Will-Drill Resources, Inc. v. Huggs Inc.

738 So. 2d 1196, 143 Oil & Gas Rep. 238, 1999 La. App. LEXIS 2327, 1999 WL 624157
CourtLouisiana Court of Appeal
DecidedAugust 18, 1999
Docket32,179-CA
StatusPublished
Cited by13 cases

This text of 738 So. 2d 1196 (Will-Drill Resources, Inc. v. Huggs 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
Will-Drill Resources, Inc. v. Huggs Inc., 738 So. 2d 1196, 143 Oil & Gas Rep. 238, 1999 La. App. LEXIS 2327, 1999 WL 624157 (La. Ct. App. 1999).

Opinion

738 So.2d 1196 (1999)

WILL-DRILL RESOURCES, INC., Plaintiff-Appellee,
v.
HUGGS INCORPORATED, et al., Defendants-Appellants.

No. 32,179-CA.

Court of Appeal of Louisiana, Second Circuit.

August 18, 1999.
Rehearing Denied September 16, 1999.

Cook, Yancey, King & Galloway by J. William Fleming, F. Drake Lee, Jr., Shreveport, Counsel for Appellants.

Davidson, Nix & Jones by John S. Hodge, Shreveport, Counsel for Concursus Plaintiff/Appellee, Will-Drill Resources, Inc.

Blanchard, Walker, O'Quin & Roberts by William Timothy Allen, III, J. David Garrett, Shreveport, Counsel for Concursus Defendants/Appellees, Shirley Ann Gladney, et al.

Before NORRIS, PEATROSS & DREW, JJ.

PEATROSS, J.

This appeal arises from a proceeding in concursus to determine to whom certain royalties should be paid for oil production from a well located within a unit established by the Louisiana Office of Conservation. Specifically, the dispute is over the activation of a Pugh Clause[1] contained in *1197 an oil, gas and mineral lease. The trial court granted summary judgment in favor of Will-Drill Resources, Inc. and the royalty owners of Gladney Well No. 1 (collectively referred to herein as "WDR"), and against Huggs Incorporated, et al ("Huggs"), finding that the Pugh Clause was triggered by the unitization of land within the leased premises, thereby causing the expiration of the lease as to the remaining leased acreage not included in such unit. As a result, the trial court directed disbursement to WDR of the stake held in the registry of the court. Huggs suspensively appeals the judgment of the trial court. For the reasons stated herein, the judgment of the trial court is reversed.

FACTS

The only issue on appeal is one of law regarding the activation of the Pugh Clause in the oil, gas and mineral lease. The following facts were undisputed:

1. Rock Creek I, Ltd. and LHS, Smith & Smith, Ltd., L.L.P., are the owners in undivided proportions of 100% of the working interest in that certain oil, gas and mineral lease dated January 10, 1975, from James K. Gladney, et al, as lessors, to Huggs Incorporated, as lessee, recorded in Claiborne Parish ("Huggs-Gladney Lease").

2. Huggs is the owner of an overriding royalty and reversionary working interest in the Huggs-Gladney Lease; Sirius Corporation is the owner of an overriding royalty interest carved out of the working interest in the Huggs-Gladney Lease.

3. Under its express written terms the Huggs-Gladney Lease covers the entirety of the Northwest Quarter of Section 27 and the entirety of the Northeast Quarter of Section 27, T 20 N, R 7 W, Claiborne Parish.

4. The Huggs-Gladney Lease contains a Pugh Clause written as follows:

19. Any provision in this lease to the contrary notwithstanding, it is expressly agreed that if, either by an order of the Commissioner of Conservation of Louisiana, or by any other State or Federal authority having control of such matters, or in the manner hereinabove provided, a drilling and/or production unit be created and established, pooling and combining a portion of the lands covered by this lease with other lands, lease or leases in the vicinity thereof, then drilling operations on or production of oil, gas, sulphur or other minerals from such unit shall continue this lease in force and effect during or after the primary term only as to the lands covered hereby which are included in such unit, irrespective of whether such drilling operations be conducted on, or production be secured from lands covered hereby, or from other lands embraced within such unit, it being expressly agreed that drilling operations on, or production from any drilling or production unit, however created or established, shall not maintain this lease in force or effect during or after the primary term as to any of the land covered hereby which are not included in such unit. This lease, during any period in which it is being so maintained as to a part of the land covered hereby may be maintained as to the remainder of said lands in any manner elsewhere provided for herein; provided that if it be maintained by rental payment, the rentals may be reduced in proportion to the number of acres in such unit or units as to which this lease is being maintained by drilling operation or production.

5. Office of Conservation Order No. 48-A, et seq., established drilling and production units for the Pettit (Restricted) Lime in the Athens Field, Claiborne Parish. The Pettit Lime is a subsurface geological zone or formation for which drilling and production units have been established comprising, respectively, *1198 the Northwest Quarter of Section 27, designated as PET RA SUT, and the Northeast Quarter of Section 27, designated as PET RA SUB.

6. Gladney Well No. 2 is located in the Northeast Quarter of Section 27 and is producing from the Pettit (Restricted) Lime as defined in Office of Conservation Order No. 48-A and serves as the unit well for PET RA SUB.

7. In 1996 WDR acquired a series of oil, gas and mineral leases affecting the entirety of the Northwest Quarter of Section 27. There are several owners under these leases who are collectively referred to as the "royalty owners."[2]

8. WDR drilled Gladney Well No. 1 in the Northwest Quarter of Section 27 which is producing from the Pettit (Restricted) Lime as defined in Office of Conservation Order 48-A and is designated as the unit well for PET RA SUT.

9. There is a dispute as to whether the Huggs-Gladney Lease or the WDR Leases are effective as to Gladney Well No. 1 in the Northwest Quarter.

10. The Huggs-Gladney Lease provides for a 1/8th royalty; the WDR Leases provide for higher royalties.

11. The Huggs-Gladney Lease Owners and WDR have compromised and settled their dispute with respect to ownership of the working interest in Gladney Well No. 1.

12. If the Huggs-Gladney Lease is a valid oil, gas and mineral lease as to the Northwest Quarter of Section 27, the disputed royalty is due the working interest owners in Gladney Well No. 1; on the other hand, if the WDR Leases are valid as to the Northwest Quarter of Section 27, the disputed royalty is due the royalty owners.

WDR filed a Concursus Petition to determine ownership of the disputed royalty. The named defendants included Huggs Incorporated, Rock Creek Ranch I, Ltd., LHS, Smith & Smith, Ltd., and Sirius Corporation. All parties filed motions for summary judgment. WDR and the royalty owners argued that the Pugh Clause was operative and that the Huggs-Gladney Lease had expired by virtue of the operation of the clause and the trial court agreed. As previously stated, the trial court granted WDR's and the royalty owners' motions for summary judgment, denied Huggs' motion for summary judgment and directed disbursement of the stake held in the court's registry (the disputed royalty) accordingly.

DISCUSSION

A trial court's granting of summary judgment is reviewed de novo under the same criteria that govern the trial court's consideration of whether summary judgment is appropriate. Reynolds v. Select Properties, Ltd. 93-1480 (La.4/11/94), 634 So.2d 1180; Schroeder v. Board of Supervisors of LSU, 591 So.2d 342 (La.1991). Generally, contract interpretation is a question of law and is reviewed de novo. Sandefer Oil & Gas, Inc. v. Duhon, 961 F.2d 1207 (5th Cir.1992).

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Bluebook (online)
738 So. 2d 1196, 143 Oil & Gas Rep. 238, 1999 La. App. LEXIS 2327, 1999 WL 624157, Counsel Stack Legal Research, https://law.counselstack.com/opinion/will-drill-resources-inc-v-huggs-inc-lactapp-1999.