Stephenson v. Petrohawk Properties, L.P.

37 So. 3d 1145, 172 Oil & Gas Rep. 357, 2010 La. App. LEXIS 821, 2010 WL 2179615
CourtLouisiana Court of Appeal
DecidedJune 2, 2010
Docket45,296-CA
StatusPublished
Cited by16 cases

This text of 37 So. 3d 1145 (Stephenson v. Petrohawk Properties, L.P.) 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
Stephenson v. Petrohawk Properties, L.P., 37 So. 3d 1145, 172 Oil & Gas Rep. 357, 2010 La. App. LEXIS 821, 2010 WL 2179615 (La. Ct. App. 2010).

Opinions

STEWART, J.

It The defendant/lessee, Petrohawk Properties, L.P. (“Petrohawk”), appeals a summary judgment ordering it to pay an additional lease bonus totaling $1,920,000 plus interest to the plaintiffs / lessors, William Lane Stephenson, III, and Sally B. Stephenson, who appears individually and as trustee for the Corrie Marie McGovern Trust and the Michael Bradley McGovern Trust; Karon Stephenson Miller; and Michael Y. McGovern as trustee for the Lisa Lallier Trust and the William Lane Stephenson, IV Trust (referred to herein collectively as the “Stephensons”). Finding that there is no genuine issue of fact for trial and that summary judgment is appropriate as a matter of law, we affirm.

FACTS

Petrohawk entered six identical oil and gas leases with the Stephensons (hereafter the “Stephenson leases”), effective April 15, 2008. The Stephenson leases cover 160 acres in DeSoto Parish described as follows:

SECTIONS 10 & 11: TOWNSHIP U NORTH — RANGE 13 WEST
SECTION 10: The North-half of the Northeast Quarter (N/2 of NE/4); and the Southeast Quarter of the Northeast Quarter (SE/4 of NE/4), containing 120.0 acres, more or less.
SECTION 11: The Northwest Quarter of the Northwest Quarter (NW/4 of NW/ 4), containing 40.0 acres, more or less.

Petrohawk paid the Stephensons a lease bonus of $4,250 per acre, for a total payment of $680,000. Each of the Stephenson leases contained a “most favored nations” clause (hereafter the “MFNC”) which states:

Lessee agrees that, if at any time during the first twelve (12) months of this lease, Lessee acquires directly (or indirectly through Lessee’s agents, Affiliates, parent or Subsidiaries), a lease (“Third Party Lease”) affecting land(s) or mineral rights located, in whole or in part, within two miles of the perimeter of any boundary line of any of the land(s) covered by this lease (the “Geographic Area”), and in consideration of said Third Party Lease, Lessee pays a lease or signing bonus greater than $4,250.00 per acre, then Lessee shall immediately pay to Lessor an amount equal to the difference between the more favorable bonus in the Third Party Lease and $4,250.00 per acre. Notwithstanding the foregoing, the following leases shall not be considered a Third Party Lease for purposes of this provision: (a) a lease obtained from any state, city, parish, or federal governmental entity or from any school board or levee board or district; and (b) a lease covering a tract of land of less than 20 acres; provided, howev[1147]*1147er, that a lease that is one (1) of two (2) or moré leases obtained from a single lessor or owner which leases cover tracts of 20 acres or more in the aggregate located in whole or in part within the Geographic Areas, which leases cover tracts of 20 acres or more in the aggregate located in whole or in part within the Geographic Area, shall be a Third Party Lease for purposes of this provision.

When Petrohawk subsequently acquired another lease within the Geographic Area described by the MFNC, Petrohawk paid the Stephensons an additional bonus of $2,250 per acre, bringing their total lease bonus to $6,500 per acre or $1,040,000.

On July 9, 2008, Petrohawk entered an oil and gas lease with George Archer Fri-erson II, John Bolinger Frierson, Clarence Nicholson Frierson, Jr., Christian Basing-er Frierson, Betty Basinger Frierson, and the Frierson L.L.C., (hereafter the “Frier-son lease”), covering various noncontiguous tracts of land totaling over 4,000 acres in Caddo, Bossier, and DeSoto Parishes. Petrohawk paid the Friersons a lease bonus of $18,500 per acre. The Frierson lease included a small tract of 7.36 acres in DeSoto Parish described as follows:

Township 14 North, Range 13 West
Section 13: Beginning at the NE Corner of the SE/4 of SW/4 of Section 13-14N-13W, thence run W 6.67 chains, thence |aS 11.04 Chains, Thence E 6.67 chains, thence N 11.04 chains to the P.O.B. Containing 7.36 acres.

Part of the 7.36 acre tract falls within the Geographic Area described in the MFNC of the Stephenson leases.

By letter of January 28, 2009, the Ste-phensons sought to enforce the MFNC by demanding an additional lease bonus payment from Petrohawk in the amount of $1,920,000 ($12,000 x 160 acres).1 The additional $12,000 per acre demanded by the Stephensons represented the difference between the $6,500 per acre they had thus far been paid by Petrohawk and the $18,500 per acre paid by Petrohawk to the Friersons. Petrohawk refused to pay the additional lease bonus demanded by the Stephensons.

On March 3, 2009, the Stephensons filed a petition against Petrohawk for breach of contract due to its refusal to pay the additional lease bonus. In answer to the petition, Petrohawk asserted that the Frierson lease did not trigger the MFNC in the Stephenson leases. Petrohawk reasoned that the MFNC specifically exempts “a lease covering a tract of land of less than 20 acres” and that the 7.36 acre tract in the Frierson lease is less than 20 acres.

On April 15, 2009, the Stephensons filed a motion for summary judgment. They asserted that the language of the MFNC is unambiguous and that the exclusion for “a lease covering a tract of land of less than 20 acres” clearly refers to a lease that covers a single tract of less than 20 acres and does not refer to a lease like the Frierson lease that covers multiple tracts of over 4,000 acres. In addition to offering the leases in support of the motion, the Stephensons included an affidavit by Enoch J. French, an engineer and land surveyor. French provided a map of the Holly Quadrangle, which is the location of both the Stephenson lease tract and the 7.36 acre tract in the Frierson lease. The map shows “the closest points of the two tracts to be 9990 feet (1.89 miles) apart.”

In opposing the Stephensons’ motion for summary judgment, Petrohawk argued that the MFNC is susceptible to more [1148]*1148than one interpretation and therefore ambiguous. However, in a cross motion for summary judgment, Petrohawk asserted that the language of the MFNC is clear and unambiguous in excluding “a lease covering a tract of land of less than 20 acres.” Because the Frierson lease covers a tract of land of less than 20 acres that falls in whole or part within the Geographic Area described in the Stephenson leases, Petrohawk argued that it did not trigger the MFNC. In support of its motion, Pe-trohawk offered the affidavit of its district land manager, John W. Walsh. The affidavit notes that the Frierson lease encompasses several tracts of land including the 7.36 acre tract; that the Friersons own only a 1/14 undivided interest in the 7.36 acre tract, which is part of a 640-acre preexisting unit operated by another entity; and that Petrohawk obtained a less than one percent non-participating interest in the 7.36-acre tract. The affidavit relates that the 7.36 acre tract “has essentially no economic value to Petrohawk and is a de minimus [sic] tract in function as well as size” and that Petrohawk did not intend the MFNC to be triggered by a lease with only de minimis acreage located in the Geographic Area.

Because both parties asserted that no ambiguity exists in the MFNC, neither presented evidence revealing the negotiations for the provision or the party responsible for its drafting.

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Stephenson v. Petrohawk Properties, L.P.
37 So. 3d 1145 (Louisiana Court of Appeal, 2010)

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Bluebook (online)
37 So. 3d 1145, 172 Oil & Gas Rep. 357, 2010 La. App. LEXIS 821, 2010 WL 2179615, Counsel Stack Legal Research, https://law.counselstack.com/opinion/stephenson-v-petrohawk-properties-lp-lactapp-2010.