October 02, 2018
Author: Charles G. Blaize, Jr.
Organization: Mayhall Fondren Blaize
I. THE LOUISIANA MINERAL CODE
Louisiana mineral law was developed jurisprudentially over the years by the courts analogizing situations arising in mineral transactions with specific situations covered by articles of the Louisiana Revised Civil Code of 1870. It is because of this procedure that mineral rights in Louisiana, which are severed from the surface of the land, are treated as servitudes which expire for non-use within a prescribed period. Effective January 1, 1975, the Louisiana Legislature enacted the Mineral Code as Title 31 of the Louisiana Revised Statutes.
II. MINERAL SERVITUDE
A. The Mineral Servitude. The mineral servitude is the vehicle by which the right to explore for and reduce minerals to possession is separated from the ownership of the surface of the land. LSA-R.S. 31:21. A mineral servitude may be created by the landowner selling the minerals to another, or by selling the land itself and reserving the minerals. Union Sulphur Co. v. Andrau, 47 So.2d 38 (1950); Frost-Johnson Lumber Co. v. Salling's Heirs, 91 So. 207 (1922).
1. Who may create mineral servitudes? A mineral servitude can be created only by the owner of the land. LSA-R.S. 31:24. However, a conditional owner whose title terminates at a particular time or upon the occurrence of a particular event, can create a mineral servitude, but the servitude will terminate when the grantor's conditional ownership terminates. LSA-R.S. 31:25. A usufructuary cannot create a mineral servitude. LSA-R.S. 31:26.
2. Termination of mineral servitudes. There are five (5) ways in which mineral servitudes are terminated. LSA-R.S. 31:27.
B. Prescription. If no drilling or production occurs within ten (10) years after the creation of the mineral servitude, it terminates. Frost-Johnson Lumber Co. v. Sailing's Heirs, supra; LSA-R.S. 31:27 and 28.
1. Drilling Operations. Generally, this prescription of non-use may be interrupted by good faith drilling operations (LSA-R.S. 31:29(1)) conducted in such a manner as to constitute a single operation (LSA-R.S. 31:29(2)). The operations can be temporarily suspended, as long as they are resumed and brought to conclusion in good faith. McMurrey v. Gray, 45 So.2d 73 (1950); LSA-R.S. 31:29(3). Shooting seismic does not interrupt prescription. Goldsmith v. McCoy, 182 So. 519 (1938). Nor is prescription interrupted by surveying, clearing the drillsite or setting up the drilling rig.
Actual "spudding in" is necessary. LSA-R.S. 31:30. This may constitute a change in the prior law. Mire v. Hawkins, 177 So.2d 795 (La.App. 3 Cir. 1965); writs granted, 178 So.2d 657; 186 So.2d 591 (1966). Thus, caution should be exercised when dealing with mineral servitudes created prior to 1975. Prescription commences to run again from the date on which actual drilling operations cease. LSA-R.S. 31:30. Once prescription has been interrupted and again commences to run, it can again be interrupted in the same manner. LSA-R.S. 31:32.
2. Unit Operations. Unit drilling operations interrupt prescription, but if the well is located on lands other than those burdened by the servitude, prescription is interrupted only as to the portion of the servitude tract lying within the unit. LSA-R.S. 31:33. Unit orders of the Louisiana Commissioner of Conservation unitize only particular strata. Therefore, if a well is drilled through a unitized strata but the operator does not intend the well to test the unitized strata, and no formation test is made on that strata, the courts have held that the well did not interrupt prescription on the mineral servitude. Matlock oil Corp. v. Gerard, 263 So.2d 413 (La.App. 2 Cir. 1972), writ refused, 265 So.2d 241.
3. Shut-in Wells. The testing of a shut-in well interrupts prescription, but it commences running again from the date the well is shut-in after testing. This is consistent with the prior law. If the well is unitized, the same principles set forth above for unit operations apply. LSA-R.S. 31:34. If the well is tested and shut-in first, and then unitized, it nevertheless interrupts prescription, which commences again from the effective date of the order or act creating the unit. LSA-R.S. 31:35.
1. Generally, production interrupts prescription as of the date on which actual production commences, and commences to run again from the date that actual production ceases. LSA-R.S. 31:36. Good faith is required. However, it is not necessary that the production be in paying quantities, but only that production be in good, faith with the intention of saving the minerals or utilizing them for some beneficial purpose. LSA-R.S. 31:38. If production, once commenced, has ceased, prescription can be interrupted by good faith attempts to restore production. LSA-R.S. 31:39.
2. Unit production. The same rules for interruption of prescription by unit operations, discussed above, apply to unit production. LSA-R.S. 31:37.
3. Who must conduct the operations or produce the well? In order to interrupt prescription, the servitude must be used by its owner, his representative or employee, or some other person acting on his behalf. LSA-R.S. 31:42. There must be a legal relationship between the person acting for the servitude owner and the servitude owner, and there must be evidence that he is acting on behalf of the servitude owner. LSA-R.S. 31:43. However, the servitude owner can adopt operations or production of another, but such adoption must occur within three years of the servitude owner's knowledge, but in any event before the servitude would prescribe. The adoption must be made by filing an appropriate instrument in the conveyance records in the parish where the land burdened by the servitude is located. LSA-R.S. 31:44, 45 and 46. When the servitude owner files such an instrument for record, he becomes liable for his proportionate share of drilling and operating costs, unless the person conducting the operations was in legal or moral bad faith. LSA-R.S. 31:48. The servitude owner has the right to adopt the operations of another even if the lessee of the servitude owner refuses to participate in the costs, but if the lessee does not so participate, he cannot participate in the production. LSA-R.S. 31:51. These articles resolve confusion in the prior law. Formal adoption is unnecessary when the operations or production occur on a unit created by the Louisiana Commissioner of Conservation. LSA-R.S. 31:47. Even if the servitude owner fails to adopt the operations of another, he can nevertheless claim the proportion of production allocable to his interest which was obtained prior to the lapse of three (3) years from the date on which he learned of the operations or production or the date on which his servitude prescribed, whichever occurs first. However, in such case, he must still pay his share of costs up to that time. LSA-R.S. 31:52.
D. Interruption of Prescription by Acknowledgement. The owner of the land burdened by a mineral servitude may interrupt prescription by written acknowledgement, which, to affect third persons, must be filed for record. There need not be consideration paid for such acknowledgement. LSA-R.S. 31:54. It is necessary that the instrument express a clear intent to acknowledge and clearly identify the servitudes to which it applies. White v. Evans, 457 So.2d 159 (La.App. 2 Cir. 1984), writs denied, 462 So.2d 207 (1985). In addition to his right to interrupt prescription by acknowledgement, the landowner may extend prescription on a mineral servitude for a period less than that which would result from an interruption. LSA-R.S. 31:56.
E. Other Provisions Concerning Prescription.
1. Minority or Disability. Neither minority nor disability suspends the running of prescription on mineral servitudes. LSA-R.S. 31:58.
2. Obstacle. An obstacle which prevents the servitude owner from drilling or producing, and which he can neither remove nor prevent, suspends prescription for so long as the obstacle remains. LSA-R.S. 31:59. Where a mineral servitude was sold subject to a prior recorded mineral lease, the prior mineral lease was held not to be an obstacle. Coyle v. North Central Texas Oil Co., 174 So. 274 (1937). Where the landowner granted a mineral lease prior to the prescriptive date on an outstanding servitude, that lease was held not to be an obstacle. Gayoso v. Arkansas Natural Gas Corp., 145 So. 677 (1933). Ownership by the landowner of one-half of the mineral rights was held not to be an obstacle as to the servitude on the other one-half (1/2) of the minerals. Clark v. Tensas Delta Land Co., 136 So. 1 (1931). Physical obstacles to drilling or production, particularly where created by the landowner to prevent the mineral servitude owner from exercising his rights, have been held to be obstacles which suspend the running of prescription. Corley v. Craft, 501 So.2d 1049 (La.App. 2 Cir. 1987), writ denied, 503 So.2d 18; Hall v. Dixon, 401 So.2d 473 (La.App. 2 Cir. 1981). For other cases relating to obstacles, see Gaily v. McFarlain, 193 So. 570 (1940); McDonald v. Richard, 13 So.2d 712 (1943); White v. Hodges, 9 So.2d 433 (1942); Bates v. Monzingo, 59 So.2d 693 (1952); Hicks v. Clark, 72 So.2d 322 (1954); Boddie v. Drewett, 87 So.2d 516 (1956); McMurrey v. Gray, 45 So.2d 73 (1949); Hightower v. Maritzky, 195 So. 518 (1940); Dart v. Breitung, 136 So.2d 501 (La.App.
1 Cir. 1962) A compulsory unit order is not an obstacle. LSA-R.S. 31:61. 3. Effect of Non-contiguity of Land. A mineral servitude can only affect contiguous lands. In other words, an instrument creating mineral servitudes creates as many mineral servitudes as there are non-contiguous tracts unless the instrument provides for more. LSA-R.S. 31.64; Lee v. Giauque, 97 So. 669 (1923). The importance of this concept is that interruption of prescription on one (1) servitude will not, in most cases, interrupt prescription on other separate mineral servitudes. Lands are non-contiguous unless they touch at more than a point. A tract of land divided by a navigable stream or by a railroad strip which the railroad owns in fee, is not contiguous. Thus two (2) servitudes would be created, and prescription would have to be separately interrupted on each. A landowner is prohibited from creating a single mineral servitude on two (2) or more non-contiguous tracts, regardless of whether the attempt is made in a single instrument. Nevertheless, the owners of several non-contiguous tracts can establish one single mineral servitude in favor of anyone. LSA-R.S. 31:66. Whitehall Oil Co. v. Heard, 197 So.2d 672 (1967), writ refused, 199 So.2d 923. However, once a mineral servitude is created, the subsequent division of the land burdened by the servitude does not divide the servitude. LSA-R.S. 31:65; Allied Chemical Corp. v. Dye, 441 So.2d 776 (La.App. 2 Cir. 1983), writ denied, 444 So.2d 119; GMB Gas Corp. v. Cox, 340 So.2d 638 (La.App. 2. Cir. 1976); Wall v. Leger, 402 So.2d 704 (La.App. 1 Cir. 1981). A provision that a servitude is limited to different horizons as to different portions of a contiguous piece of property nevertheless results in one (1) single mineral servitude. LSA-R.S. 31:68. This is in accordance with the prior law. See, Gulf Oil Corp. v. Clement, 118 So.2d 361 (1960); Gunby v. Commercial Solvents Corp., 170 So.2d
259 (La.App. 2 Cir. 1965). However, separate mineral servitudes can be created as to separate horizons. Roemer v. Caplis, 169 So.2d 1186 (La.App. 2 Cir. 1979), writ
denied, 371 So.2d 620. Execution of a lease or other agreement for use or development of a portion only of the servitude tract does not divide the servitude.
LSA-R.S. 31:70; Levy v. Crawford, Jenkins & Booth, Ltd., 194 So. 772 (1940).
Unitization of a portion of a tract burdened by a mineral servitude does not have the effect of dividing the servitude. LSA-R.S. 31:71. Prior to 1966, the jurisprudence indicated the opposite result. Childs v. Washington, 87 So.2d 111 (1956) and Jumonville Pipe & Machinery Co. v. Federal Land Bank of New Orleans, 87 So.2d 721 (1956). However, the result codified in LSA-R.S. 31:71 was later reached is Trunkline Gas Co. v. Steen, 187 So.2d 720 (1966). This was clearly the law as to compulsory units, but there were conflicting results in the prior law as to conventional units. Elson v. Mathewes, 69 So.2d 734 (1953); Crown Central Petroleum Corp. v. Barousse, 117 So.2d 575 (1960). However, as noted above, if the drilling or producing unit well is located on lands within the unit other than the servitude tract, prescription is interrupted only as to the portion included within the unit. A well drilled or producing on the servitude tract, but outside of the unit will nevertheless interrupt prescription on the entire mineral servitude.
F. Alteration of Certain Rules by Contract. Within limits set by the Mineral Code, parties are free to contractually alter the applicable legal rules. LSA-R.S. 31:72.
1. The parties cannot alter the rule that a single servitude cannot be created on two or more non-contiguous tracts. LSA-R.S. 31:73; Lee v. Giaugue, supra.
2. The parties may shorten the ten (10) year prescriptive period, but cannot extend it. If a longer period is recited in the contract, it is automatically reduced to ten (10) years. LSA-R.S. 31:74; Hodges v. Norton, 8 So.2d 618 (1942); Leiter Minerals v. California Co., 132 So.2d 845 (1961); Bodcaw Lumber Co. of La. v. Magnolia Petroleum Co., 120 So. 389 (1929); LeBleu v. LeBleu, 206 So.2d 551 (La.App. 3 Cir. 1967); Ober v. McGinty, 66 So.2d 385 (La.App. 2 Cir. 1953).
3. The parties may contractually make certain alterations concerning the use of the servitude and the effect that such has on the interruption of prescription, but not so as to make the interruption of prescription less burdensome. However, one exception is that they can agree that an interruption of prescription resulting from unit operations or production shall extend to the entire servitude tract, regardless of whether the well is located on the servitude tract or elsewhere in the unit. LSA-R.S. 31:75. Otherwise, the parties are only free to make the prescriptive rules tougher on the mineral servitude owner.
G. Confusion. A mineral servitude ceases to exist when it comes to be owned by the same person who owns the surface of the land. LSA-R.S. 31:27(2). LSA-C.C. art. 765.
H. Renunciation. If the owner of the mineral servitude renounces the servitude, it terminates. LSA-R.S. 31:27(3).
I. Termination by its Own Terms. I f the servitude specifies that it is to exist for a particular term, it expires when that term expires, or upon accrual of ten (10) year liberative prescription, whichever occurs earlier. LSA-R.S. 31:27(4); Hodges v. Norton, supra; Bodcaw Lumber Co. of La. v. Magnolia Petroleum Co., supra. Additionally, if a resolutory or dissolving condition is specified in the instrument which creates the mineral servitude, then it terminates upon the occurrence of that condition. LSA-R.S. 31:27(4); LSA-C.C. art. 1767.
J. Extinction of the Right of the Person who Established the Servitude.
If the person who creates a mineral servitude has, at the time of creation of the servitude, conditional ownership, then the servitude expires when the grantor's rights expire. LSA-R.S. 31:27(5). An example would be where the landowner had acquired pursuant to a deed which contained a right of redemption. If the property is redeemed from the grantor, the servitude expires.
1. Transactions involving outstanding mineral servitudes.
(a) A landowner cannot sell, donate, or otherwise transfer his expectation that a mineral servitude will expire and revert to him: LSA-R.S. 31:76; Hicks v. Clark, supra; Allied Chemical Corp. v. Dye, supra. However, where the landowner purports to sell a mineral servitude to another at a time when the minerals are already outstanding, if the same landowner later acquires the minerals, or is the owner of the land at the time the minerals revert, then the doctrine of after-acquired title vests the minerals in the party who purported to acquire the mineral servitude. LSA-R.S. 31:77; White v. Hodges, supra; McDonald v. Richard, supra; Bates v. Manzingo, supra. This prior jurisprudence was unclear as to the exact operation of the after-acquired title doctrine in mineral servitude transactions.
(b) If the landowner who created a mineral servitude while the minerals were outstanding has disposed of the land, and then later acquires the mineral rights, his vendee then has a ten (10) year prescriptive period from the date he purported to acquire the minerals, or the remaining period of his grantor, whichever is greater. LSA-R.S. 31:78. This is the one (1) situation where a prescriptive period greater than ten (10) years can exist. If the original grantor has purchased a mineral servitude from the landowner, the grantee who benefits from the after-acquired title doctrine will have ten (10) years from the date his grantor acquired the minerals, rather than ten (10) years from the date he himself acquired the minerals.
(c) If the original grantor remains the owner of the land at the time the minerals revert, then his grantee benefiting under the after-acquired title doctrine has whatever time remains of a ten (10) year prescriptive period commencing on the date he purported to originally acquire.
III. The Mineral Royalty.
A. Definition. The right to participate in production of minerals from land owned by another or land subject to a mineral servitude owned by another, free of any costs of drilling or production, unless otherwise expressly specified. LSA-R.S. 31:80; Continental Oil co. v. Landry, 41 So.2d 73 (1949); Humble Oil & Refining Co. v. Guillory, 33 So.2d 182 (1946); Frey v. Miller, 165 So.2d 43 (La.App. 3 Cir. 1964); writ refused, 167 So.2d 669; Crown Central Petroleum Corp. v. Barousse, supra; Union Oil & Gas Corp. of La. v. Broussard, 112 So.2d 96 (1959); Succession of Goode, 425 So.2d 673 (1982). A royalty owner has no right to grant leases nor to conduct exploration or production activities. LSA-R.S. 31:81; Union Oil Co. of California v. Touchet, 86 So.2d 50 (1956).
B. Who may create a mineral royalty? Only a landowner who owns mineral rights or the owner of a mineral servitude may create a mineral royalty. LSA-R.S. 31:82; Union Oil & Gas Corp. of La. v. Broussard, supra: Arkansas Fuel Oil Co. v. Sanders, 69 So.2d 745 (1954); Barnwell Inc. v. Carter, 220 So.2d 741 (La.App. 2 Cir. 1969).
1. The creation of a mineral royalty by a conditional owner is treated the same way as a mineral servitude created under the same conditions. LSA-R.S. 31:83; LSA-R.S. 31:25, discussed supra.
2. Although a usufructuary cannot create a mineral servitude, a usufructuary whose usufruct includes minerals includes minerals can create a mineral royalty for a term not to exceed his usufruct. LSA-R.S. 31:84. Nevertheless, the mineral royalty so created is still subject to termination by prescription.
C. Termination of Mineral Royalties.
1. Prescription. If no production occurs within ten (10) years after the creation of the mineral royalty, it terminates. LSA-R.S. 31:85; Continental Oil Co. v. Landry, supra; Humble Oil & Refining Co. v. Guillory, supra: Vincent v. Bullock, 187 So. 35 (1939).
(a) Production interrupts prescription.
(1) Generally, this prescription of non-use may be interrupted by production. This requires the actual commencement of production, and if production ceases, it starts to run again from the date production ceases. LSA-R.S. 31:87; Union Sulphur Co. v. Andrau, supra; Union Sulphur Co. v. Lognion, 33 So.2d 178 (1947); Lavergne v. Savoie, 221 So.2d 71 (La.App. 3 Cir. 1969). As in the case of the mineral servitude, it is not necessary that the production be in paying quantities, but merely that the minerals be produced and saved. LSA-R.S. 31:88; Union Sulphur Co. v. Andrau, supra; Lee v. Goodwin, 174 So.2d 651 (La.App. 2 Cir. 1965), writ denied, 177 So.2d 118.
(2) Unit production. Unit production interrupts prescription, but if the well is located on lands other than those affected by the mineral royalty, prescription is interrupted only as to the portion of the tract lying within the unit. LSA-R.S. 31:89. The prior jurisprudence was confused. The Mineral Code followed the holding in Frey v. Miller, supra. Production from the tract subject to the mineral royalty interrupts prescription on all of the acreage affected by the royalty even though only a portion of the tract is included in the unit. These rules apply regardless of whether the unit is a Commissioner's unit or a conventional unit.
(3) Shut-in wells. If a shut-in well on the tract burdened by the mineral royalty has been proved by surface production test to be capable of producing in paying quantities, then prescription is interrupted on the date such production is obtained by testing. If the shut-in well is unitized by either a compulsory or conventional unit, and the well is on land other than the land burdened by the mineral royalty, prescription is interrupted only as to the portion within the unit. Of course, if the well is on the tract burdened by the mineral royalty, the interruption of prescription occurs with respect to the entire tract. LSA-R.S. 31:90; Delatte v. Woods, 94 So.2d 281 (1957). The initial version of Article 90 of the Mineral Code mentioned only compulsory units. This was corrected by Act No. 589 of 1975. If unitization occurs after the well is shut-in, prescription is interrupted and commences anew from the effective date of the unit order. LSA-R.S. 31:91; Baker v. Chevron Oil Co., 245 So.2d 457 (La.App. 2d Cir. 1971), affirmed, 258 So.2d 531 (1972).
(b) Interruption of prescription by acknowledgement. These rules are identical to those relating to "Mineral Servitudes". LSA-R.S. 31:94. However, if the acknowledgement is made by either the owner of a mineral servitude who acquires subsequently to the creation of the mineral royalty, or by a co-owner of a mineral servitude who acquires subject to the mineral royalty, the acknowledgement is effective only as to that proportion of the royalty which the interest of the acknowledging party bears to the whole of the mineral rights from which the royalty was originally created. LSA-R.S. 31:95; Arkansas Fuel Oil Co. v. Sanders, supra; Union Oil & Gas Corp. of La. v. Broussard, supra. When the acknowledgement is executed only by the owner of a previously created mineral servitude, the continued existence of the mineral royalty depends on the existence of the servitude.
(c) Minority or Disability. Neither minority nor disability suspend the running of prescription on mineral royalties.
(d) Obstacle. An actual obstacle to production would suspend the running of prescription on a mineral royalty interest until the obstacle is removed. LSA-R.S. 31:98. Lack of a gas market was held to constitute an obstacle. LeBlanc v. Haynesville Mercantile Co., Inc., 88 So.2d 377 (1956); Union Oil Co. of California v. Touchet, supra. However, the reporter's comment to Article 98 makes it clear that it must be an obstacle to actual production. An obstacle to drilling or re-working is not sufficient. An obstacle to actual production sufficient to suspend prescription running against a mineral servitude also operates to suspend the prescription running against the royalty. LSA-R.S. 31:99.
(e) Effect of Non-Contiguity of Land. These rules are identical to those affecting "Mineral Servitudes" discussed earlier. LSA-R.S. 31:101.
(f) Alteration of Certain Rules by Contract. These rules are identical to those affecting mineral servitudes. LSA-R.S. 31:103. See also LSA-R.S. 31:72 through
(g) Confusion. See discussion under "Mineral Servitudes", supra. The same rules apply. LSA-R.S. 31:85(2).
(h) Renunciation. See discussion under "Mineral Servitudes", supra. The same rules apply. LSA-R.S. 31:85(3).
(i) Termination by its Own Terms. See discussion under "Mineral Servitudes", supra. The same rules apply. LSA-R.S. 31:85(4).
(j) Extinction of the right of the person who established the servitude. See discussion under "Mineral servitude", supra. The same rules apply. LSA-R.S. 31:85(5). However, the extinction of a mineral servitude by inheritance, or by an act of the servitude owner does not extinguish the mineral royalty burdening the servitude, unless the mineral royalty owner contractually agrees to it.
(k) Transactions involving outstanding royalties. These rules are the same as those affecting "Mineral Servitudes". LSA-R.S. 31:104.
IV. The Executive Right.
A. The executive right is the right to grant mineral leases, and unless contractually restricted, includes the right to retain bonuses and rentals. The owner of the executive right has the same power to lease as the owner of a mineral servitude. However, the owner of the executive rights has no right to receive production or the proceeds therefrom. LSA-R.S. 31:105; Mt. Forest Fur Farms of America v, Cockrell,
155 So. 228 (1934); Ledoux v. Voorhies, 62 So.2d 273 (1952); Andrus v. Kahao, 414
So.2d 1199 (1981). An executive right is clearly a mineral right. LSA-R.S. 31:106.
1. Prescription. Prescription accruing against an executive right is
interrupted in the same fashion as prescription against a mineral servitude is
interrupted. LSA-R.S. 31:107.
2. Obligations of Owner of Executive Interest. The owner of an executive interest is not obligated to grant a mineral lease, but when he does so must act in good faith in the manner of a reasonably prudent landowner or mineral servitude owner whose interest is not burdened by a non-executive interest. LSA-R.S. 31:109; Sparks v. Anderson, 465 So.2d 830 (La.App. 2 Cir. 1985), writ denied 467 So.2d 538. However, a mineral lease granted in violation of this standard is nevertheless valid, although the owner of the non-executive interest may have an action for damages. The owner of the non-executive right has one year within which to file suit. LSA-R.S. 31:110.
3. Effect of certain transactions involving executive right. A mineral servitude from which the executive right has been separated is not thereby transformed into a mineral royalty, nor does the creation of a mineral royalty accompanied by executive rights constitute a mineral servitude. LSA-R.S. 31:111.
4. Executive right as appendage of another mineral right. When a mineral right is created and accompanied by an executive right, the executive right prescribes when the mineral right to which it is appended prescribes. LSA-R.S. 31:113.
V. The Mineral Lease.
A. A mineral lease grants unto the lessee the right to explore for and produce minerals. Unlike the mineral servitude and mineral royalty, a single lease can be granted on two or more non-contiguous tracts of land, and operations or production from one tract or lands pooled with any portion thereof can maintain the lease as to the entirety of the acreage it covers. LSA-R.S. 31:114; Reagan v. Murphy, 105 So.2d 210 (1958); Hunter Co. v. Shell Oil Co., 31 So.2d 10 (1947); LeBlanc v. Danciger Oil & Refining Co., 49 So.2d 855 (1950). However, the parties are free to contract otherwise, as is commonly accomplished by the inclusion of a Pugh Clause in the lease. This changed the law as set forth in Hunter and LeBlanc, supra, as to that point. LSA-R.S. 31:3; Louman v. Chevron U.S.A., Inc., 748 F.2d 320 (5th Cir. 1984).
1. Limitations on Term of Mineral Leases. Mineral leases are not subject to prescription. However, they must have a term, and that term, by public policy cannot extend beyond ten (10) years without drilling or production. If the lease recites a term greater than ten (10) years the lease is not null, but the term is reduced to ten (10) years. LSA-R.S. 31:115; Reagan v. Murphy, supra.
2. Who May Grant a Mineral Lease? Only the person having an executive interest in the minerals may grant a mineral lease. LSA-R.S. 31:116. If the mineral lease is granted by one who owns an executive interest, the mineral lease terminates upon the extinguishment of that executive interest. LSA-R.S. 31:117. This is the same rule that applies to mineral servitudes and mineral royalties. A usufructuary (similar to the common law term "life estate") of land may grant a mineral lease, if his usufruct includes minerals, but any such lease terminates when his usufruct terminates. However, if the usufructuary holds a usufruct of only a mineral servitude or other executive interest, the lease granted by him can extend beyond the termination of his usufruct and bind the naked owner (similar to the common law term "remainder man"). LSA-R.S. 31:118.
B. Obligations of the Mineral Lessor.
1. The lessor lust deliver the premises to the lessee, refrain from disturbing the lessee's possession, and perform the contract in good faith. LSA-R.S. 31:119.
2. Warranty. An implied warranty of title exists in favor of the lessee, unless the warranty is expressly excluded or limited. LSA-R.S. 31:120. Texas General Petroleum Corp. v. Brown, 408 So.2d 288 (La.App. 2 Cir. 1981). However, the lessor only warrants that he will maintain the lease in peaceable possession. LSA-C.C. arts. 2682 and 2692. The liability of the lessor under the warranty is limited to return of the bonus, rental and royalty, or other payments made under the lease. LSA-R.S. 31:120. The jurisprudence concerning the lessor's obligations in the event of a breach of warranty was conflicting, and this article clears up the confusion by adopting the rule set forth in Martel v. Hunt, 197 So. 402 (1940). Therefore, drilling costs, etc. are not an element of damages for breach of warranty by lessor. The mineral lessee can take protective leases from adverse claimants without exposing himself to liability to his lessor. LSA-R.S. 31:121. This article resolves a conflict in the prior jurisprudence. However, the conflict did not exist where the lease itself contained a clause permitting protective leases.
C. Obligations of the Lessee. The lessee's obligation is to act as a reasonably prudent operator and operate the property for the mutual benefit of himself and his lessor. LSA-R.S. 31:122. This article was based on LSA-C.C. 2710; see also, Williams v. Humble Oil & Refining Co., 432 F.2d 165 (5th Cir. 1970); Carter v. Arkansas Louisiana Gas Co., 36 So.2d 26 (1948): Caddo Oil & Mining Co. v. Producer's Oil Co., 64 So. 684 (1914).
1. Obligation of reasonable development. After oil and/or gas has been found in paying quantities, the lessee has a duty to reasonably develop the producing formation, considering both his own interests and those of his lessor. See, Mathews v. Goodrich Oil Co., 471 So.2d 938 (La.App. 2 Cir. 1985), writ denied, 475 So.2d 1105; Dawes v. Halt, 421 So.2d 1208 (La.App. 2 Cir. 1982); Vetter v. Morrow, 361 So.2d 898 (1978); Carter v. Arkansas-Louisiana Gas Co., supra; Gennuso v. Magnolia Petroleum Co., 14 So.2d 445 (1943); Wadkins v. Wilson Oil Corp., 6 So.2d 720 (1942); Coyle v. North American Oil Consolidated, 9 So.2d 473 (1942); Doiron v. Calcasieu Oil Co., 134 So. 742 (1931); Stubbs v. Imperial Oil & Gas Products Co., 114 So. 595 (1927). However, while the lease is maintained by rental payments, there is no obligation for additional development drilling unless drainage is occurring. Morrison v. Conoco, Inc., 575 F.Supp. 876 (E.D. La. 1983); Morrison v. D&L Partnership, 499 So.2d 988 (La.App. 3 Cir. 1986).
2. Obligation of further exploration. The lessee has an obligation, after the discovery of minerals in paying quantities to explore and test all portions of the leased premises. Carter v. Arkansas Louisiana Gas Co., supra; Sohio Petroleum Co. v. Miller, 112 So.2d 695 (1959); Reagan v. Murphy, 105 So.2d 210 (1958); Wier v. Grubb, 82 So.2d 1 (1955); Eota Realty Co. v. Carter Oil Co., 74 So.2d 30 (1954); Nunley v. Shell Oil Co., 76 So.2d 111 (La.App. 2 Cir. 1954); Cutrer v. Humble Oil & Refining Co., 202 F.Supp. 568 (E.D. La. 1962); Romero v. Humble Oil & Refining Co., 93 F.Supp. 117 (E.D. La. 1950). The lessee is relieved of this obligation while the lease is being maintained by rental payments.
D. Obligation to Protect the Leased Premises from Drainage. The lessee must protect the leased premises from drainage by wells on adjoining lands. Swope v. Holmes, 124 So. 131 (1929). The lessor cannot only obtain lease cancellation for breach of this obligation, but may also be awarded damages. Breaux v. Pan American Petroleum Corp., 163 So.2d 406 (La.App. 3 Cir. 1964), cert. denied, 165 So.2d 481. The obligation to protect from drainage can be satisfied by unitization. Williams v. Humble Oil & Refining Co., 432 F.2d 165 (5th Cir. 1970). Most mineral leases contain provisions concerning protection from drainage by drilling offset wells. A putting in default is required prior to a suit for damages for drainage. LSA-R.S. 31:136.
E. The Obligation to Production. The lessee is required to diligence to secure a market at a fair price. Risinger v. Arkansas-Louisiana Gas Co., 3 So.2d 289 (1941); Hutchinson v. Atlas Oil Co., 87 So. 265 (1921); Lelong v. Richardson, 126 So.2d 819 (La.App. 2 Cir. 1961).
F. The Obligation to Restore the Surface. The lessee is obligated to restore the surface as nearly as may be practicable to its original condition. Edwards v. Jeems Bayou Production Co., 50 So.2d 11 (La.App. 2 Cir. 1987); Smith v. Schuster, 66 So.2d 430 (La.App. 2 Cir. 1953). The courts have recognized that a certain amount of damage consistent with mineral operations should not have to be compensated by the lessee. Rohner v. Austral Oil Exploration Co., 104 So.2d 253 (La.App. 1 Cir.1958).
G. Obligations to Pay Rent on Time. LSA-R.S. 31:123.
1. Delay Rentals. Delay rentals, royalties and shut-in payments are all considered rent. Most mineral leases provide that failure to timely pay delay rentals constitutes an express resolutory condition which causes the lease to automatically terminate without any notice or putting in default. See LSA-R.S. 31:133; Miller v. Kellerman, 354 F.2d 46 (5th Cir. 1965). However, in some cases, where the failure to timely pay occurred by virtue of reasons beyond the lessee's control, the courts have found the lease not to have terminated. Baker v. Potter, 65 So.2d 598 (1953).
However, whether or not the same result follows from failure to pay shut-in payments depends upon the exact working of the lease. If the shut-in clause refers to resumption of delay rentals payments for its timing and computation, then failure to pay generally leads to automatic termination. However, if it is treated as royalty, the provisions of LSA-R.S. 31:137, et seq., apply, and the lessee has an opportunity to remedy his breach of the lease.
H. Royalties. A putting in default is necessary as a requisite to a judicial demand for damages or lease cancellation for failure to pay royalties. LSA-R.S. 31:137. The lessee has 30 days after receipt of notice within which to pay the royalties or advise the lessor in writing of a reasonable cause for non-payment. LSA-R.S. 31:138. If the lessee pays the royalties within 30 days of the receipt of the demand, then the lease cannot be cancelled, unless the court finds that the original failure to pay was fraudulent. If the court finds that the original failure to pay was fraudulent, willful or without reasonable grounds, the court may award as damages double the amount of royalties due, interest, and reasonable attorney's fees. In all other cases, such as mere negligence, the court is limited to interest and reasonable attorney's fees. LSA-R.S. 31:139. If the lessee fails to either pay or respond in writing to the lessor's demand, the court can award damages in double the amount due, plus interest and attorney's fees, and has the discretion to cancel the lease. LSA-R.S. 31:140. However, lease cancellation is not a favored remedy. LSA-R.S. 31:141. The dissolution may be partial or entire. LSA-R.S. 31:142.
1. Lessee may not fail to pay royalties because his lessor will not sign a Division Order. No lessor is required to sign a Division Order. Failure to pay royalties solely because the lessor did not sign a Division Order results in the lessor being entitled to damages equal to double the amount of royalties due, legal interest and attorney's fees. However, if the lessor fails to supply his proper name, address and tax identification number upon written request of lessee, the failure to pay shall be deemed reasonable. LSA R.S. 31:138.1
I. Production in Paying Quantities is Required to Hold a Mineral Lease by Production. LSA-R.S. 31:124. In order for production to be in paying quantities, the production attributable to the working interest must be such as to induce a reasonably prudent operator to continue production in an effort to secure a return on his investment or to minimize any loss. LSA-R.S. 31:124; Wall v. Leger, supra; Smith v. West Virginia Oil & Gas Co., 365 So.2d 269 (La.App. 2 Cir. 1978), reversed on other grounds, 373 So.2d 488 (1979); Webb v. Hardage, 471 So.2d 889 (La.App. 2 Cir. 1985); CCH, Inc. v. Heard, 410 So.2d 1283 (La.App. 3 Cir. 1982): Noel Estate, Inc. v. Murray, 65 So.2d 886 (1953). In determining whether production is in paying quantities, the amount of royalties paid to the lessor is relevant only to show the reasonableness of the lessee's expectation in continuing production. The amount of the royalties does not need to be serious or adequate as compared with the bonus, rentals, or other monies paid to the lessor. LSA-R.S. 31:125; Vance v. Hurley, 41 So.2d 724 (1949). The 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. Woods v. Axis Energy Corporation, 899 So.2d 138, La. 3rd Cir. (2006).
J. Transactions involving the lessee's interest. Interests created out of the lessee's interest depend on the continued existence of the mineral lease. Prescription does not apply to such interests. LSA-R.S. 31:126. The lessee may assign or sublease his interest in whole or in part. LSA-R.S. 31:127. However, some mineral leases provide that the lessor's written consent is required for assignments.
K. Distinction between Assignment and Sublease. A transaction in which the transferor of the lessee's interest in a mineral lease reserves any interest (usually an overriding royalty) which continues for the life of the lease is a sublease rather than a simple assignment. Cameron Meadows Land Co. v. Bullard, 348 So.2d 193 (La App. 3 Cir. 1977); Broussard v. Hassle Hunt Trust, 91 So.2d 762 (1956); Bond Midstates Oil Corp., 53 So.2d 149 (1951); Roberson v. Pioneer Gas Co., 137 So. 46 (1931); Johnson v. Moody, 123 So. 330 (1929). Even where the overriding royalty is conveyed is a separate instrument, the transaction can still be viewed as a sublease. Iberian Oil Corp. v. Texas Crude Oil Co., 212 F.Supp. 941 (W.D. La. 1963). One important consequence is that the sublessor has the same rights as a lessor with respect to payment of his overriding royalty. See LSA-R.S. 31:137, et seq.
L. Responsibility of Assignee or Sublessee to Original Lessor. The assignee or sublessee, to the extent of the interest he has acquired, becomes responsible directly to the lessor for performance of the lessee's obligations. LSA-R.S. 31:128. This article clears up confusion in the prior law. It should be noted, however, that the assignor or sublessor is not relieved of his obligations to the lessor unless the lessor has discharged him expressly and in writing. LSA-R.S. 31:129. The mineral lease is not divided by a partial assignment or sublease. LSA-R.S. 31:130. The lessor is required to accept performance by an assignee or sublessee. LSA-R.S. 31:131. Unless the lessor has been given written notice, any demand or other notice given to the assignor or sublessor is binding on the assignee or sublessee.
M. Termination. A mineral lease terminates at the expiration of its term or upon the occurrence of an express resolutory condition. LSA-R.S. 31:133. Obviously, if there is no drilling or production in accordance with the Habendum clause at the termination of the primary term, the lease expires. The absence of drilling or production without the lapse of more than a certain period of time under the Habendum clause, in the absence of rental payments or after the expiration of the primary term, is an express resolutory condition, which automatically terminates the lease without any notice or putting in default. Matheson v. Placid Oil Co., 33 So.2d 527 (1947); Talley v. Lawhorn, 90 So. 427 (1922). The effect of failure to pay delay rentals has already been discussed.
N. Leases Involving Outstanding Mineral Rights. A mineral lease may contain a clause that if outstanding mineral rights terminate and revert to the lessor, they become subject to the lease, and if the lease is recorded in the parish where the property is located, such provision binds subsequent owners of the land or mineral rights leased. LSA-R.S. 31:144. In the absence of such a special clause, the after-acquired title doctrine brings the reverting minerals under the lease, if they revert to the lessor, but not if they revert to his successors in title. LSA-R.S. 31:145.
O. Lessor's Privilege. The lessor has a privilege upon all property of the lessee placed on the lease and all property of others placed thereon with their express or implied consent in connection with operations on the lease or lands pooled therewith. The privilege is designed to secure the payment of rent and all other payments under the lease. This includes royalties. Tyson v. Surf Oil Co., 196 So. 336 (1940). The property can be seized while on the leased premises, or within fifteen days after it has been removed, if it is removed by the lessee without the lessor's consent, continues to be the property of the lessee, and can be identified. LSA-R.S. 31:147.
VI. Imprescriptible Mineral Rights.
A. When land is acquired by the United States, the State of Louisiana, any subdivision or agency thereof or any entity having expropriation authority, and minerals are reserved, prescription does not run so long as the ownership of the land remains in the government. LSA-R.S. 31:149 If the rights are outstanding at the time of the governmental acquisition, prescription continues to run, but accrues in favor of the owner at the time of the transfer to the government, and thereafter prescription does not run as long as the government owns the land. LSA-R.S. 31:150. If the government sells the land, it must first offer it to the original owner at fair market value. If a mineral right is outstanding at the time the government acquires, but the government sells the property to a private person before prescription runs, when prescription accrues, the minerals revert to the then landowner. LSA-R.S. 31:151. These rules do not apply to lands acquired by the State through tax sales. LSA-R.S. 31:152. [This topic will not be treated in depth.