Huhn v. Marshall Exploration, Inc.

337 So. 2d 561
CourtLouisiana Court of Appeal
DecidedDecember 3, 1976
Docket12975
StatusPublished
Cited by7 cases

This text of 337 So. 2d 561 (Huhn v. Marshall Exploration, Inc.) 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
Huhn v. Marshall Exploration, Inc., 337 So. 2d 561 (La. Ct. App. 1976).

Opinion

337 So.2d 561 (1976)

Leo H. HUHN et al., Plaintiffs-Appellants,
v.
MARSHALL EXPLORATION, INC., Defendant-Appellee.

No. 12975.

Court of Appeal of Louisiana, Second Circuit.

August 31, 1976.
Rehearing Denied September 27, 1976.
Writ Refused December 3, 1976.

*563 Rothell & Lawson by David A. Rothell, Mansfield, for plaintiffs-appellants.

Colvin, Hunter, Brown & Plummer by D. Scott Brown and Robert E. Plummer, Mansfield, for defendant-appellee.

Before HALL, MARVIN and JONES, JJ.

En Banc. Rehearing Denied September 27, 1976.

MARVIN, Judge.

Plaintiffs appeal the rejection of their demands for cancellation of an oil and gas lease granted by their deceased ancestor for whom they were substituted as plaintiffs after suit was filed.

Leo Huhn, plaintiffs' ancestor, granted the lease on an M. L. Bath Company lease form, Louisiana Spec. 14 BR1 2A (1-63), for a six month primary term beginning June 1, 1969. Huhn's lessee assigned the lease to defendant, Marshall Exploration, Inc. Marshall assigned a fractional interest in the lease to White Shield Oil and Gas Corporation in 1969, but reacquired this interest on June 5, 1973.

On November 14, 1969, the State Department of Conservation granted a permit to Marshall's assignee to reenter and deepen an old, but non-productive and plugged well on the leased property known as the Huhn No. 1 well. Marshall's engineer and the company records establish that Marshall set up a drilling rig and conducted operations at the Huhn well site between November 26 and November 30, 1969, including eight hours of drilling through the cement plug in the old well on November 30. The record establishes that the operations on the Huhn well continued without significant lapse or interruption through a Schlumberger test on December 12 and the well being made productive about December 27, 1969. Once productive, the well was connected to a pipeline about July 22, 1970, and has since produced gas and distillate in small quantities.

Plaintiffs contended below, and urge as specifications of error here, that the lease should have been cancelled or forfeited because of

(1) The lessee's failure to engage in drilling operations within the six-months primary term;

(2) The lessee's failure to maintain production for a consecutive four-month period; and

(3) The lessee's failure to pay production royalty for a thirteen-month period when the well was producing.

The lower court rejected each contention of plaintiffs and we affirm for reasons hereafter given.

DRILLING WITHIN THE PRIMARY TERM?

Plaintiffs had two witnesses—a brother and a nephew of original plaintiff—who testified they were often hunting on the property in late November and in December 1969, but saw no activity at the old well site until mid-December, 1969. Trial was held in June, 1975. The lower court said it "could only conclude that [these witnesses] were in error as to the dates [they were on the property]." The lower court accepted the contrary testimony of Marshall's engineer and the business records of Marshall, summarized above. We find no error in the lower court concluding that Marshall was engaged in drilling operations at the expiration of the primary term of the lease on December 1, 1969.

Paragraph five of the lease expressly contemplates such a situation in this language:

". . . If at the expiration of the primary term oil, gas or other mineral is not being produced . . . but lessee is then engaged in drilling or reworking operations . . . the lease shall remain *564 in force so long as operations are prosecuted with no cessation of more than thirty (30) consecutive days, and if they result in the production of oil, gas or other mineral, so long thereafter as oil, gas or other mineral is produced from said land . . ."

The setting up of a rig and drilling through a cement plug of an old well on the last day of the primary term does constitute being "engaged in drilling operations" within the intendment of paragraph five of the Bath 14 BR1 2A (1-63) lease form so as to maintain the lease in force beyond the primary term.[1]

FAILURE TO MAINTAIN PRODUCTION OR TO PAY PRODUCTION ROYALTY

After the well was made productive and before it was placed on the pipeline, Marshall mailed three checks for $12.50 each as shut-in royalty payments to the original plaintiff. Huhn refused to accept or to cash the shut-in royalty checks. Huhn's correspondence and writings on checks returned to Marshall show that Huhn was dissatisfied with the lease and contested its validity as soon as it was known that the well was made productive. Huhn's position was that the production unit for the well should not encompass 640 acres, but only the leased property of slightly less than 160 acres. Huhn also refused to cash some of the production royalty checks which were mailed to him by Marshall's assignee and would not sign a division order specifying his royalty interest in the unit, all because of his contentions against the size of the unit and the validity of the lease.

The lower court expressly noted in its written opinion that this was the "real reason" Huhn was seeking cancellation of the lease.

Marshall's assignee, White Shield, paid or attempted to pay production royalty periodically to Huhn through May of 1973. From February until May, 1973, the compressor and other equipment near the well site became the subject of repeated vandalism by persons unknown. Eventually Marshall caused the manually operated valves at the well site to be immobilized in an attempt to avoid deliberate interference with production. The well was still productive but because of the vandalism, the production equipment was not operating for about three months to force the gas into the highpressure marketing pipeline. After complaints to local law enforcement authorities by Marshall, and a complaint to Huhn's attorney, the vandalism ceased and repeated repairs were no longer necessary. The flow of gas into the marketing pipeline resumed in May, 1973. On June 5, 1973, Marshall formally reacquired the fractional interest earlier assigned to White Shield.

Paragraph 12 of the lease contemplates that things beyond the control of the lessee, such as vandalism and deliberate interference with production, will not cause automatic termination or forfeiture of the lease.[2]

*565 Paragraph 5 of the lease provides in part that if production should cease from any cause, the lease shall not terminate if lessee commences operations for additional drilling or reworking within sixty days thereafter. Marshall and its assignee repeatedly made attempts to protect against vandalism and to restore and repair the compressor and other production equipment for about three months. Without a compressor to force the gas into the pipeline which was of greater pressure than the well, the gas simply could not be marketed during this time. There was no cessation of production and no necessity for drilling or "reworking" of the well in the technical sense of paragraph 5 because the well was capable of producing. See House v. Tidewater Oil Company, 219 So.2d 616 (La.App.3d Cir. 1969).

Under our interpretation of the lease and contrary to plaintiffs' contentions, we hold paragraph 5 inapplicable because production does not cease when production equipment is damaged by vandalism and a reasonably diligent and timely effort is made by the lessee to protect against vandalism and to repair the equipment necessary to market the gas.

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