Pardee mineral case ordered for re-hearing By Tom Kelly A Bienville Parish civil lawsuit with major ramifications for landowner mineral rights throughout Louisiana has been sent back to Second Judicial District Court Judge Glenn Fallin in Arcadia to re-hear a portion of the suit. While upholding one part of his decision, the Second Circuit Court of Appeals in Shreveport ruled that, based on evidence shown, Judge Fallin erred in his June, 2009 granting a summary judgment in favor of Pardee Minerals LLC and a group of companies seeking to retain mineral rights on a tract of 1,100 acres now owned by Martin Timber Company. The issue in the case, according to the Court of Appeals decision, "is whether a servitude for mineral rights has prescribed (run out) (because of) ten years' nonuse, or whether the drilling of nonproducing wells has constituted a good faith use of its servitude." The tract in question was part of an 8,000 acre tract in Bienville Parish which Pardee sold to Willamette Industries, in December, 1971, retaining mineral rights on the entire tract, which included lands in Sections 26, 27, 34, and 35 in Township 15 North, Range 8 West. Willamette later conveyed a portion of the land to Martin Timber Company in an exchange. According to the Court document, on July 1, 2006 Martin Timber Company sold ownership of its mineral rights to ROM Minerals and Development, which later changed its name to Indigo. Pardee claims that by right of drilling and exploration on the land in dispute, it continues to own the mineral servitude. Martin and Indigo, claim that Pardee's mineral rights expired after the legal term of ten years because it failed to make sufficient and good faith efforts to discover and produce minerals during the period. Pardee says it did in fact drill and attempt to produce minerals, and therefore retains its mineral servitude. District Court Judge Fallin agreed with Pardee's claim. The Court of Appeals reversed that portion of the Fallin decision, and said that while Pardee did drill, it failed to carry its burden of proof that its efforts were sufficient to maintain mineral rights, and the judgment in its favor on that issue is in error. Under Louisiana law, mineral rights may be retained in a sale of land for up to ten years. If no good faith effort is made to explore and produce minerals, the right, called a servitude, expires and the surface owner has the rights. The 20-page case review and decision by the three-member Court of Appeals panel, says in part, "The issue in this case is whether a servitude for mineral rights has prescribed (run its course and ended) for 10 years' nonuse, or whether the drilling of nonproducing wells has constituted a good faith use of the servitude." "The plaintiffs (the ones suing), Martin Timber Company LLC, and Indigo Minerals (Martin-Indigo) filed a suit for declaratory judgment in July 2007, claiming that they own 100 percent of the mineral rights on land in Bienville Parish. Martin/Indigo also claimed entitlement for an accounting and payment of funds from the production of oil and gas on the land. Named as defendants were Pardee Minerals, El Paso E&P Company, LP, Milagro Development LP, and Ceniarth, Ltd. (El Paso.) "The plaintiffs (Martin-Indigo) 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 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 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. 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 was permitted to 9,500 feet. The well was drilled to 3,563 feet and salt was encountered. The well was abandoned on December 15, 1998. All these wells drilled on the disputed tract were dry holes. Plaintiffs challenge two of the wells drilled, claiming that they were insufficient to interrupt prescription. The Sutton and Famcor wells, neither of which reached its permitted depth, both encountered difficulties in drilling and were abandoned as dry holes. 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 all were dry holes. The earliest well was commenced in 1920. On January 12, 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. El Paso drilled and completed a number of successful wells on the Martin Timber Company 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 tract, and requested an order requiring El Paso to account for and remit any and all revenues gained from the production attributed to the disputed tract. Plaintiffs claim that El Paso is a possessor in bad faith and is not entitled to recoup expenses. In December 2008, El Paso filed a motion for summary judgement against the Martin plaintiffs and Crabapple plaintiffs in intervention, claiming that the Pardee mineral servitude was maintained in full force through a series of good faith drilling operations and that the Pardee lease to El Paso in 2001 is valid. El Paso claimed that drilling of the Sutton Well, the Kerr-McGee well, and the Famcor well validated the Pardee servitude. In the court action in Bienville Parish, the court agreed that the named wells were good faith operations for the discovery and production of minerals, and that each one interrupted the 10-year prescription of nonuse. The Court of Appeals decision reviews legal precedents from Louisiana and other states, and concludes that the Pardee claim of servitude is not proved--although it does not say it is not disproved. Thus, more trial proceedings are ordered. The Court of Appeals, reviewing a long history of case law, says "What the courts have done is to shape a subjective standard--"good faith"--into an objective one by addition of the requirement of reasonableness of the expectation of production. The defendants urge that the standard for determining good faith is entirely objective. They claim that they intended to explore both shallow and deep levels for production of oil and gas and therefore, the drilling of the Famcor well to 3,563 passed through the formation above the salt dome in which they reasonably expected to discover and produce minerals in paying quantities. "To determine good faith, Article 29's (of the Louisiana mineral law) first inquiry is whether the operation was commenced with a reasonable expectation of discovering and producing minerals in paying quantities at a particular point or depth." And, of such interpretations of laws and intentions are complicated and highly contested lawsuits made. The Court of Appeals document in Indigo/Martin vs. Pardee lists a total of 18 lawyers of record, representing eight law firms, including three appellees, eight defendants, and one intervening Friend of the Court, the Louisiana Oil and Gas Association. Doubtless, the final decision in this case will have bearing on a number of future decisions on ownership of mineral rights, drilling and leasing. There are numerous landowners, large and small, within the area affected by the potential outcome of Martin/Indigo vs. Pardee who await the decision with interest, not least because of its implications for what happens next in the Haynesville Shale development in Northwest Louisiana. Mary K. Hamner, Journal Correspondent, participated in reporting on this story. |