffs-Appellants v. PARDEE MINERALS, LLC, ET AL. Defendants-Appellees. |
| Court | Court of Appeal of Louisiana — District of US |
MICHAEL D. HUNT, TAYLOR S. CARROLL, ALFRED PAUL LEbLANC, JR., PHELPS DUNBAR, LLP, Counsel for Plaintiffs-In-Intervention/Appellants Crabapple Properties, LTD, et al.
JOHN McCOLLAM, SCOTT A. O'CONNOR, AIMEE WILLIAMS HEBERT, GORDON, ARATA, McCOLLAM, DUPLANTIS & EAGAN, LLP, Counsel for Defendants-Appellees Pardee Minerals, LLC, Michael M. Carnes, Suzanne Carnes, Carnes Oil Corp., Carnes Texas, Ltd. James Thigpen and Richard P. deCamara.
RUSSELL A. WOODARD, WOODARD & CLEMENT, Co-Counsel for Defendant-Appellee Pardee Minerals, LLC.
H. RUSSELL DAVIS, Co-Counsel for Defendants-Appellees, El Paso E&P Co., LP., Milagro Development, LP, and Ceniarth, LTD.
KYLE P. POLOZOLA, JOE B. NORMAN, JONATHAN A. HUNTER, JAMES E. LAPEZE, Liskow & Lewis, M. HAMPTON CARVER, STEPHEN P. SCULLIN, CARVER, DARDEN, KORETZKY, TESSIER, FINN, BLOSSMAN & AREAUX, LLC, Amicus Counsel for Louisiana Oil & Gas Association.
Before BROWN, GASKINS and CARAWAY, JJ.
In this dispute concerning ownership of mineral rights, the plaintiffs, Martin Timber Company, LLC and Indigo Minerals, LLC, and plaintiffs in intervention, Crabapple Properties, Ltd., et al., appeal from the denial of the plaintiffs' motion for summary judgment and the grant of summary judgment in favor of the defendants, Pardee Minerals, LLC, et al., El Paso E&P Company, LP, Milagro Development I, LP, and Ceniarth, Ltd. For the following reasons, we affirm in part and reverse in part the trial court judgment and remand for further proceedings.
The issue in this case is whether a servitude for mineral rights has prescribed for 10 years' nonuse or whether the drilling of nonproducing wells has constituted a good faith use of the servitude. The plaintiffs, Martin Timber Company, LLC, and Indigo Minerals, LLC (Martin/Indigo), filed a suit for declaratory judgment on July 20, 2007, claiming that they own 100 percent of the mineral rights on land in Bienville Parish. Martin/Indigo also claimed entitlement to an accounting and payment of funds from the production of oil and gas on the land. Named as defendants were Pardee Minerals, LLC (Pardee), El Paso E&P Company, LP, Milagro Development, LP, and Ceniarth, Ltd. (El Paso).
In a cash sale deed executed on December 7, 1971, Pardee Minerals conveyed to Willamette Industries, Inc., more than 8,000 acres of land in Bienville Parish which included land in Sections 26, 27, 34, and 35 in Township 15 North, Range 8 West. Pardee reserved a mineral servitude on 100 percent of the minerals in this tract. The land now involved in this dispute (Disputed Tract) is a contiguous tract of approximately 1,100 acres, separate from other portions of the 8,000 acres conveyed to Willamette. On October 4, 1983, by act of exchange, Willamette conveyed to Martin Timber the ownership of a portion of this tract. On July 1, 2006, Martin Timber sold its mineral rights to ROM Minerals & Development Co., which later changed its name to Indigo. Therefore, Martin Timber, which owns the surface rights, and Indigo, which claims a 2006 mineral servitude, dispute the continued existence of the Pardee mineral servitude.
The plaintiffs claim that the Pardee mineral servitude affecting the Disputed Tract terminated by 10-year prescription of nonuse for failure to conduct appropriate mineral operations on or obtain production from the Disputed Tract. The plaintiffs acknowledge that since the creation of the Pardee servitude, three wells were drilled on the Disputed Tract, which is located in the King's Dome field. The H.E. Sutton-Pardee Company No. 1 Well (Sutton Well) was drilled in 1980 with a proposed depth of 3,500 feet. The well was actually drilled to a depth of only 2,847 feet and then plugged and abandoned. The Kerr-McGee-Blackwood Land Company Well No. 1 (Kerr-McGee Well) was drilled to the target depth of 3,000 feet. No production was obtained and operations were terminated on December 21, 1989. On March 2, 1998, Pardee leased to Famcor Oil, Inc. (Famcor) a portion of the Disputed Tract. The lease was to terminate on December 31, 1998, unless Famcor drilled a well to 8,500 feet. A well (Famcor Well) was permitted to the depth of 9,500 feet. The well was drilled to 3,563 feet and salt was encountered. The well was abandoned on December 15, 1998. All three wells drilled on the Disputed Tract were dry holes.
The plaintiffs and plaintiffs in intervention challenge two of the wells drilled, claiming that they were insufficient to interrupt prescription in accordance with the provisions of Article 29 of the Louisiana Mineral Code found in La. R.S. 31:29 (Article 29). The Sutton Well and the Famcor Well, neither of which reached its permitted depth, both encountered difficulties in drilling which led to the abandonment of the wells as dry holes.
According to the geological evidence presented by various experts, the King's Dome underlying the Disputed Tract is a piercement salt dome, a large area of salt which has mushroomed up from the deep layers of the earth, disturbing the various formations and strata that are often the subject of oil and gas exploration. As the column of salt mushroomed upward to approximately 2,500-3,000 feet below the surface, the sequence of sedentary formations displaced "are severely distorted, pushed aside, faulted, eroded and ground up as the salt moves." Above the salt dome, the formations discussed by the parties and identified by the geologists are the Austin Chalk, the Tuscaloosa, and the Paluxy. As the dome extended outward at its apex, the potentially productive formations were identified as lying below the overhang of the mushroom, or other "detailed bubbles of salt." These deeper formations are the Hosston and Travis Peak. Before the drilling of the Famcor Well in 1998, the six prior wells drilled over the King's Dome site had all been drilled in search of formations above the salt dome and were all dry holes. The earliest well was commenced in 1920. The Famcor Well was permitted for 9,500 feet as a test of the Hosston formation and sought the Hosston and Travis Peak prospects, identified from seismic data as lying under the horizontal salt mass or overhang and adjacent to the central column of salt.
On January 23, 2001, Pardee gave a mineral lease to Carnes Oil Corporation covering portions of the Martin Timber tract. Carnes is now owned by the El Paso group.1 El Paso drilled and completed a number of successful wells on the Martin Timber property or lands unitized with it. The plaintiffs claim that El Paso did not have the right to drill or produce minerals from the Martin Timber tract. The plaintiffs requested an order requiring El Paso to account for and remit any and all revenue gained from the production attributable to the Disputed Tract. The plaintiffs allege that El Paso is a possessor in bad faith and is not entitled to recoup expenses incurred in obtaining production and revenue.
On April 21, 2008, Crabapple Properties and numerous other individuals ("Crabapple") filed an intervention against the defendants joining in the claims of Martin/Indigo. The Crabapple plaintiffs in intervention claimed to be the current owners of other portions of the Disputed Tract.
On December 12, 2008, El Paso filed a motion for summary judgment against the plaintiffs and plaintiffs in intervention claiming that the Pardee mineral servitude was maintained in full force and effect through a series of good faith drilling operations and that the Pardee lease to El Paso in 2001 is valid. El Paso claimed that the prescription of nonuse was interrupted by the drilling of the Sutton Well, the Kerr-McGee Well, and the Famcor Well. Based upon the Pardee lease, El Paso claimed that it spent tens of millions of dollars successfully drilling a series of wells on the property.
On April 17, 2009, Martin/Indigo filed a motion for summary judgment. They contended that the defendants could not carry their burden of proving that either the Sutton or the Famcor Well was sufficient to interrupt prescription. Based upon jurisprudence from this court applying Article 29, they argued that the operator of a well must evaluate and test the objective formations in order to interrupt the running of prescription. Challenging both the Sutton and Famcor Wells as dry hole operations which, under Article 29, did not interrupt prescription, they contended that the Pardee mineral servitude prescribed no later than December 22, 1999, ten years after the Kerr-McGee Well was plugged and abandoned.
A hearing on the motions for summary judgment was held in the trial court on June 4, 2009. The trial court found that, in accordance with Article 29, the operations conducted in the drilling of the Sutton Well, the Kerr-McGee Well, and the Famcor Well were good faith operations for the discovery and production of minerals, and each well interrupted the running of the 10-year prescription of nonuse pertaining to the mineral servitude created on December 7, 1971, affecting the Disputed Tract. This finding appears to be based upon the geological implications of production of wells in other fields in the general area at the depth of the disputed wells. The trial court also considered the amount of money spent in drilling the Famcor Well. T...
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