PetroQuest Energy, LLC v. Banks

208 So. 3d 543, 16 La.App. 3 Cir. 516, 2016 La. App. LEXIS 2301
CourtLouisiana Court of Appeal
DecidedDecember 14, 2016
Docket16-516
StatusPublished

This text of 208 So. 3d 543 (PetroQuest Energy, LLC v. Banks) 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
PetroQuest Energy, LLC v. Banks, 208 So. 3d 543, 16 La.App. 3 Cir. 516, 2016 La. App. LEXIS 2301 (La. Ct. App. 2016).

Opinion

AMY, Judge.

_JjThis concursus proceeding questions the appropriate royalty to be paid a mineral lessor from a well operated by the plaintiff in the concursus. Both the lessor and an overriding royalty interest owner were named as defendants. The parties filed cross motions for summary judgment seeking a determination of the appropriate royalty due from the well in light of an amendment to the original lease. The trial court entered partial summary judgment in favor of the overriding royalty interest [545]*545holder. The lessor appeals. For the following reasons, we reverse the entry of partial summary judgment, and remand for further proceedings. We further deny the lessor’s exception of no right of action, filed for the first time on appeal.

Factual and Procedural Background

PetroQuest Energy, LLC instituted this matter by Concursus Petition in August 2014, naming Sam L. Banks and the Isa-dore Delcambre Estate as defendants in the proceeding. As the operator of several wells located on the Estate’s property in Vermilion Parish, PetroQuest sought the concursus proceeding after Mr. Banks, the owner of an overriding royalty interest (ORRI) in certain wells, challenged the royalty due the Estate from production from a particular well, Broussard Est. No. 1 ALT Well1 (the alternate well).

In setting forth the background of the alternate well, the petition noted that the Estate entered into an Oil, Gas, and Mineral Lease with Yuma Exploration and Production Company in August 2005. The record establishes that, in 2007, Yuma assigned its interest in the lease, with a reservation of an ORRI, to PetroQuest. In 12that same year, drilling began on the original well at interest in this matter, Broussard No. 1 (the original well).

However, by January 15, 2008 letter, PetroQuest noted that it had drilled the original well “to a depth of 15,258' MD (15,219' TVD) Sidetrack[2] hole # 1 and encountered ‘Gulf Coast Conditions!,]’ as defined in the [Participating] Agreement[3] that renders further drilling impractical.” PetroQuest recommended that it “plug the open hole and temporarily abandon the Well leaving the Well in a condition that the Participants can either re-enter the Well for sidetracking or permanently plug and abandon the Well at a later date without the use of a drilling rig.” The record includes the resulting Office of Conservation Plug and Abandon Report, which indicates that the well was “temporarily abandoned” at that time.

In April 2008, PetroQuest and the Estate entered into an “Amendment of Oil, Gas and Mineral Lease” to the original, 2005 lease, extending the lease term and modifying the royalty rate due the Estate. The focus of this proceeding is the Amendment’s provision that provided for an increased royalty rate of 23%, particularly as it relates to a royalty payable for “Subsequent Wells[.]” The Amendment provides, in pertinent part:

“(Hi) Lessor and Lessee acknowledge that PetroQuest Energy, L.L.C. has first drilled the PetroQuest Energy-CRIS R RA SUA; A. IsBroussard Estate No.l Well, Conservation Well Serial No. 235876, Bayou Hebert Field, on [546]*546lands unitized with the lands covered by this lease, which well was not successfully completed, and PetroQuest Energy, L.L.C. has proposed the drilling of a second well either on the lands covered by this lease or on lands unitized therewith (the “Second Well”). Notwithstanding the provisions of sub-paragraphs (h)(i) and (h)(ii) of this lease, Lessor and Lessee agree that for any well drilled on lands covered by this lease or on lands unitized therewith after the drilling of the Second Well (“Subsequent Wells”), royalty payable under this lease on production from Subsequent Wells shall increase to Twenty-three (23.00%) percent, but shall otherwise be calculated in accordance with the applicable provisions of this lease.”
It is expressly understood that by this amendment, royalty to be paid by Lessee on production from the Second Well is increased to Twenty-two and One-half (22.50%) percent, and royalty on production from Subsequent Wells is increased to Twenty-three (23.00%) percent.

Mr. Banks, Yuma’s Chief Executive Officer, subsequently acquired his interest in this matter in March 2011 when Yuma executed an “Assignment of Overriding Royalty Interest” in his favor. The assignment conveyed a 1.090268% ORRI in the original, 2005 lease.

Following the 2008 Amendment, Petro-Quest continued drilling operations on the subject property, including the drilling of Thibodeaux No. 1. The parties do not dispute that Thibodeaux No. 1 constituted the “Second Well” contemplated by the 2008 amendment and, thus, the 22.50% royalty payment attributable to that well is not now at issue. Nor do the parties dispute that Broussard No. 2 was a “Subsequent Well” pursuant to the amendment and, therefore, subject to the 23% royalty payment.

Rather, the increased royalty rate became an issue when, in 2012, PetroQuest proposed reentry of the original well to the well’s participants as follows: “PetroQuest hereby proposes reentering the Petro-Quest — Broussard # 1 L(SN 235876) sidetracking out and drilling the CRIS R RA SUA; Broussard # 1 ST Alternate Well .... ” The proposal included a request for authority for an expenditure “for the Well in the amount of $7,427,800.00 (the “AFE”)” as well as a request for remittance of the requisite “cash call amount[.]”

PetroQuest alleged in the concursus petition that it began drilling the alternate well “on or about January 10, 2013 by utilizing the upper portion of original well-bore of the A. Broussard Est. No. 1 Well that was previously drilled as a dry hole.” It noted that the “Broussard Est. No. 1 ALT Well was completed as a gas well on May 25, 2013.”

PetroQuest indicated in the petition that, per the 2008 Amendment, it “treated the Broussard Est. No. 1 ALT Well as a ‘Subsequent Well’ and has paid royalties to Isadore Delcambre Estate for production from this unit well at the royalty rate of Twenty-three (23%) percent.” However, by July 2014 correspondence to Petro-Quest, Mr. Banks alleged that it improperly classified this alternate well as a Subsequent Well under the terms of the Amendment. He asserted that the alternate well was instead a continuation of the original well, Broussard No. 1, and that it therefore constituted the first well under the terms of the Amendment. Mr. Banks thus alleged that the proper royalty payment to the Estate was 22.50% and that PetroQuest had improperly reduced his ORRI payments by improperly eategoriz-[547]*547ing that well. PetroQuest noted that Mr. Banks sent a “Notice Pursuant to La.R.S. 31:212.21 of Failure to Make Royalty Payment” in that regard. Mr. Banks demanded that PetroQuest pay him the sums he alleged were due, as well as legal interest.

In light of Mr. Banks’ demand and the assertion that the lesser royalty was due the Estate, PetroQuest alleged in its con-cursus petition that it could not | ¿“continue to pay royalties on this unit well to lessor, Isadore Delcambre Estate, without possibly incurring liability to Sam L. Banks.” Therefore, PetroQuest sought placement of the disputed funds into the registry of the court so that the defendants could assert their respective claims contradictorily.

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Bluebook (online)
208 So. 3d 543, 16 La.App. 3 Cir. 516, 2016 La. App. LEXIS 2301, Counsel Stack Legal Research, https://law.counselstack.com/opinion/petroquest-energy-llc-v-banks-lactapp-2016.