Olympia Minerals, LLC v. Hs Resources, Inc.

171 So. 3d 878, 2014 La. LEXIS 2258, 2014 WL 5394124
Supreme Court of Louisiana·Decided October 15, 2014·No. 2013-C -2637 C/W 2013-C -2717·Published·Cited by 18 cases

Opinion

WEIMER, Justice. ■

hWe granted a writ to review the correctness of the lower courts’ interpretation of portions of a written mineral agreement. The agreement was prepared by a mineral leaseholder and ostensibly conveyed to an exploration company an “exclusive option to sublease” at least 15 percent of the *881 leaseholder’s mineral rights. The lower courts interpreted the agreement as imposing an obligation on the exploration company to execute the sublease rather than simply allowing the exploration company the right to execute the sublease. Because the exploration company did not execute such a sublease, the lower courts awarded damages to the leaseholder for breach of contract.

When we granted the writ, it was apparent that the lower courts had awarded to the leaseholder other damages, related to the exploration company’s obligation to execute a mineral sublease. Thus, the viability of those damage awards also depends on whether the lower courts’ rulings that there was an obligation to sublease is correct.

For the reasons that follow, we determine that the lower courts erred in ruling that the exploration company was obligated by the agreement to sublease mineral | ^rights. Instead, we find the agreement afforded the exploration company a nonbinding option to sublease (for which the exploration company paid $1.4 million), but that if the exploration company exercised the non-binding option, it was then obligated to sublease at least 15 percent of the leaseholder’s rights described in the agreement. Accordingly, we reverse the damage award on the breach of contract claim for failing to sublease at least 15 percent of the leaseholder’s mineral rights. However, we also find the exploration company breached its obligation to complete a seismic survey, and we affirm the corresponding award of damage.

Because we find the record does not support a finding that the exploration company acted in bad faith, we examine the effects of a contractual prohibition against consequential damages that the lower courts refused to apply based on those courts’ findings of bad faith. Pretermitted by legal error in the court of appeal, however, was any meaningful review of the merits of the exploration company’s argument that its reconventional demand for improper use and sharing of its seismic data was improperly dismissed. We remand to the court of appeal the question of the propriety of that dismissal and, as that court then deems necessary, the question of whether the record supports the exploration company’s request for relief, or whether remanding to the district court for the taking of additional evidence is required. Finally, we agree with the court of appeal that the leaseholder’s request for attorneys’ fees was properly pretermitted; such request was not properly raised in the district court.

FACTS AND PROCEDURAL HISTORY

In 2000, El Paso Minerals and El Paso Minerals Leasing (collectively “El Paso”) held mineral rights in approximately 42,-000 mineral acres located in Beauregard and Calcasieu Parishes. Effective August 1, 2000, El Paso entered into lathe “NORTH STARKS PROJECT AGREEMENT” with two other businesses, Aspect Resources, LLC, and HS Resources, Inc, which paid $1.4 million as part of the contract.

The agreement described three topics that are relevant to this court’s inquiry. First is the agreement’s provisions for subleasing mineral rights held by El Paso. 1 *882 Second, the agreement described seismic surveys within approximately 135 square miles of lands in Beauregard and Calcasieu Parishes to be undertaken by Aspect Resources and HS Resources. Third, the agreement described ownership details of the seismic data, as well as the form and conditions by which Aspect Resources and HS Resources would provide results to El Paso of the seismic surveys. Although the agreement will be covered in greater detail within this opinion, for present background purposes, the seismic data would be owned by Aspect Resources and HS Resources, with El Paso receiving a long-term, nontransferable license to use the data, including both computer-processed data and unprocessed “raw” or “field” data under strict conditions of confidentiality.

The “NORTH STARKS PROJECT AGREEMENT” had a term of one year. As of July 31, 2001, Aspect Resources and HS Resources had only surveyed the southern half of the property and delivered not the “raw” or “field” data, but the “processed” seismic data to El Paso. Aspect Resources and HS Resources had not subleased any of the property. HS Resources, on behalf of itself and Aspect Resources, requested a six-month extension to complete the survey of the property, |4but El Paso declined. The parties went their separate ways, seemingly without complaint. Even though Aspect Resources ultimately leased some of the property after the agreement’s term, the relative quiet attending the end of the agreement’s term did not last long.

Two years after the agreement expired, in October 2003, Texas investors acquired ownership of El Paso and restructured and renamed it Olympia Minerals, LLC. Other oil companies became interested in leasing portions of the property that had been the subject of the “NORTH STARKS PROJECT AGREEMENT.” Olympia contracted with Heights Energy in Dallas to house Aspect Resource’s seismic data, and the files were moved to a special room for the purpose of analysis by Olympia’s potential partners. Several companies set up work stations to “work” the seismic data; these parties had virtually unfettered access to the data room and all files. In other words, Olympia made the confidential seismic data available to numerous other entities in apparent violation of the seismic data license agreement, which imposed restrictions on the use and dissemination of the data for a term of 49 years.

One of the entities, Wiser Oil, wanted more seismic information. Olympia spent some time trying to locate the field data within El Paso’s files before realizing the raw data was not included. Olympia then requested the raw data from Aspect Resources and HS Resources. For months, frustration ensued as personnel newly involved as a result of El Paso’s restructuring as Olympia grappled with what data Olympia possessed and what data it may be entitled to acquire from Aspect Resources and HS Resources. Apparently, there was confusion by all involved as to which of several contracts governed, as there were several contracts covering different acreages in the region. Eventually, Aspect Resources and HS Resources realized that the “NORTH STARKS PROJECT AGREEMENT,” which was more restrictive than | ^another agreement originally thought applicable, covered the property in question. In October 2004, HS Resources sent Olympia a cease and desist letter regarding Olympia’s sharing of the seismic data.

*883 Settlement negotiations ensued, but'on September 22, 2005, Olympia filed suit against Aspect Resources and HS Resources (defendants). 2 In its suit, Olympia contended that the “NORTH STARKS PROJECT AGREEMENT” did not merely afford defendants the right to sublease mineral interests, but the agreement actually obligated defendants to sublease at least 15 percent of Olympia’s (earlier El Paso’s) mineral interests.

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Olympia Minerals, LLC v. Hs Resources, Inc., 171 So. 3d 878, 2014 La. LEXIS 2258, 2014 WL 5394124 (La. 2014).

171 So. 3d 878 (Olympia Minerals, LLC v. Hs Resources, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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