B.A. Kelly Land Co., L.L.C. v. Questar Exploration & Production Co.

106 So. 3d 181, 177 Oil & Gas Rep. 133, 2012 WL 5503665, 2012 La. App. LEXIS 1460
CourtLouisiana Court of Appeal
DecidedNovember 14, 2012
DocketNo. 47,509-CA
StatusPublished
Cited by11 cases

This text of 106 So. 3d 181 (B.A. Kelly Land Co., L.L.C. v. Questar Exploration & Production Co.) 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
B.A. Kelly Land Co., L.L.C. v. Questar Exploration & Production Co., 106 So. 3d 181, 177 Oil & Gas Rep. 133, 2012 WL 5503665, 2012 La. App. LEXIS 1460 (La. Ct. App. 2012).

Opinion

MOORE, J.

LThe lessors, B.A. Kelly Land Co. and Augton Co., filed this suit in 2009 to declare a 1971 mineral lease automatically terminated due to the lessees’ failure to produce or perform operations for 11 months in 1988 and 1989. The district court sustained the lessees’ exceptions of prematurity and no cause of action based on the “judicial ascertainment” clause in the lease, and dismissed the suit without prejudice. The lessors now appeal. For the reasons expressed, we affirm in part, amend in part and remand.

Factual Background

In October 1971, Dorothy Richardson granted an oil, gas and mineral lease to PAR Oil (“the PAR lease”), covering a 40-acre tract in Elm Grove Field, Sec. 31, T17N, R11W, Bossier Parish. The lease was for a primary term of two years,1 with a habendum clause2 and shut-in clause.3 Crucial to this case, the lease also contained a judicial ascertainment clause:

13. After production of oil, gas, sul-phur or other mineral has been secured from the land covered hereby or land pooled therewith, this lease shall not be subject to forfeiture or loss, either in whole or in part, for failure to conduct operations in compliance with this contract except after judicial ascertainment that Lessee has failed to conduct such operations Land has been given a reasonable opportunity after such judicial ascertainment to prevent such loss or forfeiture by complying with and discharging its obligations as to which Les[185]*185see has been judicially determined to be default. * * *

An operator, Mobley, acquired an interest in the PAR lease and, in 1974, drilled the Mims # 1 well on land unitized with the lease tract. According to documents filed in this case, Mims # 1 was completed in January 1975 and remains a producing well to date.

In the 1990s, Mrs. Richardson donated the lease tract to her son, who later conveyed the mineral rights to the plaintiffs, B.A. Kelly Land Co. and Augton Co. Through other conveyances, Questar Exploration, Atlanta Exploration and 16 other entities acquired leasehold interests in the lease; in 1996, Questar Exploration became the operator of the unitized Sec. 31, in which this tract sits. Questar Exploration is now known as QEP.

In November 2009, B.A. Kelly and Aug-ton filed this suit seeking a declaration that the PAR lease was automatically terminated because over two periods, November 1988-January 1989 and June-October 1989, no minerals were produced, and from November 1988 to October 1989 no operations of any kind were performed, on the lease tract or on lands pooled with it. The lessors named QEP, the current operator, and the 17 other leaseholders as defendants. They alleged that Mrs. Richardson was never advised of the cessation of production or operations, as required by La. R.S. 31:102, and there was no lack of market or unavailability of a pipeline outlet sufficient to trigger the shut-in clause; hence, the lease “terminated automatically by occurrence of a resolutoiy condition, specifically the cessation of production in paying quantities.” They demanded a declaration |sthat the PAR lease was terminated; costs, attorney fees and damages; removal of all facilities from the lease tract; and an accounting.

On December 21, 2009, attorney Mike Donald filed an answer on behalf of all defendants. The answer mostly denied all allegations; under the heading of “Affirmative and Other Defenses,” it asserted that the petition failed to state a claim on which relief may be granted because “Plaintiffs have not met all conditions precedent to seek cancellation of a mineral lease.” The answer also included a recon-ventional demand for reimbursement of all facilities and costs, in the event the PAR lease was terminated.

On January 13, 2010, attorney Joseph Shea, on behalf of Atlanta Exploration and 10 other defendants, filed a motion to strike Mr. Donald’s answer. These defendants (now referred to as “the Atlanta defendants”) attached affidavits swearing that they had retained Mr. Shea to represent them, but that Mr. Donald erroneously filed an answer naming them as his clients. They sought a rule to show cause and leave of court to file their own exceptions (including a dilatory exception of prematurity) and answer.

The plaintiffs did not object to letting the Atlanta defendants file a new answer, but strongly argued that they could not revive the dilatory exception of prematurity that Mr. Donald had waived by filing an answer. After a hearing on April 19, the district court granted the Atlanta defendants leave to file exceptions and an answer, but ruled that the others (now referred to as “the QEP defendants”) could not.

|4The Atlanta defendants filed their exceptions and answer, specifically a dilatory exception of prematurity, urging that the plaintiffs had not yet obtained a judicial ascertainment under ¶ 13 of the PAR lease that the lessee failed to conduct operations and was given a reasonable opportunity to prevent the forfeiture or loss. They also denied the plaintiffs’ allegations and as[186]*186serted a reconventional demand similar to the QEP defendants’.

Later, the QEP defendants filed an amended answer, reiterating the “affirmative defense” that the plaintiffs had not met the conditions precedent to seek cancellation of the lease. They also filed a motion for summary judgment (as did the Atlanta defendants and the plaintiffs). Filings in support of and opposition to these motions showed that Mrs. Richardson received no royalty checks for the 8 months in 1988 and 1989, and by affidavit she stated that she was never notified that the well was shut in; thus the plaintiffs felt they were entitled to judgment that the lessees ceased production, effecting the automatic termination of the lease.

All defendants conceded that Mrs. Richardson received no royalty checks for the months in question, but argued that the natural gas market collapsed in late 1988, leading their exclusive buyer, Arkla, to halt gas purchases; the operator at the time, Mobley, went bankrupt as a result; his bankruptcy estate eventually received a settlement from Arkla, of which a proportionate share ($471.01) was sent to Mrs. Richardson in November 1993, and she cashed the check. They argued that these facts showed they did not simply cease production, such as would automatically terminate the lease under La. R.S. 81:124 and provisions of the PAR lease.

|fiThe Atlanta defendants reasserted their dilatory exception of prematurity based on the lessors’ failure to get a judicial ascertainment. They also argued that any claim for unpaid royalties prescribed in three years under La. C.C. arts. 3494(5) and 3495.

Action of the District Court

At a hearing on motions on December 12, 2011, the Atlanta defendants argued their exception of prematurity and the QEP defendants argued that the plaintiffs’ failure to seek judicial ascertainment could be raised as a peremptory exception of no cause of action. The plaintiffs argued, in essence, that if the lease was automatically terminated, then the judicial ascertainment clause was null and void.

The court ruled from the bench that the matter was premature. It rendered judgment sustaining the Atlanta defendants’ exception of prematurity and dismissing all claims against them, and dismissing all claims against the QEP defendants as premature.

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Bluebook (online)
106 So. 3d 181, 177 Oil & Gas Rep. 133, 2012 WL 5503665, 2012 La. App. LEXIS 1460, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ba-kelly-land-co-llc-v-questar-exploration-production-co-lactapp-2012.