Noel v. Amoco Production Co., Civ. A. No. 91-2379.

• Decision Date: 28 June 1993
• Docket Number: Civ. A. No. 91-2379.
• Citation: 826 F. Supp. 1000
• Parties: Ruth Herring NOEL v. AMOCO PRODUCTION COMPANY.
• Court: U.S. District Court — Western District of Louisiana

826 F. Supp. 1000

Ruth Herring NOEL v. AMOCO PRODUCTION COMPANY.

Civ. A. No. 91-2379.

United States District Court, W.D. Louisiana, Shreveport Division.

June 28, 1993.

COPYRIGHT MATERIAL OMITTED

David Klotz, Bodenheimer, Jones, Klotz & Simmons, Shreveport, LA, for plaintiff.

W. Michael Adams, William Timothy Allen III, and J. Jay Caraway, Blanchard, Walker, O'Quin & Roberts, Shreveport, LA, for defendant.

MEMORANDUM RULING

STAGG, District Judge.

Plaintiff, Ruth Herring Noel, filed suit in state court on October 14, 1991. On November 5, 1991, pursuant to 28 U.S.C. § 1441, Amoco Production Company removed the dispute to this court. Plaintiff seeks the cancellation of mineral leases, reasonable attorneys' fees and costs. This matter was tried to the bench from April 22, 1993 to April 23, 1993.

This case involves four elderly mineral leases. The first lease was entered into between L.L. Noel, W.B. Noel and the C.W. Lane Company, Inc., as lessors, and O.G. Collins, as lessee, on March 19, 1937.¹ The second lease was entered into between L.L. Noel, James S. Noel and the C.W. Lane Company, Inc., as lessors, and the Stanolind Oil and Gas Company, as lessee, on February 8, 1954.² The third lease was entered into between L.L. Noel, as lessor, and the Stanolind Oil and Gas Company, Inc., as lessee, on April 10, 1956.³ The fourth lease was entered into between James S. Noel and the C.W. Lane Company, Inc., as lessors, and the Stanolind Oil and Gas Company, as lessee, on April 13, 1956.⁴ The third and fourth leases cover the same property and are collectively referred to as the "James S. Noel `B' lease." Mrs. Noel is currently the owner of an undivided royalty interest in the lands covered by the four leases. Stanolind Oil and Gas Company acquired the rights of O.G. Collins in the W.B. Noel lease, and Amoco is the successor in interest to Stanolind Oil and Gas Company.

In her original complaint, plaintiff seeks the total cancellation of all four mineral leases. With respect to the James S. Noel lease and the James S. Noel "B" lease, plaintiff claims that the leases have expired due to the failure of Amoco to develop the properties as a reasonably prudent operator. With respect to the W.B. Noel lease, plaintiff claims that the lease has expired because production from the lease is not in paying quantities. In her first supplemental and amended complaint, filed on January 15, 1993, plaintiff claims that during the pendency of this suit the James S. Noel lease and the James S. Noel "B" lease also expired because the leases ceased producing in paying quantities.

At the close of plaintiff's case, counsel for the defendant moved for a judgment as a matter of law, under Fed.R.Civ.P. 52(c), on all issues. The court declined to render such a judgment until the close of all evidence, except with respect to the issue of whether the W.B. Noel lease had expired for cessation of production in paying quantities. The court found that plaintiff had failed to prove that production from this lease was below paying quantities on the date that suit was filed. Accordingly, a judgment as a matter of law was entered in favor of defendant with respect to the W.B. Noel lease. This Memorandum Ruling shall address plaintiff's remaining claims, all of which involve the James S. Noel lease and the James S. Noel "B" lease.

I. THE FACTS

The James S. Noel lease and the James S. Noel "B" lease have been in effect since the mid 1950's. The James S. Noel lease comprises approximately 299 acres and there are 85 producing wells on the lease. The James S. Noel "B" lease comprises approximately 85 acres and there are 19 producing wells on the lease. All of the wells located on these leases are drilled to the Annona Chalk zone; this zone is located above the top of the Mooringsport formation, which is found at approximately 2,360 feet. No production has ever taken place below the Mooringsport on either of these leases.

Beginning in December 1990 and January 1991, at least two drilling company operators expressed an interest in drilling on the two leases to explore zones below the Mooringsport. In early 1991, J. Marshall Jones, Jr. requested a farmout agreement from Amoco for the northwest ¼ of section 19, T21N, R14W; more than one half of the land in this quarter section is leased under the James S. Noel lease. Later, Mr. Jones requested that the farmout acreage be changed to the south ½ of section 24, T21N, R15W; all of the James S. Noel "B" lease and a large portion of the James S. Noel lease are contained in the north ½ of section 24, T21N, R15W, but none of the leases at issue in this case are included in the south ½ of this section. Mr. Jones testified that his group preferred the south ½ of section 24 to the northwest ¼ of section 19, despite the fact that they had initially requested a farmout on the northwest ¼ of section 19, for two main reasons. First, the south ½ of section 24 was the center of a large block of leases in which his group had acquired a working interest. And second, the northwest ¼ of section 19 flooded during the spring months.

Effective January 7, 1991, Mr. Jones and Amoco entered into a farmout agreement for the south ½ of section 24. Pursuant to that agreement, Jones caused the Bradford # 1 to be spudded on July 5, 1991 and it was drilled to test the Hosston formation at a total depth of 4,190 feet.⁵ Production at this depth was determined not to be commercial. The well was then perforated at the Pettit, where production was again found not to be commercial. Then, the well was perforated at the Rodessa Hills zone, where commercial production was found at about 2,930 feet. The Bradford # 1 was located approximately 500 to 1,000 feet from the southern boundary of the James S. Noel "B" lease. Mr. Jones testified that his associate, William Plaster, an 89 year old geologist, had long believed that a fault structure was present in the area, and that drilling the Bradford # 1 provided Jones Operating Co. and Amoco with geological data confirming the presence of the fault. Production from the Bradford # 1 confirmed Mr. Jones' belief that there was a potential for production in the area northeast of this well; in particular, Mr. Jones believed that the Noel leases in the northwest ¼ of section 19 would prove to be commercially productive.

On May 2, 1991, plaintiff wrote Amoco a letter demanding that Amoco commence drilling operations for a Cotton Valley test on the James S. Noel lease within 30 days or release its mineral rights below the Annona Chalk zone.⁶ On May 10, 1991, plaintiff wrote a second letter to Amoco and extended her demands to include the James S. Noel "B" lease.⁷ On June 11, 1991, Mrs. Noel was advised by Ms. Jeanine Haller, Amoco's land negotiator in charge of the Noel leases, that Amoco was pursuing exploration and development opportunities as to the Cotton Valley and, therefore, that it would not release its mineral rights.⁸

By letter dated July 22, 1991, Mr. Jones requested a second farmout agreement from Amoco.⁹ Mr. Jones wanted a farmout agreement for the northwest ¼ of section 19 for all zones below the Annona Chalk formation down to the base of the Hosston formation (approximately 4,500 feet). In response, Amoco approved Mr. Jones' request conditioned upon the drilling of a test well to the Cotton Valley formation (approximately 8,000 feet).¹⁰ Amoco made drilling a well to the Cotton Valley a condition because Mrs. Noel had demanded that Amoco drill to the Cotton Valley earlier that year.

In September 1991, after negotiations between Mr. Jones and Ms. Haller, a farmout agreement for the zones below the Annona Chalk formation down to the base of the Hosston formation in the northwest ¼ of section 19 was executed. Mr. Jones testified that his group had originally planned to drill the well in this section on the James S. Noel lease, but changed their minds when they learned of the demand letter sent by Mrs. Noel and this lawsuit, filed on October 14, 1991. Later in the fall of 1991, Jones Operating Co. drilled a well in the northwest ¼ of section 19 on leased property that was not owned by plaintiff. Under this farmout agreement, Mr. Jones was granted an option to drill a second well in the northwest ¼ of section 19. This option remains valid until 90 days after a decision is rendered in this matter.¹¹ Mr. Jones has drilled at least 8 other wells in the area surrounding the Noel leases since this suit was instituted. Mr. Jones stated that he did not want to drill on the Noel lease because of the chance that the lease would be cancelled by the court.

On October 14, 1991, when plaintiff filed suit seeking the total cancellation of the James S. Noel and James S. Noel "B" leases, she claimed that Amoco had breached its duty to develop the leased premises as a reasonably prudent operator.

For the eight months immediately preceding the filing of this suit, production from the Noel leases ranged between 1,000 and 1,400 barrels of oil per month.¹² By April of 1992, production from these leases had fallen to about 600 barrels per month.¹³ By January of 1993, production from these leases had fallen to less than 200 barrels per month.¹⁴ A dramatic decline in royalties accompanied this reduced production.¹⁵ On January 15, 1993, apparently because of the reduced royalties, plaintiff filed an amended complaint claiming that during the pendency of this suit the James S. Noel lease and the James S. Noel "B" lease expired because the leases ceased producing in paying quantities.

II. THE OBLIGATION TO DEVELOP THE LEASED PROPERTY

A. The Law

Article 122 of the Louisiana Mineral Code imposes upon the lessee an obligation to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and his lessor.¹⁶ This duty is "an adaptation of the obligation of other lessees under La.Civ.Code art. 2710¹⁷ to act as `good administrators.'" Frey v. Amoco Production Co., 603 So.2d...