Wood v. Axis Energy Corp.

899 So. 2d 138, 2005 WL 767447
CourtLouisiana Court of Appeal
DecidedApril 6, 2005
DocketCA 04-1464
StatusPublished
Cited by4 cases

This text of 899 So. 2d 138 (Wood v. Axis Energy Corp.) 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
Wood v. Axis Energy Corp., 899 So. 2d 138, 2005 WL 767447 (La. Ct. App. 2005).

Opinion

899 So.2d 138 (2005)

Homer D. WOOD, et al.
v.
AXIS ENERGY CORPORATION, et al.

No. CA 04-1464.

Court of Appeal of Louisiana, Third Circuit.

April 6, 2005.

*140 Edward C. Abell, Jr., Onebane, Bernard, Torian, Lafayette, LA, for Defendants/Appellees, Halliburton Company, Mokeen Ltd. Partnership.

Raymond Anthony Beyt, Beyt & Beyt, Lafayette, LA, for Secondary Defendants/Appellants, Virginia Skinner Jones, J. Malcolm Jones, W.E. Wild, Jr., Dorothy Jean Hill Keenom, Shirley K. Bernstein, Mary Kathryn Meadors, George E. Meadors, Kathryn Wild, Axis Energy Corporation, Kenneth M. Waltrip, James Robert Hill, Virginia Glenn Hill Lattimore, Houston and Emma Hill, Trust Estate, John Newton.

Carla F. Chrisco, Lake Charles, LA, for Defendants/Appellees, Elisabeth Johnson, *141 C. Leslie Rice, Jr., James Kemp, Estate of, Ralph R. Gilster, Jr., Georgia Mauch.

James Lawrence Bullen, Strain, Dennis, Mayhall & Bates, LLP, Lafayette, LA, for Plaintiffs/Appellees, Thomas C. McKowen, IV, Dorothy Lorene Wood, Charles I. Wood, Faithy W. Howard, Ruth R. Bravenac, John D. Williams, Barbara F. McGary, Nedra Pat Wood, Homer D. Wood, Roselle V. Manning, Diana Hundsoerfer Hauser.

David Paul Bruchhaus, Mudd & Bruchhaus, Cameron, LA, for Defendants/Appellees, Elizabeth Barlow, Neal Pratt Scott, Mitchell Investments, Martha Watts, Thomas Howes, Gail Moulton, Emmett Pratt, III, Henry Kravis, Trustee.

Kyle Patrick Polozola, George Hardy Robinson, Liskow & Lewis, Lafayette, LA, for Defendant/Appellee, JE & LE Mabee Foundation.

Marion Gute Webb, Newport Beach, CA, in Proper Person.

Tom Wahl, Oklahoma State Bank, Tulsa, OK, for Defendant/Appellee, Raymond F. Kravis, Trust.

Court composed of OSWALD A. DECUIR, MICHAEL G. SULLIVAN, and BILLY HOWARD EZELL, Judges.

EZELL, Judge.

Axis Energy Corporation and other interest owners in a mineral lease appeal a trial court judgment cancelling the mineral lease for failure to produce in paying quantities. Other issues raised by the Defendants concern bad faith, production proceeds, attorney fees, expert fees, and estoppel.

FACTS

The facts are not in dispute. On May 17, 1951, William R. Ehni and Hugh W. Darling executed an oil, gas, and mineral lease (hereinafter the Ehni-Darling Mineral Lease) in favor of James E. Kemp. The lease covered 1,400 acres in Cameron Parish. The Plaintiffs are the successors to the lessors' interest in the lease.

Between 1951 and 1981, two wells were drilled on the property and three wells were drilled on the adjoining Doland Tract to the east, all of which produced for the Ehni-Darling Reservoir Wide Sand Unit. By January 1992, all of the wells had ceased to produce, except for the Doland No. 3 Well, which was the last well drilled.

On May 20, 1994, the Doland No. 3 Well loaded up with water and ceased to produce for the first time. Thereafter, a "stopcocking"[1] method was utilized to secure production of the well when it ceased to produce for the next several months. Eventually, the "stopcocking" was not successful, and in April 1995, the well was "swabbed." On April 20, 1995, the well ceased to produce and was shut in. The Plaintiffs' first written demand for release of the lease was made on June 7, 1995, due to failure to produce in paying quantities. The Defendants responded, denying that the lease had terminated. On July 19, 1995, another request was made by the Plaintiffs for cancellation of the lease.

During this time workover operations on the Doland No. 3 Well had commenced. The well was recompleted in a different unit sand and produced from the summer of 1995 until the fall of 1996.

On January 15, 1997, Plaintiffs made demand on the Defendants for further development and exploration of the lease or a *142 release thereof. Subsequent demands were made on April 9, 1997, and May 22, 1997. Several parties released their interests in the lease. On October 8, 1997, the landowners/lessors filed suit against Axis and other parties claiming that the lease had terminated. The Plaintiffs asserted three bases for termination of the lease. They claimed that the lease terminated for failure to timely commence reworking operations as required by the lease, that there was failure to maintain production in paying quantities under the terms of the lease and Louisiana law, and finally, that there was failure to properly maintain the lease.

Trial before a judge was held on June 30, 2003, and July 1, 2003. The trial court found that the lease terminated for failure to produce in paying quantities as of April 21, 1995. The trial court found that the Defendants were liable to the Plaintiffs for any production revenue received, less the costs of production and the royalties and overriding royalties previously paid. The trial court also ordered the Defendants to render an accounting to the Plaintiffs for production revenue. The Plaintiffs were also awarded attorney fees in the amount of $62,000.00, in addition to expenses for prosecution of the matter in the amount of $9,179.62. The Defendants have appealed the judgment, and the Plaintiffs have answered the appeal.

PRODUCTION IN PAYING QUANTITIES

The trial court found that for the accounting year May 1994 to April 1995, the Doland No. 3 Well had not produced in paying quantities. As a result, the trial court found that the lease terminated no later than April 21, 1995. The Defendants claim that this finding was in error.

Louisiana Revised Statutes 31:124 requires production in paying quantities when a mineral lease is maintained by production of oil or gas:

It is considered to be in paying quantities when production allocable to the total original right of the lessee to share in production under the lease is sufficient to induce a reasonably prudent operator to continue production in an effort to secure a return on his investment or to minimize any loss.

This court in Lege v. Lea Exploration Co., Inc., 93-605, p. 2 (La.App. 3 Cir. 2/2/94), 631 So.2d 716, 717, writ denied, 94-450 (La.4/4/94), 635 So.2d 1112 (quoting Clifton v. Koontz, 160 Tex. 82, 325 S.W.2d 684, 691 (1959)) (alteration in original), discussed the process of determining whether there was production in paying quantities as follows:

"... [T]he standard by which paying quantities is determined is whether or not under all the relevant circumstances a reasonably prudent operator would, for the purpose of making a profit and not merely for speculation, continue to operate a well in the manner in which the well in question was operated.
"In determining paying quantities, in accordance with the above standard, the trial court necessarily must take into consideration all matters which would influence a reasonable and prudent operator. Some of the factors are: The depletion of the reservoir and the price for which the lessee is able to sell his produce, the relative profitableness of other wells in the area, the operating and marketing costs of the lease, his net profit, the lease provisions, a reasonable period of time under the circumstances, [and whether or not the lessee is holding the lease merely for speculative purposes.]
"The term `paying quantities' involves not only the amount of production, but also the ability to market the product. *143... Whether there is a reasonable basis for the expectation of profitable returns from the well is the test.

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Bluebook (online)
899 So. 2d 138, 2005 WL 767447, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wood-v-axis-energy-corp-lactapp-2005.