Amoco Production Co. v. Carruth

512 So. 2d 571, 98 Oil & Gas Rep. 84, 1987 La. App. LEXIS 10039
CourtLouisiana Court of Appeal
DecidedJuly 6, 1987
DocketNo. 86 CA 0717
StatusPublished
Cited by3 cases

This text of 512 So. 2d 571 (Amoco Production Co. v. Carruth) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Amoco Production Co. v. Carruth, 512 So. 2d 571, 98 Oil & Gas Rep. 84, 1987 La. App. LEXIS 10039 (La. Ct. App. 1987).

Opinion

SHORTESS, Judge.

This appeal stems from a concursus proceeding provoked by Amoco Production Corporation. As part of that action, J. Burton LeBlanc (LeBlanc) sought cancellation of a mineral sublease. In a lengthy judgment involving many parties, most not involved in this appeal, the trial court declared that the mineral sublease executed by LeBlanc as sublessor and Exxon Corporation (Exxon) as sublessee remained in full force and effect. LeBlanc has perfected this appeal.

On January 31,1979, LeBlanc and Exxon executed the sublease covering several parcels of land, including the 14 acres in question here. It provided for termination of the lease unless either (1) rental payments were made, or (2) operations for drilling were commenced on or before the anniversary dates of January 31, 1980, and January 31, 1981. Exxon timely paid rentals for the area in question before the January 31,1980, anniversary date. It paid no rentals covering the disputed area for the year beginning January 31, 1981, because it had begun drilling a well prior to that date within the unit (Unit “0”) containing the 14 acres. That well was a dry hole, and Exxon stopped drilling on March 27, 1981, and plugged and abandoned it on May 23, 1981. Effective January 26, 1982, the Commissioner of Conservation issued Order No. 1027-A-6, which removed the 14-acre parcel from Unit “0” and included it in Unit “K,” which contained a producing well.

LeBlanc contends that the trial court erred because it failed to properly interpret the sublease. He points particularly to numbered paragraphs three and six which appear on pages seven, eight, and nine of the sublease.1 LeBlanc takes this position: paragraph three relieved Exxon of the obligation to pay rentals if it had commenced drilling operations on or before the anniversary date and if it pursued these operations diligently. Paragraph six defines commencement of operations and provides “that such operations must be continuous or with no cessation of more than ninety (90) days....” More than 90 days elapsed with no operations after the well in Unit “0” was abandoned. Therefore, the “operations” undertaken by Exxon were not sufficient to relieve it of the obligation to pay [573]*573rentals. Since no rentals were paid, Le-Blanc reasons, the sublease terminated.2

As we appreciate Exxon’s brief, it offers a two-part response. First, it contends that paragraph six does not establish a resolutory condition based on the “cessation” language; instead, operations that began prior to the anniversary date and continued until sometime after it excused the payment of rentals and maintain the lease through the next anniversary date. Second, it argues that the lease was maintained as to the 14 acres because at the end of the primary term (January 31, 1982), there was production on the unit that then included the 14-acre tract. In other words, the Commissioner of Conservation’s restructuring of the units in January, 1982, which had the effect of placing the disputed parcel in a producing unit, satisfied the terms for continuing the agreement.

To support its first contention, Exxon refers to Broadhead v. Pan American Petroleum Corp., 166 So.2d 329 (La.App. 3d Cir.), writ refused, 246 La. 873, 167 So.2d 679 (1964), and to what it deems the “general rule” as applied to this case; ie., operations beginning before January 31, 1981, and continuing past that date secure the sublease for another year, until January 31, 1982. In Broadhead, as in this case, the lessee was drilling a well on the anniversary date. But unlike the facts of the instant case, the lessee in Broadhead completed the well as a producer nine days following the anniversary date. The Broadhead court needed only to decide that those operations kept the lease in force for nine days until production was achieved. That court was not faced with deciding, nor did it decide, whether drilling which ended with a dry hole maintained a lease for another year despite a “no cessation” clause.

The Broadhead court concluded, “There was thus no necessity under the pleadings and the terms of the lease for the lessees to pay delay rentals.” Broadhead, 166 So.2d at 333. (Emphasis supplied.) The emphasized words point out most strongly the distinction between Broadhead and this case and also the weakness in Exxon’s application of the “general rule.” Whatever the general rule, the LeBlanc-Exxon agreement is governed by the provisions of the sublease. Paragraph three sets out the conditions under which Exxon is excused from paying rentals to preclude termination: (1) it must have commenced “operations for drilling” and (2) it must pursue those operations diligently. Paragraph six explains what is meant by “operations for drilling,” and part of that explanation is the requirement that such operations be continuous or without any cessation of over 90 days. When paragraph three is read in light of this requirement in paragraph six, it becomes clear that the sublease permits avoidance of rental payments only when operations beginning before the anniversary date are free from any cessation of more than 90 days. The drilling activities undertaken by Exxon on Unit “0” did not qualify as operations diligently pursued under the terms of the lease. In other words, the drilling which ended with a dry hole and over 90 days of inactivity cannot be properly denominated “operations” or “operations diligently” pursued as defined by the lease.

Nonetheless, Exxon argues that the requirements of paragraph six do not amount to an express resolutory condition; that paragraph “merely supplies a definition.” The logic of the lease is essentially this: the definition sets out a criterion for “operations.” Operations meeting that criterion are necessary to excuse rental payments. Exxon’s activities did not meet the criterion; thus rentals were due. Exxon did not pay rentals (or perform satisfactory operations). Therefore, the lease terminated. As this analysis indicates, the “no cessation” clause has the effect of a resoluto-ry condition.

The jurisprudence has recognized that “no cessation” clauses can state resolutory [574]*574conditions. In Talley v. Lawhon, 150 La. 25, 90 So. 427 (1922), the court annulled a lease which provided that lease payments were waived when the lessee engaged in operations, as long as there was no cessation of work of over 60 days: “[T]he lease had been suffered to lapse for lack of reasonable continuation of the work.” Talley, 90 So. at 428. In Woods v. Ratliff, 407 So.2d 1375 (La.App. 3d Cir.1981), plaintiffs sought cancellation of a lease after its primary term. Production had ceased, and the lease could be maintained only so long as the lessee either engaged in drilling or reworking operations with no cessation of more than 90 consecutive days or again achieved production. “[Pjlaintiffs [lessors] established that on May 2, 1979, the well was shut down and in excess of ninety consecutive days thereafter, defendants neither produced minerals nor drilled or reworked the well.” Woods, 407 So.2d at 1378. The court concluded that by its terms the lease terminated 90 days after May 2,1979.3 The Reporter of the Mineral Code provides an accurate summary:

The jurisprudence also recognizes that there are other types of express resoluto-ry conditions which may occur, such as failure to meet a drilling obligation within the time stated or failure to pay delay rentals, the occurrence of which automatically dissolves the lease E.g.,

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Related

B.A. Kelly Land Co., L.L.C. v. Questar Exploration & Production Co.
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Amoco Production Co. v. Carruth
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Bluebook (online)
512 So. 2d 571, 98 Oil & Gas Rep. 84, 1987 La. App. LEXIS 10039, Counsel Stack Legal Research, https://law.counselstack.com/opinion/amoco-production-co-v-carruth-lactapp-1987.