Amber, LLC v. Welsh Oil Co., Inc.

• Court: Louisiana Court of Appeal
• Decided: April 14, 2021
• Docket: 53,871-CA
• Status: Published

Opinion

Judgment rendered April 14, 2021. Application for rehearing may be filed within the delay allowed by Art. 2166, La. C.C.P.

No. 53,871-CA

COURT OF APPEAL SECOND CIRCUIT STATE OF LOUISIANA

*****

AMBER, LLC Plaintiff-Appellant

versus

WELSH OIL CO., INC. Defendant-Appellee

***** Appealed from the Twenty-Sixth Judicial District Court for the Parish of Webster, Louisiana Trial Court No. 68,507

Honorable Charles A. Smith, Judge

***** SHUEY SMITH, LLC Counsel for Appellant, By: John M. Shuey, Jr. Amber, LLC

BLANCHARD, WALKER, Counsel for Appellee, O’QUIN & ROBERTS Marathon Oil Company By: Stacey Denise Williams

BLANCHARD, WALKER, Counsel for Appellees, O’QUIN & ROBERTS Welsh Oil Company, Inc., By: William Timothy Allen, III and Blackbeard Operating East, LLC

HARGROVE, SMELLEY & STRICKLAND Counsel for Appellees, By: T. Issac Howell Lilla White Simms, Paul Alan Strickland Mary Simms Thomas, Jonathan James Rose Lilla Simms Benefield, William L. Simms, and Cynthia Simms Wedgeworth

Before MOORE, PITMAN, and STEPHENS, JJ. STEPHENS, J.

This appeal involves a dispute over ownership of mineral rights in a

40-acre tract of land in Webster Parish, Louisiana. The trial judge, in ruling

on opposing motions for summary judgment filed by plaintiff and

defendants, found in favor of defendants. For the reasons set forth below,

we affirm the judgment of the trial court.

PROCEDURAL HISTORY AND FACTS

This litigation began in 2008, when Amber, LLC (“Amber”), filed suit

against Welsh Oil Co., Inc. (“Welsh”), seeking a declaratory judgment as to

ownership of certain rights to a 40-acre tract of land in the Northwest

Quarter of the Southeast Quarter of Fractional Section 5, Township 23

North, Range 9 West, Webster Parish, Louisiana (the “Property”).

Amber asserted ownership of three oil and gas leases covering the

Property:

Oil, Gas and Mineral Lease from William P. Simms and Lilla White Simms to Art Machin & Associates, Inc., dated January 29, 1974, covering the Property, and recorded in Conveyance Book 430, Page 270, and amended by act recorded in Conveyance Book 447, Page 118 (“1974 Lease”).

Oil, Gas and Mineral Lease from William P. Simms and Lilla Emm White Simms to Art Machin & Associates, Inc., dated April 28, 1975, covering the Property, together with Lot 3 and the East Half of Northeast Quarter of Southwest Quarter of Section 5, Township 23 North, Range 9 West, Webster Parish, Louisiana, and recorded in Conveyance Book 448, Page 124 (“1975 Lease”).

Oil, Gas and Mineral Lease from Erma C. Simms Jones and Barbara Anita Simms to Austral Oil Company, dated October 18, 1977, covering 90 acres, described as the South Half of the Southeast Quarter and the Southeast Quarter of the Southeast Quarter of Section 5, Township 23 North, Range 9 West, Webster Parish, Louisiana, and recorded in Conveyance Book 488, Page 560. Amber had acquired ownership of the leases by an Assignment and Bill of

Sale dated March 1, 2003, with the assignors1 conveying all of their right,

title and interest in their oil gas and mineral interests within the geographic

boundaries of the West Half of the Southeast Quarter (W/2 SE/4) of Section

5, Township 23 North, Range 9 West, Webster Parish, Louisiana.2

History of the Leases and Production from the Wells

On January 29, 1974, William P. Simms and Lilla Emm White Simms

(hereinafter sometimes referred to as the “Simmses”) granted to Art Machin

& Associates, Inc. (“Machin”), lessee, mineral rights to the Property. This

agreement, the 1974 Lease, provided for a primary term of three years. By

amendment dated April 14, 1975, the 1974 Lease was amended to cover

only those depths between the surface of the earth and 10,000 feet below. A

second amendment to the 1974 Lease, also dated April 14, 1975, rewrote

paragraph 7, regarding pooling and unitization, to provide for 80-acre units

for the production of oil.

By Declaration of Unit dated April 15, 1975, Machin declared the

Property and the adjacent Lot 2 (in partial Southwest Quarter of Northeast

Quarter, Section 5, Township 23 North, Range 9 West, Webster Parish,

Louisiana) to be in a single operating unit for the development and

production of oil and casinghead gas. The Simmses had granted Machin an

1 Assignors were APTCO, Inc., Michael S. Bloom and Marilynn Bloom, Elliott Oil Corp., Donald Bradley Foster, Art Machin and Patsy Machin, Sidney McMillan and Bill McMillan, O. L. McQuay and Meda McQuay, Osprey Resources, Inc., Deana F. Templeton and John Templeton, and Machin & Associates, Inc. 2 Because the 1975 Lease also covered lands outside the West Half of the Southeast Quarter, the description of the 1975 Lease as described in Exhibit A attached to and made part of the Assignment and Bill of Sale stated that the 1975 Lease was conveyed “Insofar and only Insofar as said lease covers the NW/4 SE/4 Section 5-23N- 9W, Webster Parish, LA.”

2 Oil, Gas and Mineral Lease on this additional property on December 31,

1974. Unlike the 1974 Lease, which the parties amended, this December

1974 lease contained depth restriction language limiting depth to 10,000

feet below the surface. Together the two tracts comprised nearly 80 acres.

The Declaration of Unit specifically identified the 1974 Lease, as well as the

other lease, executed by the Simmses and Machin on December 31, 1974, on

Lot 2. On April 15, 1975, Machin received a permit to drill the W. P.

Simms No. 2 well on Lot 2. The well was to be drilled into the Pettit

Formation, with a potential total depth of 6,000 feet. The W. P. Simms No.

2 was completed on June 8, 1975, and production began some time that year.

During this time, on April 28, 1975, Machin obtained the 1975 Lease

from William P. Simms and Lilla Emm White Simms. The 1975 Lease

covered the Property, together with Lot 3 and the East Half of the Northeast

Quarter of the Southwest Quarter. Paragraph 7 of the 1975 Lease was

amended to provide that any units for the production of oil were to be 160

acres instead of 40 acres. The 1975 Lease provided for a primary term of

five years.

The 1975 Lease was executed just two weeks after the 1974 Lease had

been amended to provide for a depth restriction from the surface to 10,000

feet below surface and 13 days after Machin had obtained the permit to drill

the W. P. Simms No. 2 well, which was to be the well for the 80-acre

voluntary unit Machin created on April 15, 1975. The 1974 Lease described

40-acre production units initially; this was changed to 80-acre units via

amendment, and the 1975 Lease provided for 160-acre units for production.

The 1974 Lease initially contained no depth specification or restriction;

however, by amendment in 1975, the lease was limited to only those depths

3 between the surface and 10,000 feet below the surface. The 1975 Lease

contains no depth restrictions. Otherwise, the two leases are identical: they

cover the Property, although the 1975 Lease covers additional lands, and

they provide for the same royalty.

The W. P. Simms No. 2 well continued production for many years,

albeit under a different name. Production from the W. P. Simms No. 2

(renamed the W. P. Simms A. No. 1) held the 1974 Lease until the well

(then named the PET RA SUHH) was included in the fieldwide unit, the

NSRR PET RB SU. Production from the fieldwide unit held the 1974 Lease

until production from the unit ceased in December 1996. In the meantime,

the Property was included in the 8900 CV RA SUD, created by Order 104-

R, effective March 2, 1995. The unit well, the E.S. Jones No. 7, produced

from March 1995 through August 2008.

Welsh is the owner of an October 28, 2005, Oil, Gas, and Mineral

Lease (“2005 Lease”) on the Property and other lands granted by Lilla White

Simms, et al. The 2005 Lease, which was for a primary term of two years,

covered the Property, as well as other land in Section 5, Township 23 North,

Range 9 West, Webster Parish, Louisiana. The 2005 Lease was limited to

those formations below 6,000 feet and provided for a lessor’s royalty of 1/5

rather than the standard 1/8. The 2005 Lease was a top lease as to depths

shallower than 10,000 feet.

In its petition for declaratory judgment filed on August 15, 2008,

Amber alleged that a cloud on its title to the 1974 Lease and 1975 Lease as

to depths below 6,000 feet from the surface was created when Welsh

obtained the 2005 Lease.

4 Amber sought a judgment against Welsh declaring that both the 1974

Lease and the 1975 Lease were valid as to rights below 6,000 feet as to the

Property, and that any rights claimed by Welsh under the 2005 Lease as to

rights below 6,000 feet be declared null and void.

Amber added Marathon Oil Company (“Marathon”) as an additional

defendant in 2011, alleging, inter alia, that Welsh had conveyed ownership

of the 2005 Lease to Marathon effective December 1, 2005, reserving an

overriding royalty interest. According to Amber, the 1974 Lease and the

1975 Lease had been maintained in accordance with their terms, as to all

depths covered thereby, by drilling on and production from the leases

themselves, or by inclusion in units created by the Commissioner of

Conservation for the State of Louisiana, and by drilling on or production

from those units, since the primary term of the leases in 1974 through the

present date. Amber realleged that the 2005 Lease clouds its title to the

Property as to its rights below 6,000 feet.

Amber further asserted that Marathon was holding in suspense

$350,318.67, the amount attributable to “all lease burdens excluding the

lessor’s royalty up to 1/8 interest” as to that unit identified by Office of

Conservation Order No. 104-G-53 known as the HA RE SUFF.

Specifically, Amber alleged that the amount in suspense had been generated

by production from three specific wells that are the subject of this litigation,

the W. Simms et al No. 1 well, Serial No. 233300; the W. Simms et al No. 2-

5 Alt well, Serial No. 235057; and, the W. Simms et al No. 3 well, Serial No.

235554.3

Amber further alleged that it and Marathon had entered into a Farmin

Agreement on July 26, 2006, covering the Property, which provided, inter

alia, that Marathon would, on or before September 1, 2006, commence

operations for the drilling of a test well on the Property, to be drilled to an

approximate depth of 11,500 feet, adequate to test the Haynesville

formation. All costs and expenses incurred or arising out of the drilling,

testing, completing, equipping, or plugging and abandoning of the initial

well were to be borne solely by Marathon.

In the event the test well was completed as a well capable of

producing oil, gas, or other hydrocarbons in paying quantities, Marathon was

to earn an assignment of all of Amber’s right, title, and interest in and to the

1974 and 1975 Leases, to the extent they cover lands included in the drilling

and spacing unit for the test well and insofar as they cover the depth interval

from the surface of the ground down to 100 feet below total depth drilled,

less and except that formation associated with the 8900 Cotton Valley,

Reservoir A, Sand Unit D, North Shongaloo-Red Rock Field. Amber was to

except and reserve from that assignment a proportionate overriding royalty

equal to the difference between existing lease burdens and 25%, which, at

payout, Amber had the election to either (1) convert the overriding royalty

reserved to an undivided 25% interest in the leases, or (2) escalate the

overriding royalty reserved an additional 5%, proportionately reduced.

3 The wells are more properly identified as HA RE SUFF; L W Simms et al; No. 1, Serial No. 233320; HA RE SUFF; L W Simms et al No. 2-Alt, Serial No. 235057; and, the L W Simms et al; No. 3-Alt, Serial No. 235554.

6 Amber alleged that Marathon breached the Farmin Agreement by

failing to pay the overriding royalty interest due Amber and otherwise

recognize Amber’s ownership and rights therein. Therefore, Amber asserted

that it was entitled to a judgment rescinding and dissolving the Farmin

Agreement, and recognizing that Amber’s ownership of the 1974 and 1975

Leases as to the HA RE SUFF unit and production therefrom was not subject

to the Farmin Agreement with Marathon.

Further, in connection with the declaration that the Farmin Agreement

was void, Amber sought an accounting by Marathon for all production

attributable to the 1974 and 1975 Leases from the producing depths of the

HA RE SUFF from date of first production based on Amber having 100%

working interest.

In the alternative, Amber re-urged its original claim, for a declaratory

judgment that the 1974 and 1975 Leases were valid as to rights below 6000

feet as to the Property and that rights claimed by Welsh (and now Marathon)

as to the Property and as to depths below 6,000 feet be declared null and

void.

In early 2014, Amber filed a second supplemental and amending

petition for declaratory judgment, naming as additional defendants Mary

Simms Thomas, Lilla Sims Benefield, William L. Simms, and Cynthia

Simms Wedgeworth, the children of William P. and Lilla White Simms (the

“Simms family”). Amber sought judgment in its favor and against Welsh,

Marathon, and the Simms family declaring the 1974 and 1975 Leases valid

as to rights below 6,000 feet as to the Property and in its favor and against

Welsh, Marathon, and the Simms family declaring rights claimed by Welsh

and Marathon as to the Property regarding rights below 6,000 feet be

7 declared null and void. Amber reiterated the alternative declaratory relief

sought against Marathon in its first supplemental and amending petition.

Amber’s third supplemental and amending petition for declaratory

judgment was filed in 2017, adding Blackbeard Operating East, LLC

(“Blackbeard”), as a defendant. According to Amber, Marathon assigned its

rights in the 2005 Lease to Blackbeard, thus making it the correct defendant.

Amber further alleged that the W. Simms et al No. 1 well, Serial No. 233300

had reached payout as defined in the Farmin Agreement, that Marathon

and/or Blackbeard owed Amber the option to convert the working interest or

escalate the overriding royalty interest, and that the amount held in suspense

by Marathon did not include or provide for Amber’s additional rights to

proceeds after payout. Amber reiterated its claims made in prior petitions,

and asked that Marathon and Blackbeard4 be ordered to make an accounting

to Amber for all production attributable to the 1974 and 1975 Leases from

the HA RE SUFF and the three unit wells, from the date of first production.

On June 9, 2019, Amber filed a motion for summary judgment,

seeking recognition that the 1975 Lease is valid as to the Property,

specifically as to the lease rights at 6,000 feet and below, and nullification of

defendants’ claims as to the validity of any other mineral lease. Defendants

opposed that motion, arguing that the 1975 Lease, as to depths above 10,000

feet from the surface, was only a top lease that never came into effect, since

the 1974 Lease was maintained by production shallower than 10,000 feet,

and as there was no well drilled on the Property or lands with which it was

4 Effective September 20, 2018, Blackbeard conveyed its interest in the 2005 Lease to Urban Oil & Gas Partners C-1, LP and Urban Fund III, LP by Assignment, Conveyance and Bill of Sale.

8 pooled within the term of the 1975 Lease as to depths below 10,000 feet

(actually until 1992, well beyond the term of the 1975 Lease), it expired at

the end of its five-year primary term.

Defendants filed a joint cross-motion for summary judgment on

August 16, 2019, seeking a judgment declaring the validity of the 2005

Lease and dismissing Amber’s claims and demands with prejudice at

Amber’s cost.

The trial court rendered judgment denying Amber’s summary

judgment motion, granting the joint cross-motion for summary judgment

filed by defendants, and dismissing with prejudice all of Amber’s claims,

specifically decreeing that:

[T]he January 29, 1974 Oil, Gas and Mineral Lease granted by Simms, … to cover depths from the surface to 10,000 feet below the surface was held by production beyond its primary term and the April 28, 1975 Oil, Gas and Mineral Lease granted by Simms, … expired at the end of its primary term on April 28, 1980. Thus, the October 28, 2005 Oil, Gas and Mineral Lease granted by Simms to Welsh, … is valid … as to depths below 10,000 feet subsurface.

It is from this judgment that Amber appeals.

DISCUSSION

Amber asserts that the trial court erred in granting defendants’ motion

for summary judgment and denying its summary judgment motion. Amber

also assigns as error the findings upon which the trial court based its

judgment. Specifically, that the 1974 Lease, as amended, was held by

production beyond its three-year term by the declared unit well; the 1975

Lease expired at the end of its five-year primary term; and, the 1975 Lease

covered only depths below 10,000 subsurface.

9 In taking issue with the trial court’s finding regarding its own 1974

Lease, Amber has abandoned the position it took from 2008 until 2019, that

the 2005 Lease was a cloud on both the 1974 and 1975 Leases.5 Instead,

Amber argues that the 1975 Lease was a “stand-alone” lease, not a novation

or a top lease of the 1974 Lease, which was maintained by declared unit well

production and established during the five-year primary term of the 1975

Lease. Amber further asserts that the trial court erred in finding that the

1975 Lease covered only depths below 10,000 feet subsurface since, within

its four corners, the lease had no depth limitations or restrictions.

Defendants urge this Court to affirm the trial court’s judgment

granting their motion for summary judgment and denying Amber’s summary

judgment motion. According to defendants, although never stated directly in

any of its pleadings, what Amber seeks is a declaration that the 1975 Lease

is valid as to all depths and has been maintained to the present time, such

that it would be the operative lease for recent production from the

Haynesville Shale.

For this to be the case, Amber took the position that the 1975 Lease

replaced (although not by novation, which defendants contend is the only

legal theory that could—although not under the facts of this case—support

Amber’s claim) the earlier recorded 1974 Lease which covered depths from

the surface down to 10,000 feet. The trial court considered the applicable

legal principles and evidence presented by the parties in support of and in

opposition to their motions for summary judgment and correctly found that

5 From the time Amber filed its initial pleading in 2008 until the filing of its motion for summary judgment in 2019, Amber had continuously asserted that both the 1974 Lease and the 1975 Lease were valid as to the Property and as to depths below 6,000 feet from the surface.

10 the only production during the primary five-year term of the 1975 Lease

occurred as to depths of less than 10,000 feet, but that these depths were

covered by the previously executed and recorded 1974 Lease, and that

therefore, the 1975 expired at the end of its term in 1980.

A motion for summary judgment is a procedural device used when

there is no genuine issue of material fact for all or part of the relief prayed

for by a litigant. La. C.C.P. art. 966; Murphy v. Savannah, 2018-0991 (La.

5/08/19), 282 So. 3d 1034; Beer Industry League of Louisiana v. City of New

Orleans, 2018-0280 (La. 6/27/18), 251 So. 3d 380; Duncan v. U.S.A.A. Ins.

Co., 2006-363 (La. 11/29/06), 950 So. 2d 544. The summary judgment

procedure is designed to secure the just, speedy and inexpensive

determination of civil actions (with the exception of certain domestic

matters) and is favored in our law and shall be construed to accomplish those

ends. La. C.C.P. art. 966(A)(2); Murphy, supra.

When a case involves cross motions for summary judgment, the court

should consider whether either party has established that there is no genuine

issue as to material fact and that it is entitled to judgment as a matter of law.

Gray v. American National Property Cas. Co., 2007-1670 (La. 2/26/08), 977

So. 2d 839; Wart v. Progressive Security Ins. Co., 43,954 (La. App. 2 Cir.

4/8/09), 7 So. 3d 865, writ denied, 2009-1058 (La. 9/4/09), 17 So. 3d 963;

Dixon v. Direct General Ins. Co. of Louisiana, 2008-0907 (La. App. 1 Cir.

3/27/09), 12 So. 3d 357.

Appellate courts review motions for summary judgment de novo,

using the same criteria that govern the trial court’s consideration of whether

summary judgment is appropriate, i.e., whether there is any genuine issue of

material fact, and whether the movant is entitled to judgment as a matter of

11 law. Davis v. A Bar and Grill with a Bite, Inc., 2019-1928 (La. 3/16/20),

294 So. 3d 1051; Guidry v. Brookshire Grocery Co., 2019-1999 (La.

2/26/20), 289 So. 3d 1026; Murphy, supra; Wright v. Louisiana Power &

Light, 2006-1181 (La. 3/9/07), 951 So. 2d 1058.

The interpretation of a contract typically presents a question of law

that may be resolved by summary judgment. Guy v. Empress, L.L.C.,

50,404 (La. App. 2 Cir. 4/8/16), 193 So. 3d 177; Hoover Tree Farm, L.L.C.

v. Goodrich Petroleum Co., 46,153 (La. App. 2 Cir. 3/23/11), 63 So. 3d 159,

writs denied, 2011-1225, 1236 (La. 9/23/11), 69 So. 3d 1161, 1162;

Stephenson v. Petrohawk Properties, L.P., 45,296 (La. App. 2 Cir. 6/2/10),

37 So. 3d 1145.

A mineral lease is a contract by which the lessee is granted the right to

explore for and produce minerals in consideration of the payment of a rental

or bonus. La. R.S. 31:114; Odom v. Union Producing Co., 243 La. 48, 141

So. 2d 649 (La. 1961); Guy, supra; Ross v. Enervest Operating, L.L.C.,

48,229 (La. App. 2 Cir. 6/26/13), 119 So. 3d 943, writ denied, 2013-2034

(La. 11/15/13), 125 So. 3d 1110. Like contracts in general, a mineral lease

is the law between the parties and regulates their respective rights and

obligations. La. C.C. art. 1983; Ross, supra; Pilkinton v. Ashley Ann

Energy, L.L.C., 46,650 (La. App. 2 Cir. 11/2/11), 77 So. 3d 465, writ denied,

2011-2657 (La. 2/10/12), 80 So. 3d 484; Stephenson, supra; Winnon v.

Davis, 32,988 (La. App. 2 Cir. 5/15/00), 759 So. 2d 321.

Mineral leases are construed as leases generally, and the provisions of

the Civil Code applicable to ordinary leases, when pertinent, are applied to

mineral leases. C.C. art. 2672; La. R.S. 31:2, 31:114, et seq.; Guy, supra;

Ross, supra; Winnon, supra. When the words of a mineral lease are clear

12 and explicit and do not lead to absurd consequences, no further

interpretation may be made in search of the parties’ intent. La. C.C. art.

2046; Caskey v. Kelly Oil Co., 98-1193 (La. 6/29/99), 737 So. 2d 1257;

Questar Exploration and Production Co. v. Woodard Villa, Inc., 48,401 (La.

App. 2 Cir. 8/7/13), 123 So. 3d 734, writ denied, 2013-2467 (La. 2/21/14),

133 So. 3d 682; Pilkinton, supra.

Top leases are granted by landowners during the existence of another

mineral lease that become effective if and when the existing lease expires or

is terminated. Barham v. St. Mary Land & Exploration Co., 48,603 (La.

App. 2 Cir. 11/20/13), 129 So. 3d 705, writ denied, 2013-2943 (La. 2/21/14),

134 So. 3d 586; Pilkinton, 77 So. 3d at 470, citing Mobil Oil Exploration

and Producing Southeast, Inc. v. Latham, 44,996 (La. App. 2 Cir. 2/3/10),

31 So. 3d 1149. As a legal right, the top lease exists at its inception as a

mere hope or expectancy in the extinction of existing superior leasehold

rights, which extinction will confer upon the top lease owner the essence of

a mineral lease, i.e., the right to explore for and produce minerals. Pilkinton,

supra, citing Patrick G. Tracy, Jr., The Effects of Top Leasing in the

Louisiana Law of Oil and Gas, 43 La. L. Rev. 1189, 1190 (1983).

The same lessee or his successor in title may secure a second lease

from the same lessor covering all or part of the same interest before the first

lease has expired. Barham, 129 So. 3d at 710. This “same party” top lease

functions as one of several devices available to an operator to preserve

leasehold rights in a situation where, for example, he is doubtful about the

validity of a former lease. Id. at 710-11, citing Patrick Tracy, supra at 1190.

Tracy goes on to write, 43 La. L. Rev. at 1193, that the mere execution of a

top lease in favor of the same lessee will not of itself result in novation under

13 Louisiana law, and the language of the instrument itself is but one of several

factors to consider in finding an intent to novate, unless the novation of the

original lease agreement is expressly stipulated in clear and unmistakable

terms. If, however, the common purpose of top leasing in that situation is

protection, the mere execution of a top lease, silent as to its effect on the

existing lease, should not result in the extinction of the original lease by

novation. Id.

As urged by defendants in their briefs, in order for Amber to prevail,

it has the burden of proving that the 1974 Lease was superseded and

replaced by the 1975 Lease. While Amber has insisted that the 1975 Lease

is a “stand alone, replacement” lease, this Court has found no legal authority

to support such a theory. For the 1975 Lease to be a “replacement” lease for

the 1974 Lease, novation would have had to occur, i.e., the 1975 Lease was

substituted for the 1974 Lease. Plaintiff itself is not arguing novation, and

for the reasons set forth below, we find that there is no evidence that a

novation was intended by the parties to these leases. Instead, what the

evidence shows is that the 1975 Lease, in relation to the 1974 Lease, was

meant to function as a protective top lease. Otherwise, as to the Property,

the 1975 Lease was limited to those depths not already specifically covered

by the 1974 Lease.

Neither of the parties to the 1974 and 1975 Leases, the Simmses or

Machin, was available to testify regarding their intent in executing the

transactions, most specifically the 1975 Lease. However, the surrounding

circumstances show that, as noted above, part of the land covered by the

1975 Lease, the Property, had already been the subject of a lease between

the same parties: The 1974 Lease, which, after amendment and ratification

14 dated April 14, 1975, and filed for registry the same date, provided explicitly

that it covered only those depths between the surface of the earth and

10,000 feet below the surface of the earth. A second amendment, also

executed on April 14, 1975, but filed for registry on April 18, 1975, altered

paragraph 7 of the 1974 Lease to allow the lessee to pool the leased premises

in an 80-acre unit for the production of oil.

Machin’s Declaration of Unit, dated April 15, 1975, on July 29, 1975

in the Conveyance Records of Webster Parish, Louisiana, declared the

Property and the adjacent Lot 2 to be in a single operating unit for the

development and production of oil and casinghead gas. Together the two

tracts comprised nearly 80 acres. The Declaration of Unit specifically

identified the 1974 Lease and its amendments (as well as the other lease

between the parties on the adjacent tract). On April 15, 1975, Machin

received a permit to drill the W. P. Simms No. 2 well on Lot 2. Production

from this well, completed in the primary term of the 1974 Lease at a depth

of less than 10,000 feet, held the 1974 Lease until the well (then named the

PET RA SUHH) was included in the fieldwide unit, the NSRR PET RB SU.

Thereafter, production from the fieldwide unit held the 1974 Lease until

production from the fieldwide unit ceased in December 1996.6

The 1975 Lease was executed as a top lease by Mr. and Mrs. Simms

and Machin on April 28, 1975, 14 days after the 1974 Lease had been

amended and 13 days after Machin had obtained the permit to drill the W. P.

Simms No. 2, the well for the 80-acre voluntary unit created by Machin on

6 The Property was included in the 8900 CV RA SUD, created by Order 104-R, effective March 2, 1995. The unit well, the E. S. Jones No. 7, produced from March 1995 through August 2008.

15 April 15, 1975. It was granted by the Simmses during the existence of

another mineral lease (the 1974 Lease) with Machin and was to become

effective as to the shallow depths (those depths between the surface of the

earth and 10,000 feet below the surface of the earth) if and when the 1974

Lease expired or was terminated.7 The 1975 Lease existed at its inception as

a mere hope or expectancy in the extinction of existing superior leasehold

rights in the shallow depths. However, the 1974 Lease neither expired nor

terminated prior to the five-year primary term of the 1975 Lease. Instead,

according to Amber’s second supplemental petition, the 1974 Lease has

been maintained by drilling and production as to depths above 10,000 feet

below the surface. Therefore, the 1975 Lease was never effective as to

those depths. For the 1975 Lease to have survived beyond its primary term

of five years, there had to be production from lands covered by the lease or

lands pooled therewith at depths below 10,000 feet below the surface. The

evidence introduced by Amber and defendants establishes that there was no

such production prior to 1992. Thus, by its terms, as to depths below 10,000

feet from the surface, the 1975 Lease expired on April 28, 1980, because

there was no production from those depths.

As set forth above, the evidence introduced by the parties supports

that the conclusion that the 1975 Lease was not maintained beyond its

primary term, and that the deep rights in the Property were not leased at the

time the 2005 Lease was taken. Furthermore, defendants established that,

while the 2005 Lease, on its face, covers all depths below 6,000 feet below

7 Having transferred their rights in these specified depths to Machin in the prior lease, there was no need for the Simmses to do so again in the 1975 Lease. This is a basic tenet of Louisiana property law. See, Eagle Pipe and Supply, Inc. v. Amerada Hess Corp., 2010-2267 (La. 10/25/11), 79 So. 3d 246, 282, fn. 81.

16 the surface, it is effective only as to depths below 10,000 feet. Because the

wells in the HA RE SUFF were drilled to depths below 11,000 feet, the 2005

Lease has been maintained.

We find no error in the trial court’s judgment denying plaintiff’s

judgment for summary judgment and granting defendants’ joint cross-

motion for summary judgment based on its findings that: the 1974 Lease,

amended to cover depths from the surface to 10,000 feet below the surface,

was held beyond its primary term by production; the 1975 Lease expired at

the end of its primary term on April 28, 1980; and, the 2005 Lease is valid as

to the Property as to depths below 10,000 feet subsurface.

CONCLUSION

For the reasons set forth above, the judgment of the trial court is

affirmed. Costs of this appeal are assessed to plaintiff, Amber, LLC.

AFFIRMED.