Vetter v. Morrow

• Decision Date: 05 June 1978
• Docket Number: No. 13572,13572
• Parties: Anna May Posey VETTER et al., Plaintiffs-Appellees, v. T. C. MORROW, d/b/a T. C. Morrow Oil Company, Defendant-Appellant.
• Court: Court of Appeal of Louisiana — District of US

Page 898

361 So.2d 898

Anna May Posey VETTER et al., Plaintiffs-Appellees, v. T. C. MORROW, d/b/a T. C. Morrow Oil Company, Defendant-Appellant.

No. 13572.

Court of Appeal of Louisiana, Second Circuit.

June 5, 1978.

En Banc. Rehearing Denied Aug. 15, 1978.

Hargrove, Guyton, Ramey & Barlow by Thomas J. Wyatt, David L. Smelley, Shreveport, for defendant-appellant.

John S. Stephens, Coushatta, for plaintiffs-appellees.

Before BOLIN, PRICE and MARVIN, JJ.

PRICE, Judge.

T. C. Morrow, d/b/a T. C. Morrow Oil Company, has appealed the judgment ordering a partial cancellation of an oil, gas, and mineral lease and awarding attorney fees to lessors.

The principal issue is whether the lessee acted as a reasonably prudent operator in developing the leased premises.

George J. Posey and his three children, Anna May Posey Vetter, Edwina Posey Glover, and Stephen John Posey, granted a mineral lease to defendant on July 16, 1965, covering 385 acres in Sections 8, 17, and 18, T 12 N, R 10 W, of Red River Parish for a primary term of ten years. No drilling has taken place on any of the leased acreage during the primary term of the lease. The lease has been continued in effect since 1974 by the inclusion of a portion of the leased acreage in Sections 8 and 17 in drilling and production units established by the Commissioner of Conservation for the Gahagan Field from which gas has been produced in paying quantities from the Hosston Formation, Reservoir A.

Plaintiffs, who succeeded to the rights of George Posey by inheritance, brought this suit in August 1977 contending that defendant had failed and refused to properly develop the acreage lying in Section 18, which constitutes a substantial portion of total acreage leased, and that written notice had been given defendant on May 31, 1977, to begin operations within sixty days or to release that portion of the lease not included in the producing units. Plaintiffs contend defendant has not complied with their demand and request this portion of the lease should be ordered cancelled.

The trial court found that defendant had not developed the leased acreage in Section 18 in the Hosston zone as a reasonably prudent operator and ordered the lease cancelled as to this part of the leased premises. Plaintiffs were also awarded the sum of $2,500 for attorney fees under the provisions of La. R.S. 31:209.

The assignments of error of defendant present two issues on this appeal: (1) did plaintiffs offer sufficient proof to show defendant failed to act as a prudent operator in not having drilled a well to the Hosston Formation on the portion of the leased lands lying in Section 18; (2) did plaintiffs' evidence support an award of attorney fees.

A mineral lessee is under a duty to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and his lessor. La.R.S. 31:122. This article of the Louisiana Mineral Code adopted in 1974 does not change the rules previously declared by the Supreme Court in Carter v. Arkansas Louisiana Gas Co., 213 La. 1028, 36 So.2d 26 (1948), as follows:

The law of this state is well settled that the main consideration of a mineral lease is the development of the leased premises for minerals, and that the lessee must develop with reasonable diligence or give up the contract; further, that as to what constitutes development and reasonable diligence on the part of the lessee must conform to, and be governed by, what is expected of persons of ordinary prudence under similar circumstances and conditions, having due regard for the interest of both contracting parties. (cites omitted)

To fulfill his duty under the law a lessee has the obligation to develop known mineral producing formations in the manner of a reasonable, prudent operator and to explore and test all portions of the leased premises after discovery of minerals in paying quantities in the manner of a reasonable, prudent operator. See comments under La.R.S. 31:122; LeJeune v. Superior Oil Co., 315 So.2d 415 (La.App.3rd Cir. 1975); Carter v. Arkansas Louisiana Gas Co., supra.

In the instant case the discovery well in the Hosston Formation of the Gahagan Field, the Hoss RA Sand Unit B (referred to as the Huckaby Well) was drilled by third parties in Section 16 in 1972. The Commissioner of Conservation established a drilling and production unit coextensive with the governmental section (640 acres), and this pattern has been generally followed by the commissioner in subsequent wells drilled to the same formation in this field. In August 1974, the Rush Well in Sand Unit C was completed by third parties on land in Section 17. Eighty acres of the subject lease is situated in this section and was unitized by the commissioner into Sand Unit C. In August 1976, the Sally Hook Well was completed by third parties in Sand Unit J in Section 8 which lies directly north of Section 17. An additional thirty acres of plaintiffs' leased lands are situated in this section and were unitized into this producing unit.

The remaining 250 acres of the leased land which plaintiffs seek to have released are situated in Section 18 which is directly west of Section 17.

Plaintiffs contend the substantial production obtained in the wells drilled in the adjacent sections to the east of Section 18 and the evidence submitted showing that the probable trend of producing sands is to the west toward Section 18, created a duty on defendant to develop the portion of the lease in this section without further delay.

Defendant contends he was justified in waiting for the results of a proposed well in Section 7 to the north before commencing drilling activity to the Hosston Formation in ...