Study Guide for Mineral Rights (Ottinger)

Transcription

1 SUBJECT PAGE PROLOGUE Sources of mineral law... 3 History of mineral law 4 CHAPTER ONE: LANDOWNERS RIGHT TO MINERALS What is a mineral 5 Theories of mineral ownership... 6 Rule of capture 7 Unitization... 8 What is a mineral right CHAPTER TWO: MINERAL SERVITUDES Creating a mineral servitude Mineral servitude and prescription of nonuse. 13 Extinction of mineral servitude Co-owned mineral servitudes. 18 Divisibility of mineral servitudes Reversionary rights, after-acquired title, and warranty Imprescriptible servitudes CHAPTER THREE: MINERAL ROYALTIES What is a mineral royalty 23 Mineral royalty and prescription of nonuse 25 Extinguishing a mineral royalty.. 26 CHAPTER FOUR: EXECUTIVE RIGHTS What is an executive right Extinguishing an executive right 28 CHAPTER FIVE: MINERAL LEASES What is a mineral lease Granting clause 32 Mother hubbard clause 33 Estimated acres clause 34 Habendum clause 35 Delay rental / unless clause. 36 Pooling clause. 37 Warranty clause.. 38 Proportionate reduction clause Retained acreage clause.. 40 Pugh clause. 41 Shut in clause.. 42 Division of rentals clause 43 Obligations of lessor Obligations of lessee Transfers by the lessee 46

2 COMPARISON CHART OF MINERAL SERVITUDES, MINERAL ROYALTIES, EXECUTIVE ROYALTIES, AND MINERAL LEASES.. 47 MINERAL RIGHTS CASES (ONLY THE MAJOR ONES). 49 Breaux v. Apache Frost-Johnson Lumber Co. v. Salling s Heirs Hunter v. Shell Mt. Forest Fur Farms v. Cockrell Swope v. Holmes Trahan v. Superior Oil Vincent v. Bullock KEY Code articles are in red. Unless otherwise stated, the articles cited herein are in the Mineral Code. Cases are in blue. 2

3 PROLOGUE Sources of Mineral Law To determine what the rights and duties are between the parties, look in the following sources in the following order: o Contract (Civil Code art. 1983) Parties, with a few exceptions, have the freedom to contract and they may contract out of provisions in the Mineral Code (art. 3) The exceptions to freedom of contract for mineral rights are: Parties cannot contract such that the prescription of nonuse period is longer than 10 years without a use The primary term of a mineral lease cannot be longer than 10 years Parties cannot contract for reversionary rights Parties cannot make the requirements of a use less onerous, though they may make the requirements more onerous A single servitude or royalty may not cover non-contiguous tracts of land o Mineral Code (Title 31 of the Revised Statutes) The Mineral Code is supplementary to the Civil Code such that the Mineral Code trumps the Civil Code where there is conflict, but if no provision, default to Civil Code (art. 2) o Civil Code o Revised Statutes, Title 9 (ancillaries to Civil Code) and 30 (Conservation Act more of the regulatory side of oil & gas) o Case law o Office of Conservation s memos, policies, orders, etc. o Doctrine o Attorney General opinions 3

4 PROLOGUE History of Mineral Law The Mineral Code was adopted in 1974, and effective on January 1, 1975 For the most part, the Mineral Code codified prior law o Prior to the Mineral Code, the entire body of mineral rights law was case law Civil Code did not include words oil, gas, minerals, etc. o Today, old jurisprudence is relevant because the old cases: Describe how the old law mostly now codified was interpreted The Mineral Code is applies to obligations created before 1975, but it does not divest already divested rights or impair the obligations to contracts (art. 214) 4

5 CHAPTER ONE: LANDOWNERS RIGHT TO MINERALS What is a Mineral To a geologist, a mineral is a substance occurring naturally in the soil which can profitably be separated from it How is the word minerals interpreted in a contract? The question isn t really, what is a mineral?, but what did the parties intend a mineral to be in the contract? (Civil Code art. 2045) o The Mineral Code is neutral as to what a mineral is o If part of a list of minerals (ex: oil, gas, and other minerals), then apply ejusdem generis o If not part of a list, then there are two theories: Theory 1: minerals are any and everything that naturally occurs and becomes valuable during the existence of the mineral rights this theory favors the mineral rights owner Theory 2: minerals are only those things that were contemplated to be valuable at the time of the creation of the mineral rights this theory favors the landowner o The Louisiana Supreme Court has provided little guidance on the issue 5

6 CHAPTER ONE: LANDOWNERS RIGHT TO MINERALS Theories of Mineral Ownership There are two theories of ownership of property: ownership versus right to ownership Landowner owns all solid minerals on his land (art. 5) Landowner does not own fugacious minerals on his land (art. 6); instead the landowner has a right to own fugacious minerals on his land you cannot create separate mineral estates (Frost-Johnson) o Landowner has the exclusive right to explore and develop his property for minerals, and reduce those minerals to possession and ownership An article six landowner (common Ottinger phrase) is a landowner that has not burdened his land with a servitude, or at least not with a servitude to the full extent of his land; in other words, a landowner who still has the right to explore and develop his land o Minerals are reduced to possession when they are under control that permits delivery to another (art. 7) For oil and gas, this is at the point it reaches the well head Oil well Well head Pool of oil Solid versus fugacious is an important distinction for damages o Landowner can get damages for the removal of solid minerals from his property (art. 13) o Landowner cannot get damages for the remove of fugacious minerals from his property (art. 14) However, the landowner can get damages for intentional or negligent waste of fugacious minerals removed from his property, and the landowner can get damages if someone contractually obligated to protect his property from drainage fails to do so 6

7 CHAPTER ONE: LANDOWNERS RIGHT TO MINERALS Rule of Capture The rule of capture states that a landowner may drill as many wells and produce as much oil and gas from his land as he pleases, even though he s capturing some of the minerals from his neighbor s land o This rule is a nationally recognized rule (Pennsylvania case of Barnard) o Codified in Louisiana under art. 8 and art. 14 (pre-code stated in Adams v. Grigsby) Limitations on the rule of capture o No subsurface trespass (Glipitis) o Correlative rights cannot do anything to prevent or unduly interfere with neighbor executing the same rights (art. 9, 10, 11a) Ex: a landowner cannot allow gas that is under his land and his neighbor s land to escape for no lawful reason (Higgins) Problem with limitations: damages o Awarding damages when someone goes violates a limitation on the rule of capture (i.e. when someone abuses correlative rights or performs a subsurface trespass) is hard o Breaux v. Pan American Oil stated you must prove with some degree of certainty the amount of damages sustained This (as court pointed out) is hard if not impossible 7

8 CHAPTER ONE: LANDOWNERS RIGHT TO MINERALS The rule of capture is very inefficient Unitization Commissioner of Conservation was created with the purpose of regulating location, drilling, spacing, operating, and producing of oil and gas wells o Given authority to form units Unit is an area of land to which parties with interests therein are bound to share minerals produced on a specified basis and as to which those having the right to conduct drilling or mining operations are bound to share investment and operating costs on a specified basis (art. 213(6)) o Commissioner also has permission to enter private lands for purposes of site assessments, restorations, plugging, abandonment operations, etc.; Commissioner must give notice of intent to enter and entry cannot unreasonably interfere with operations (R.S. 30:27) Units modify rule of capture by allowing each tract with a part of the unit on it to receive its just and equitable share of the reservoir content UNIT TRACT A = 25% of unit TRACT B = 50% of unit TRACT C = 25% of unit If a well is drilled on Tract B, then landowners of Tract A and C will receive 25% of royalties from production by well on Tract B this encourages economic efficiency because Tracts A and C do not have to rush out and drill wells Units also change subsurface trespass rules o Still cannot go onto someone s land to explore of oil, but can drill from your tract of land and perform subsurface trespass on neighbor s land, provided you are both part of unit (Nunez v. Wainoco Oil) Because we want to promote unitization, we want to promote the enforcement of the Commissioner s decisions as to what is a unit o Therefore, we do not allow collateral attack of Commissioner s decisions o To challenge a decision by the Commissioner, must bring a direct action in the 19 th JDC within 60 days of the action Two types of units: o Compulsory units Compulsory units are units that are forced upon the landowner(s) 8

9 Three types of compulsory units: Single well unit (R.S. 30:9, 30:10) Reservoir wide unit (R.S. 30:5(c)) Deep pool unit (R.S. 30:5.1) o Conventional units Conventional units are units created by the landowner(s) Two types of conventional units: Declared units Contractual units Units may be geographical or geological o Geographical units (common in north Louisiana) are usually square and defined by property lines o Geological units (common in south Louisiana) are shaped based on the minerals underneath 9

10 CHAPTER ONE: LANDOWNERS RIGHT TO MINERALS What is a Mineral Right Landowners may convey, reserve, or lease their right to explore and develop their land for production of minerals (art. 15) The conveyance, reservation, or leasing of this right is considered a mineral right There are three types of mineral rights defined by the Mineral Code (art. 16): o Mineral servitudes o Mineral royalties o Mineral leases A fourth mineral right that has been identified in jurisprudence is the executive right Mineral rights are real rights and are incorporeal immovables which are alienable and heritable The situs for a mineral right is the parish where the burdened land is located 10

11 CHAPTER TWO: MINERAL SERVITUDES Creating a Mineral Servitude Who can create a mineral servitude? o Landowner (art. 24) o Conditional landowner, but the servitude is extinguished upon divesting of title (art. 25) o A usufructuary may not create a mineral servitude General limitations on a mineral servitude o A single servitude cannot cover non-contiguous tracts of land o A servitude cannot be for more than 10 years without a use o The type of use required to maintain a servitude can be made more burdensome, but not more o A servitude cannot be for reversionary rights How long can a mineral servitude be created for? o A mineral servitude is subject to a 10 year prescription of nonuse period The mineral servitude if used may last forever; it can only exist unused for 10 years o Attempts to circumvent the 10 year nonuse prescriptive period have included: Creation of successive servitudes or servitudes to take effect upon extinction of one another Attempts to extend or suspend the prescription period once it has commenced Attempts to delay or defer the creation of the servitude by transferring some limited right This has been the most successful way at getting around the 10 year prescription of nonuse rule In general, it is okay to do this if the future servitude to be created is incidental to a bona fide contract for the future transfer of the land itself o Ex: A contracts to sell land to B in 5 years, but in that sale, A will retain a mineral servitude; prescription on A s servitude does not begin to run until the land is transferred to B o If the contract includes a prescription period that is longer than 10 years, the contract is not entirely void; the prescriptive period provided in the contract is just unenforceable Single act, single tract rule o A single mineral servitude cannot be created on two or more noncontiguous tracts of land (art. 73) 11

12 CHAPTER TWO: MINERAL SERVITUDES Tract A Tract B Tract A Tract B Contiguous - One mineral servitude can be created around Tracts A and B Not contiguous - One mineral servitude cannot be created around Tracts A and B o A single contiguous tract of land is one that is situated such that a person may pass from one point to another without passing over lands owned by another What appears to be a single contiguous tract may must multiple tracts if there is a divider on the land (ex: river, railroad, pipeline) that is owned by someone else Canal Tract A Tract B Tract A Tract B Contiguous - One mineral servitude can be created around Tracts A and B Not contiguous- One mineral servitude cannot be created around Tracts A and B Lands that are owned by different people but are contiguous can have one servitude created over them, if the landowners agree o There is a presumption that a single juridical act creates a single servitude if over contiguous land (single act, single tract rule) Ex: A conveys to B a servitude for all sulphur on north half of land and all oil on south half of land. This is one servitude. Use on either half interrupts prescription for the whole servitude. 12

13 CHAPTER TWO: MINERAL SERVITUDES Mineral Servitude and Prescription of Nonuse A mineral servitude is subject to a 10 year prescriptive period of nonuse o Prescription commences the date on which the mineral servitude is created (art. 28) o Don t forget, prescription term o Before the Mineral Code, prescription was interrupted dependent on the (1) type of interest, (2) the type of unit, and (3) the location of the unit well [now it s just the last one] Prescription is interrupted by use, so what qualifies as a use? o Generally, to use is to exercise the rights the contract gives in the manner and for the purposes of which they were given o Article 29 provides that a use of a servitude requires good faith efforts to discover and profitably produce minerals of paying quantities To be in good faith, the use must be (1) commenced with a reasonable expectation of discovering and producing minerals of paying quantities; (2) continued on the site chosen and to that point or depth; and (3) conducted in a manner that constitutes a single operation, although actual drilling or mining is not conducted at all times Note that production of minerals in paying quantities is not necessary to interrupt prescription (art. 38); all that is necessary is that minerals good faith efforts be made to produce minerals of paying quantities with the intent of saving or otherwise using them for some beneficial purpose The notion of paying quantities practically only affects a mineral servitude if a dry hole is used to interrupt prescription, otherwise, production of any sort will interrupt prescription o Use must be by or on behalf of owner (art. 42), though an owner may adopt the operations of another (art. 50) In order to adopt another person s of no legal relationship use as the owner s, the owner must: (1) Adopt within 3 years of his knowledge of the use or prior to the prescription date of the servitude, whichever comes first o Ex: A has a servitude that was created on January 1, It will expire on January 1, B, who has no legal relationship to A or to the land burdened by the servitude, drills on the land on January 1, A must adopt B s use of the land by January 1, 1998 in order to have it interrupt prescription for A. However, if B drilled on January 1, 1998, then A would need to adopt B s use of the land by January 1, 2000 in order to have it interrupt prescription for A. (2) file for registry an instrument that a) describes the land subject to the servitude, b) identifies the operations, c) specifies the 13

14 CHAPTER TWO: MINERAL SERVITUDES beginning date of the operations, and d) demonstrates an intent to adopt the operations has his own (3) pay proportionate share of the reasonable, actual costs of development and operations, whether or not the endeavor is successful o Though use must be by or on behalf of owner, use inures to the benefit of all coowners (art. 174) o What qualifies as a use may be made more burdensome, but not less (art. 75) Interruption of prescription o Three ways to interrupt prescription of nonuse for a mineral servitude: Good faith effort to discover and produce minerals of paying quantities Production of minerals Acknowledgment o Interruption commences when actual good faith drilling or mining begins (art. 30) Preparations to drill do not interrupt prescription If good faith drilling begins before the prescription period is to expire, but the actual production does not begin until after the prescription period will expire, prescription has still be interrupted (art. 31) Ex: A conveys mineral servitude to B. Servitude is created on January 1, Therefore, if not used, it will expire on January 1, B commences drilling on December 1, Production begins on January 30, Prescription was successfully interrupted on December 1, However, keep in mind that the drilling must be in good faith, thus the following scenario could occur: A grants B a mineral servitude on January 1, B drills to a depth of 700 beginning on December 15, There is no oil. On January 15, 2000, B pulls out, plugs up, and (accidentally) hits oil at 350. In this case (illustrated below) the servitude is not maintained despite production because the original drilling that commenced before prescription accrued was not in good faith because it was not commenced with a reasonable expectation of discovering and producing oil in paying quantities. December 15, 1999 January 15, 2000 Pocket of oil at deep: 100 dry wells have been drilled to this level 14

15 CHAPTER TWO: MINERAL SERVITUDES o Cessation of interruption The interruption ends on the last day of operations conducted in good faith to secure or restore production in paying quantities (art. 41) o Unit production and interruption of prescription Production of a unit well on a tract of land burdened by a servitude interrupts prescription for the entire servitude Production of a unit well on a tract of land not burdened by a servitude only interrupts prescription for the part of the servitude included in the unit Tract A Tract B In this situation, the well interrupts prescription for the entirety of Tract A, but it only interrupts prescription for the portion of Tract B covered by the unit o Shut-in well and interruption of prescription A shut-in well is a well that is capable of producing in paying quantities, but operator is not producing Prescription is interrupted by surface production that proves the well is capable of producing paying quantities, but prescription commences against after such testing ends; further testing does not interrupt prescription (art. 34) o Other means of interrupting prescription Acknowledgment Acknowledgment must be in writing and (1) clearly express the intent to the landowner to interrupt prescription [parol evidence is admissible] and (2) clearly identify the party making the acknowledgment and (3) the mineral servitude being acknowledged (art. 55) Once prescription has accrued, the landowner cannot acknowledge the servitude; a new servitude must be created Acknowledgment must be registered to affect third parties Contractual extension Parties may contract to extend the prescriptive period for a period less than would result from an interruption by acknowledgment; to do so, all of the formal requirements of an acknowledgment must be met (art. 56) 15

16 CHAPTER TWO: MINERAL SERVITUDES o Ex: A conveys a servitude to B on January 1, On January 1, 1998, A fulfilling all formal requirements extends the prescription period by saying the next use must occur within 5 years. Therefore, B must perform a use by January 1, Suspension of prescription o An obstacle to the use to the mineral servitude suspends the running of prescription as long as the obstacle exists (art. 59) Obstacles are physical obstacles, such as a locked gate so the servitude holder could not get on the land (Hall v. Dixon) Minority does not count as obstacles (art. 58) Extension of prescription o A joint lease executed by the servitude owner and landowner does not interrupt prescription; it extends prescription through the primary term 16

17 CHAPTER TWO: MINERAL SERVITUDES Extinction of Mineral Servitude Mineral servitude may be extinguished by running of prescription (see Mineral Servitude and Prescription of Nonuse) Mineral servitude may also be extinguished by (art. 27): o Confusion o Renunciation Though Mineral Code does not say this, there must a written renunciation and must be recorded to affect third persons Courts have held same requirements as necessary in acknowledgment are necessary for renunciation o Extinction of the right of him who established the servitude If the interest of the owner of the land who created the servitude terminates or is extinguished by a resolutory condition, then the servitude expires However, if a sale of land for nonpayment of the purchase price is dissolved, the lessee who acquired his rights from the purchaser where receipt of the purchase price was acknowledged in the sale to the lessor is not affected (Jefferson v. Childers) o Dissolving condition (aka resolutory condition) o Expiration of time for which the servitude was granted 17

18 CHAPTER TWO: MINERAL SERVITUDES Co-Owned Mineral Servitudes Mineral servitudes may be created in part o Ex: A conveys to B ½ of oil and gas on Tract A. A conveys to C ½ of oil and gas on Tract A. Both B and C have ½ servitude. They do not need the other s permission to drill, but if either is successful, they will have to pay the other. o In this situation, B and C are not co-owners. They have separate and distinct mineral servitudes Mineral servitudes may also be co-owned o Co-owned servitudes may be created by the landowner Ex: A conveys to B and C a mineral servitude. B and C are co-owners o Co-owner servitudes may be created by the servitude holder Ex: A conveys to B a mineral servitude. B conveys to C half of that mineral servitude. B and C are co-owners of the mineral servitude. Important to distinguish if servitude is co-owned or separately owned for following reasons: o Need to get permission to operate: co-owners cannot conduct mining operations on land without the consent of a certain percentage of the other owners; owners of separate servitudes may independently operate Co-owner must get consent of co-owners owning at least an 80 percent undivided interest in the servitude before conducting operations (art. 175), or at least provide he has made every effort to contract such co-owners, and if contact, that he has offered to contract with them on substantially the same basis; if a co-owner does not consent, then that co-owner faces no liability for development and operations except out of his share of production Ex: A conveys a servitude to B, C, D, E, and F. Each has 20 percent undivided interest. Before B can drill, must get permission from 80% of co-owners. o Right to partition: co-owned rights are subject to partition (remember, right to partition by law); separate rights are not subject to partition Ex: A conveys a servitude to B, C, D, E, and F. Each has 20 percent undivided interest. Any of the people B, C, D, E, or F may request a partition. If A had conveyed separate servitudes to B, C, D, E, and F, then none would be able to request a partition. o Interruption by use: use of a servitude by any co-owners interrupts prescription of entire servitude; use of distinct servitude does not interrupt prescription for other owners Ex: A conveys a servitude to B, C, D, E, and F. Each has 20 percent undivided interest. Drilling by B, C, D, E, or F will interrupt prescription for the others. If A had conveyed separate servitudes to B, C, D, E, and F, then each would have to drill separately in order to interrupt prescription. 18

19 CHAPTER TWO: MINERAL SERVITUDES Divisibility of Mineral Servitudes Mineral servitude is indivisible except as specifically provided (art. 62) o Ex: A conveys to B a mineral servitude of all oil and gas. B conveys to C a mineral servitude of oil and gas under 200 feet. B and C are co-owners of a single mineral servitude. o The only exception to this is if one person acquires all rights in a specific geographic area (art. 69) Ex: A conveys to B a mineral servitude of all oil and gas above 200 feet. B conveys to C a mineral servitude of all oil and gas below 200 feet. Now the servitude is divided. Tract A C has only oil and gas below 200 Undivided B has all oil and gas B originally has all oil and gas, but then conveys to C Tract A C has only oil and gas above 200 C has all oil and gas below 200 Divided o Execution for lease or another contract of use does not divide the servitude (art. 70) o Unitization does not divide the servitude (art. 71) 19

20 CHAPTER TWO: MINERAL SERVITUDES Reversionary Rights, After-Acquired Title, and Warranty A landowner may not convey or reserve a mineral interest that he anticipates will prescribe (art. 76, Hicks v. Clark) Mineral servitude cannot be created for more minerals than the landowner has o Sale or reservation of more minerals than are in owners possession reduces later created rights conveyed or reserved by the landowner Ex: A conveys to B ½ minerals. A sells land to C, reserving all minerals. At the time of the sale to C, A did not actually reserve all minerals; only reserved ½ minerals not owned by B. When B s servitude prescribes, that ½ minerals that B had owned goes to the landowner, which is now C. A does not get the ½ minerals from B. A still has only ½ and now C has ½, too. Ex: A conveys to B ½ minerals. A conveys to C all minerals. C only gets ½ minerals, because that is all A had to give. o The theory that one cannot convey more than one has also applies to prescription Ex: A conveys to B ½ minerals on January 1, B conveys to C ¼ minerals on January 1, C s rights prescribed on January 1, B cannot convey to C a full 10 year prescription period because B does not have a full 10 year prescription period. After-acquired title rule says that if a landowner who tries to convey more minerals than he has, and then acquires those minerals (be it by still owning the land or having reserved the right), the original buyer acquires the minerals to the full extent of the landowner s title (art. 77) o Ex (operation of art. 78): A conveys to B ½ minerals on January 1, A conveys to C all minerals on January 1, [At this point, C only gets ½ minerals because A only had ½ minerals to give.] A conveys to D land, reserving all minerals, on January 1, B s servitude prescribes on January 1, C now has 10 years from the time A conveyed to him all minerals (so until January 1, 2005) or the remaining time period that A has to B s prescribed ½ minerals (so until January 1, 2008) whichever is greater (the latter) to exercise his rights. o Ex (operation of art. 79): A conveys to B ½ minerals on January 1, A conveys to C all minerals on January 1, [At this point, C only gets ½ minerals because A only has ½ to give.] B s servitude prescribes on January 1, C has until January 1, 2005 to exercise his rights. There is a general rule that one cannot take advantage from his own breach, so theoretically, if land was conveyed as one servitude, but it was truly two servitudes (split by canal, for example), then landowner should not get benefit of prescription of one half; however, Third Circuit has said to the contrary o Ex: A conveys servitude to B. A claims single servitude. Turns out, it is two servitudes (canal not owned by A is running through the middle). B only uses one 20

21 CHAPTER TWO: MINERAL SERVITUDES half. Can A claim other half (i.e other servitude) has prescribed? Yes. (According to Ultramar Oil) 21

22 CHAPTER TWO: MINERAL SERVITUDES Imprescriptible Mineral Servitude When (1) land is acquired (2) by an acquiring authority and (3) and a mineral right subject to prescription of nonuse is reserved, then prescription is interrupted as long as title to the land remains with the acquiring authority. (art. 149) o Acquiring authority is the state, a political subdivision, agency, or a legal entity with authority to expropriate or condemn, or a nonprofit o Keep in mind, this is not self-operative; the minerals must be reserved 22

23 CHAPTER THREE: MINERAL ROYALTIES What is a Mineral Royalty Mineral royalty is a real right to participate in production of minerals from land owned by another or land subject to a mineral servitude (art. 80) o Royalty holder shares in gross production free of mining or drilling and production costs o This is not the right to explore for minerals or the right to lease land (art. 81) o Concept of mineral royalty in the Mineral Code is from Vincent v. Bullock A mineral royalty is a passive right o No active right to operate on the property o No right to demand that a mineral lessee conduct operations (Spiner v. Phillips Petroleum) A mineral royalty may be created by: o Landowner (art. 82) o Conditional landowner, but it is extinguished when conditional landowner divested of title (art. 83) o Owner of a mineral servitude (art. 82) Mineral royalties follow the rules of mineral servitudes for purposes of contiguity requirements (art. 101) o Also follow rules of mineral servitudes for purposes of reversionary rights and after acquired title (art. 104), though sometimes it becomes tricky when you have both Ex: A conveys to B all minerals on January 1, Thus, B has a servitude. B s servitude will expire on January 1, 2000 if no drilling takes place. B conveys to C a 1/16 royalty interest on January 1, At this point, C s royalty interest will prescribed on January 1, 2002 if no production takes place. On January 1, 1995, a dry hole is drilled. Prescription for B s servitude has now been interrupted, so B s servitude will continue until January 1, However, prescription on C s royalty interest has not, so it will still expire on January 1, 2002 if no production takes place. No production does take place. The royalty expires, but does not inure to benefit anyone; the servitude is merely relived of its charge. Ex: A conveys ¼ mineral servitude to B on January 1, A conveys 1/8 mineral royalty to C on January 1, A conveys the land to D reserving all mineral rights on January 1, What did A then own? A has the right to keep 7/8 of what is found (1 1/8 royalty of C), minus ¼ owed to B, so he is entitled to receive 5/8 of production, after B (presuming B did the drilling) is able to recoup ¾ of the drilling costs from A. So, in short, 5/8 of production ¾ of drilling costs is how much A is going to have if on January 1, 1996 oil production commenced. o Note that a royalty does not revert to the landowner it passes out of the picture (a servitude does revert to the landowner) 23

24 CHAPTER THREE: MINERAL ROYALTIES Distinguishing a mineral servitude and a mineral royalty o Look to the terms of the contract (in McKenzie s Classifying Mineral Interests Mineral Servitudes v. Mineral Royalty form the early 1960s, it was stated that courts look for form over substance [slightly paraphrased], so the form description given to the mineral right is favored) o Following basic contractual interpretation from Civil Code, also look to the intent of the parties Mineral royalties and mineral servitudes share: o Same rules on freedom to contract o Same rules on contiguity o Same rules on divisibility o Same rules on shut in wells o Same rules on affect of unitization Mineral royalties and mineral servitudes differ: o What constitutes use o Right of the owner to explore for minerals o Duty of owner to pay for production costs 24

25 CHAPTER THREE: MINERAL ROYALTIES Mineral Royalty and Prescription of Nonuse A mineral royalty is subject to the 10 year prescription of nonuse period o Prescription commences the date on which the royalty is created (art. 86) What qualifies as a use? o Unlike a mineral servitude, a use for a mineral royalty is dependent on actual production Dry hole does not interrupt prescription for mineral royalty o It is not necessary that minerals be produced in paying quantities, but they must be produced and saved (art. 88) Interruption of prescription o Prescription is interrupted by the production of any minerals covered by the act creating the royalty (art. 87) o The interruption begins on the date actual production begins (art. 87) o The interruption ceases on the date of cessation of actual production (art. 87) o Acknowledgment interrupts prescription for a mineral royalty (same rules as for mineral servitude) The only difference between the acknowledgment rules for a mineral servitude and a mineral royalty follow a situation in which the mineral servitude is created after the mineral royalty; in that case, the mineral servitude holder may only acknowledge the proportion of the royalty which the interest of the servitude holder has (art. 95) Ex: A conveys mineral royalty to B. A then conveys ½ mineral servitude to C. C can only acknowledge (as to interrupt prescription) ½ of B s royalty interest. o Production from a unit well on the premises interrupts prescription following the same rules as for a mineral servitude (art. 89) o Shut in well rules are the same for a mineral royalty and a mineral servitude (art. 90, 91) Suspension of prescription o An obstacle to actual production that would suspend prescription of nonuse for a mineral servitude suspends prescription of nonuse for a mineral royalty (art. 98) Minority does not suspend prescription (art. 97) 25

26 CHAPTER THREE: MINERAL ROYALTIES Extinguishing a Mineral Royalty Mineral royalties are extinguished through prescription They are also extinguished by: o Confusion o Renunciation o Expiration of the time for which the royalty right was granted o Extinction of the right of him who established the mineral royalty Note that if a servitude is created after the royalty is created, even though that servitude is burdened by the royalty, the royalty is not dependent upon the servitude for existence Ex: A conveys mineral royalty to B. A then conveys mineral servitude to C. C s servitude prescribes. B s royalty has not prescribed simply because C s servitude prescribes. Also, if a mineral royalty is created by a servitude holder, and then that servitude is extinguished by confusion, the royalty is not lost Ex: A conveys mineral servitude to B. B conveys mineral royalty to C. A conveys land to B. B s servitude has been extinguished due to confusion. However, C s royalty interest remains. Also, a mineral royalty is not extinguished by extinction of the servitude it was created from if the extinction of the servitude is from inheritance or was brought about by an act of the servitude owner, unless the royalty owner is a party to the act or otherwise consents expressly and in writing to become bound to it (art. 85(5)) 26

27 CHAPTER FOUR: EXECUTIVE RIGHTS What is an Executive Right An executive right is a real right to lease the land for mineral development (Art. 105 which codifies Mt. Forest Fur) o Non-executive right does not have with it the right to lease land for mineral development o Typically, a mineral royalty has a non-executive interest; mineral servitude has an executive interest Both may be contracted such that they have or don t have executive interest However, a mineral royalty with an executive interest is not inherently a mineral servitude, and a mineral servitude without an executive interest is not inherently a mineral royalty (art. 111) A person with an executive right does not have the obligation to grant a mineral lease, but if he does, he must act in good faith and in the same manner as a reasonably prudent landowner or servitude owner (art. 109) o If a lease is granted not in good faith or as a reasonable prudent landowner, the lease itself is not invalidated, but the landowner may recover damages against the holder of the executive right; there is a one year prescription period from the date on which the lease is filed (art. 110) Why would you create an executive right? o Facilitate the development of a tract of land If you have co-owners of a servitude, before anyone can do anything, 80 percent have to consent; to save time, one servitude holder should be granted an executive right and the others a non-executive right, so that the development of the land could be done more efficiently o Ensure responsible development of land Grandparents giving land to kids will frequently retain executive rights to ensure the land is properly developed o Settlement agreements Unanswered questions with executive rights o Rules of contiguity Code and case law says nothing; Ottinger presumes the rules mirror those of servitudes (this makes since as the prescription rules mirror the rules of servitudes) o 80 percent rule What percentage of co-owners are needed to grant an executive right? 27

28 CHAPTER FOUR: EXECUTIVE RIGHTS Extinguishing an Executive Right An executive right is subject to the prescription of nonuse o The prescription of nonuse is interrupted by an act or event that would be sufficient to interrupt prescription accruing against a mineral servitude (art. 107) o Note that an executive right is only interrupted by an act sufficient to interrupt a mineral servitude; it is not suspended by an act sufficient to suspend prescription on a mineral servitude An executive right that accompanies a mineral right is extinguished with the mineral right (art. 113) o Ex: A conveys to B a mineral royalty accompanied by an executive right on January 1, A dry hole is drilled on January 1, On January 1, 2000, B s mineral royalty and executive are extinguished, because the executive right was an appendage to the mineral royalty, even though the executive right alone would not have been extinguished. o Ex: But, if A conveys to B a mineral royalty on January 1, 1990, and then conveys to B an executive right on January 1, 1991, and the dry hole comes up on January 1, 1995, then on January 1, 2000, only the mineral royalty is extinguished, not the executive right. The executive right will not be extinguished until January 1,

29 CHAPTER FIVE: MINERAL LEASE What is a Mineral Lease A mineral lease is a contract by which the lessee is granted the right to explore for and produce minerals (art. 114) o A single lease may be made over non-contiguous tracts of land (art. 114) o Leases are all about contractual freedom (with a few exceptions) o There are three standard leases: Bath 6 South lessee s form used in south Louisiana Bath 4 South lessor s form used in south Louisiana North form form used in north Louisiana Essential features of a customary lease o Bonus Bonus means money or other property given for the execution of a mineral lease, except interest in production from or attributable to property on which the lease is given (Art. 213(1)) More simply stated, a bonus is the cash payment to the lessor upon execution of the lease o Primary term This is a fixed term during which time the lessee is given the opportunity to find and commence production This is coupled with a habendum clause A habendum clause extends the term beyond the primary term for as long as oil and gas is produced or operations are being conducted Usually the production requirement is that it be in paying quantities if nothing stated in the lease, court presumes the requirement is production in paying quantities (Caldwell v. Alton Oil) o Production in paying quantities is defined as production sufficient to yield a return in excess of operating costs, even though drilling and equipment costs may never be repaid and the undertaking as a whole may ultimately result in a loss (art. 124) This includes only current operating costs (or lifting costs), and not sunk costs How costs are classified then becomes important: the lessor wants the costs to be high because more production will be required; the lessee wants the costs considered to be low because less production will be required o The lessor has the burden of proving failure to produce in paying quantities 29

30 CHAPTER FIVE: MINERAL LEASE o Delay rental provision This is a provision that says the lease will terminate if no operations commence during the primary term, or the lessor does not pay a specific sum of money (the delay rental) There are two ways the delay rentals can work in a lease: Method 1: failure to drill or pay delay rental results in breach of contract and damages Method 2 (more popular method): failure to drill or pay delay rental results in automatic termination of lease (art. 133) The delay rental must be paid to maintain the lease or operations must commence Commencement of operations has been defined as when equipment is on the lease premises, completion of a board road and turn-around; but remember, freedom of contract, so parties may defined commencement of operations o Royalty The royalty is the money paid to the lessor, constituting a fraction of the value of the minerals produced or the proceedings from their sale Distinction between mineral lease and mineral servitude o The main distinction is the contractual nature of the lease A mineral lessee is bound to the lessor to develop the premises A mineral servitude owner has no contractual duty to the landowner o The mineral lease is not subject to the prescription of nonuse per se, but the lease must have a term in it, and that term cannot extend beyond 10 years with no use Should the term exceed 10 years, the lease is not invalid, but the term will be shortened to 10 years The term of the less will expire; the lease does not prescribe o A single mineral lease may be over non-contiguous tracts of land; a single mineral servitude may not o Unless there is a clause to the contrary, a well drilled off site in part of a unit that is included in the lease, maintains the entire lease (this is where the Pugh Clause comes in) Tract A Tract B In this situation, the well interrupts prescription for the entirety of Tract A and the entirety of Tract B Creating a mineral lease o A mineral lease may be granted by a person having an executive interest in the mineral rights leased (art. 116) 30

31 CHAPTER FIVE: MINERAL LEASE Note that upon receipt of a lease, the lessor has not lost ownership of the land, he has merely leased part of the land Therefore, a lessor is not prohibited from granted a mineral servitude thereafter (illustrated in Wall v. Leger) A mineral lease may be dissolved in part or in full (art. 142) Rental payments for a mineral lease are the payments made to maintain a lease when the lessee isn t drilling o Royalty payments are the payments made of an interest of production o If royalties under a lease are not paid, the lease can be cancelled, though the lessor must first give the lessee written notice, and then make a judicial demand for damages or dissolution If the lessor just wants to collect the royalties, the lessor can simply file suit; but doing so will only allow the collection of royalties, not the bells and whistles (i.e. attorneys fees, damages, double royalties) An action to recover under or over payments of royalties is subject to a prescriptive period of three years (CC 3494(5)) Remember termination of a lease is not the favored action and should only be done when a remedy of damages would not be adequate in the interest of justice (art. 141) o Note the big difference in rentals and royalties: failure to pay rentals ipso facto terminates the lease; failure to pay royalties does not ipso facto terminate the lease 31

32 CHAPTER FIVE: MINERAL LEASE Granting Clause The granting clause specifies the rights conferred upon the lessee by the lessor Bath 6: Lessor, in consideration of the sum of $XXX + other valuable consideration (OVC) hereby leases and lets unto Lessee, the exclusive right to enter upon and use the land hereinafter described for the exploration for, and production of oil, gas, sulphur and all other minerals, together with the use of the surface of the land for all purposes incident to the exploration for and production, ownership, possession, storage and transportation of said minerals (either from said land or acreage pooled therewith), and the right to dispose of salt water, with the right of ingress and egress to and from said lands at all times for such purposes, including the right to construct, maintain and use roads, pipelines and/or canals thereon for operations hereunder or in connection with similar operations on adjoining land, and including the right to remove from the land any property placed by Lessee thereon and to draw and remove casing from wells drilled by Lessee on said land; the land to which this lease applies and which is affected hereby being situated in (Parish name) Parish, Louisiana, and described as follows, to-wit: North form: Lessor, in consideration of $XXX + other valuable consideration (OVC) in hand paid, of the royalties herein provided, and of the agreement of Lessee herein contained, hereby grants, leases, and lets exclusively unto Lessee for the purposes of investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all other minerals, laying pipe lines, building tanks, power stations, telephone lines, and other structures thereon to produce, save, take care of, treat, transport and own said products and for dredging and maintaining canals, constructing roads and bridges, and building houses for its employees, and, in general, for all appliances, structures, equipment, servitudes and privileges which may be necessary, useful or convenient to or in connection with any such operations conducted by Lessee thereon, or on any adjacent lands, the following described land in (Parish name) Parish, Louisiana, to-wit: 32

33 CHAPTER FIVE: MINERAL LEASE Mother Hubbard Clause Purpose of the Mother Hubbard clause is to claim all rights the lessor has, even if they are not named, in other words, the mineral rights that terminate during the existence of the lease (art. 144) o In the absence of a Mother Hubbard clause, when mineral rights terminate during the lease, they only become the lessee s if they have purported to be leased (art. 145) o In other words, if I lease A and B, but only have A, then with or without a Mother Hubbard clause, the lessor will get B when I get A; if I lease only A, but later acquire B, then with a Mother Hubbard clause the lessee would get B, but without a Mother Hubbard clause the lessor would get B Bath 6: Whether or not any reduction in rentals shall have previously been made, this lease, without further evidence thereof, shall immediately attach to and affect any and all rights, titles, and interests in the above described land, including reversionary mineral rights, hereafter acquired by or inuring to Lessor and Lessor s successors and assigns. North form: It is the intention of the parties that this lease shall also extend and apply to all outstanding mineral rights or servitudes affecting the lands herein described as the same may revert to Lessor, his heirs or assigns, from time to time. 33

34 CHAPTER FIVE: MINERAL LEASE Estimated Acres Clause Purpose of the estimated acres clause is to establish the number of acres the lease is for so rental payments can be calculated o Note: the number of acres listed in this clause is the number of acres that matters, even if the number is wrong Bath 6: For the purpose of calculating the rental payments hereinafter provided for, the above described land is estimated to comprise ### acres, whether it actually comprises more or less. North form: This lease also covers and includes battures, accretions and all other land owned by Lessor adjacent to the land particularly described above. For the purpose of calculating the rental payments hereunder provided for, said land is estimated to comprise ### acres, whether it actually comprises more or less. 34

35 CHAPTER FIVE: MINERAL LEASE Habendum Clause The habendum clause established the primary term and how long thereafter and under what conditions the lease will continue Bath 6: This lease shall be for a term of XX years and XX months from the date hereof (called primary term ) and so long thereafter as oil, gas or some other mineral is being produced or drilling operations are conducted either on this land or on acreage pooled therewith (or with any part thereof), all as hereinafter provided for; all subject to the following conditions and agreements. 35

36 CHAPTER FIVE: MINERAL LEASE Delay Rental / Unless Clause The delay rental clause establishes when the lease will terminate and under what conditions; this normally includes establishing the lease will continue if production occurs or if delay rentals are paid Bath 6: This lease shall terminate on (date) unless on or before said date the Lessee either (1) commences operations for the drilling of a well on the land, or on acreage pooled therewith (or with any part thereof), in search of oil, gas or other minerals and thereafter continues such operations and drilling to completion or abandonment; or (2) pays to the Lessor a rental of $$$ per acre for all or that part of the land which Lessee elects to continue to hold hereunder, which payment shall maintain Lessee s rights to effect as to such land without drilling operations for one year from the date last above mentioned... North form: If operations for drilling or mining are not commenced on said land or on land pooled therewith on or before one year from this date, this lease shall terminate as to both parties, unless on or before one year from this date Lessee shall pay or tender to the Lessor a rental of $$$ which shall cover the privilege of deferring commencement of such operations for a period of twelve (12) months. 36

37 CHAPTER FIVE: MINERAL LEASE Pooling Clause Purpose of the pooling clause is to allow the lessee to pool the land and/or minerals without the lessor s approval Bath 6: Lessee, at its option, is hereby given the right and power without any further approval from Lessor, at any time and from time to time, to pool or combine the land or mineral interest covered by this lease, or any portion thereof, with other land, lease or leases and mineral interests in the immediate vicinity thereof, when, in Lessee s judgment, it is necessary or advisable to do so in order to properly explore or develop or operate said premises so as to promote the conservation of oil, gas or other minerals in and under and that may be produced from said premises or to prevent waste or to avoid the drilling of unnecessary wells or to comply with the spacing, or unitization order of any Regulatory Body of the State of Louisiana or the United States having jurisdiction. 37

38 CHAPTER FIVE: MINERAL LEASE Warranty Clause Warranty clause is the clause that the lessor warrants the land o The warranty clause is implied; for a lessor to not warrant land, the lessor must explicitly state such; it is not enough that the lessor cross out the warranty clause o Difference in forms: Bath 6 (lessee): agrees to warrant and defend title Bath 4 (lessor): agrees to warrant Bath 6: Lessor hereby warrants and agrees to defend the title to said land and agrees that Lessee may, at its option, discharge any tax, mortgage or other lien upon the land and be subrogated thereto and have the right to apply to the repayment of Lessee any rentals and/or royalties accruing hereunder. 38

39 CHAPTER FIVE: MINERAL LEASE Proportionate Reduction Clause Purpose of the proportionate reduction clause is to provide that rentals and royalties payable to the lessor will be proportionately reduced if the mineral interest of the lessor in the land leased is less than the full interest therein Bath 6: If Lessor owns less than the entire undivided interest in all or any portion of the lands or mineral rights relating thereto (whether such interest is herein specified or not) rentals and royalties as to the land in which an interest is outstanding in others shall be reduced proportionately to the interest of the Lessor therein, but the failure of the Lessee to reduce rentals shall not affect Lessee s rights to reduce royalties; and all outstanding royalty rights shall be deducted from the royalties herein provided for. North form: If Lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties and rentals herein provided shall be paid to Lessor only in the proportion which Lessor s interest bears to the whole and undivided fee. 39

40 CHAPTER FIVE: MINERAL LEASE Retained Acreage Clause Purpose behind the retained acreage clause is that if a lessee is breaching a contract, then he should not be harmed for past good works; the retained acreage clause allows him to keep the acreage he s done good works on and terminate the other acreage Bath 6: In the event of forfeiture of this lease for any cause, Lessee shall have the right to retain around each well then producing oil, gas or other minerals or being drilled or worked on the number of acres fixed and located by or in accordance with the spacing or unit or proration allowable order of any Regulatory Body of the State of Louisiana or of the United States under which said well is being drilled or produced, of ir said well has been or is being drilled on a unit pooled by Lessee as provided herein, then Lessee may retain all of the acreage comprising said pooled unit and if no spacing or proration allowable order has been issued nor any pooled unite established, then Lessee shall have the right to retain forty (40) acres surrounding each oil well then producing or being drilled or worked on, and one hundred sixty (160) acres around each gas or gas condensate well then producing, or being drilled or worked on or shut in under Paragraph 6 hereof, each of such tracts to be in as near a square form as is practicable. 40

41 CHAPTER FIVE: MINERAL LEASE Pugh Clause Purpose of the Pugh Clause is to establish how to deal with a unit on leased land; it is intended to modify the rule in art. 144 that drilling on unitized land not on the leased premises maintains the entire lease Tract A Tract B Without Pugh Clause, art. 114 says that the well on Tract A will maintain the entire lease on Tract B A normal Pugh Clause encompasses the following features: o A well located upon a unit comprising a part of the lease premises will maintain the lease only as to the area within the unit o As to the part of the premises outside the unit, the lessee may continue to maintain the lease by paying delay rentals or drilling additional wells, each of which will only maintain the part of the premises unitized with it, if it is unitized o The lessee is given a minimum time after completion, or unitization, of the first well in which to develop the entire premises, even if the original primary term has expired or will expire before then. In short, the primary term is in effect extended, if necessary, for a state period from completion of the first well o At the end of such extended period, the lease will terminate as to those areas not then included within producing units 41

42 CHAPTER FIVE: MINERAL LEASE Shut In Clause Purpose is to establish how a shut in affects the rights granted under the lease o Difference between forms: Bath 6 (lessee): rights granted are maintained during production no mention of drilling or reworking operations being connect; shut-in conditions when gas not being produced, but may not maintain by shutin payments for more than five consecutive years Bath 4 (lessor): rights granted are maintained during production or while drilling or reworking operations are being conducted; shut-in conditions when gas not being produced because of lack of market or governmental restrictions, but may not maintain by shut-in payments for more than two consecutive years 42

43 CHAPTER FIVE: MINERAL LEASE Division of Rentals Clause Purposes is to determine if default in payment of rentals by one person with undivided interest affects the others o Difference in the forms: Bath 6 (lessee): In case of partial assignment as to segregated portion, default in payment of rentals by one shall not affect others Bath 4 (lessor): In case of partial assignment as to segregated portion or undivided interest, default in payment of rentals by one shall affect others 43

44 CHAPTER FIVE: MINERAL LEASE Obligations of the Lessor Warranty of title o A mineral lessor impliedly warrants title to the interest leased unless such warranty is expressly excluded or limited (art. 120) Refrain from disturbing the lessee s possession Perform the contract in good faith 44

45 CHAPTER FIVE: MINERAL LEASE Obligations of the Lessee The lessee is bound to (obligations arising out of art. 122 and McCollam s Impact on Louisiana Mineral Code article in 1975): o Perform the contract in good faith o Develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and the lessor This is an implied obligation to drill exploration and development wells This may include the obligation to drill in non-productive areas; at minimum the lessee must demonstrate that he has engaged in diligent, continuous efforts to produce minerals o Prevent damage This includes the obligation to protect against drainage In order to establish a breach of this duty, the lessor would have to prove: (1) existence of substantial damage, (2) quantity of oil and gas which would have been produced from an offset well, (3) share of royalties the lessor would have obtained, and (4) economic feasibility of the offset well This may also (conjunctively) include the obligation to unitize There is also an implied obligation to secure and select a market for the product o The lessee must market in the manner of a reasonably prudent operator o The lessee may postpone marketing in terms with the shut in clause, but the shut in clause does not displace the duty to market Obligation to represent lessor fairly before regulatory agency Obligation to restore surface after operations 45

46 CHAPTER FIVE: MINERAL LEASE Transfers by the Lessee The lessee may assign or sublease a lease (absent any prohibition in the lease) o An assignment is the transfer of all rights of the lessee under the lease This conveys all interests as to interests conveyed o A sublease is the lease of a lease (not all rights are transferred) 46

47 Nature of the right Right to lease land for purposes of exploration or production? Owner pay for Comparison of Mineral Servitudes, Mineral Royalties, Executive Right, and Mineral Leases MINERAL SERVITUDE MINERAL ROYALTY EXECUTIVE RIGHT MINERAL LEASE Right of exploration for and Passive right to share in Right to lease land Contractual right production of minerals production Yes No Yes Yes No No Yes drilling? Who may create one? Landowner Landowner, servitude owner Owner of the executive right (may be landowner, may be servitude owner, could be mineral royalty owner but this is unlikely) Subject to prescription of nonuse? Production required to interrupt prescription? What interrupts prescription? Effects of unit What suspends prescription? Contiguous tracts required for single right? Modes of extinction Yes Yes Yes No No Yes No N/A (but production usually does maintain) Acknowledgment Acknowledgment Acknowledgment N/A (but drilling and payment of Drilling in good faith Production Drilling in good faith rentals will maintain) Production Production Where servitude tract is part of unit and unit well is drilled off servitude, interruption only occurs as to included portion Same as servitude Same as servitude Maintains entire lease unless Pugh clause alters Obstacle to operations or Obstacle to actual production N/A N/A production Yes Yes Yes No Prescription of nonuse Confusion Renunciation Expiration of term Remission Occurrence of resolutory condition Extinction of right of landowner Prescription of nonuse Confusion Renunciation Expiration of term Remission Occurrence of resolutory condition Extinction of right of landowner Prescription of nonuse Confusion Renunciation Expiration of term Remission Occurrence of resolutory condition Extinction of right of landowner Failure to timely pay rent according to contract Failure to obtain production within primary term Expiration of contract Judicial dissolution

48 Obligations No obligation to lease or explore, but if he does, then must only use land necessary and restore the surface to its original condition at the earliest reasonable time None passive right No obligation to grant a mineral lease, but if he does, must act in good faith and in the same manner as a reasonably prudent landowner Lessor s Duties: Deliver leased premises perform contract in good faith refrain from disturbing possession impliedly warrants title Lessee s Duties: Perform contract in good faith develop property as reasonably prudent administrator (implied obligation to drill) Protect the land Produce and market minerals Represent the lessor fairly Restore the surface Pay timely rentals/royalties 48

49 Mineral Rights Cases (only the major ones) Breaux v. Apache: commencement for purposes of a mineral lease is satisfied (unless contractually altered) by preparatory works, such as building a board road or turnaround Frost-Johnson Lumber Co. v. Salling s Heirs: a landowner does not own fugacious minerals while underground, but has a right to own them once they have been reduced to possession; therefore, one cannot create separate mineral estates in Louisiana; this created the idea (pre-mineral Code) of the mineral servitude; as the case was pre-mineral Code, the court analogized to the Civil Code to reach its conclusion Hunter v. Shell: a well drilled off the leased land, but on a unit that covers the leased land, maintains the entire lease; this is codified in art. 114; a Pugh Clause contractually modifies the rule of Hunter v. Shell Mt. Forest Fur Farms v. Cockrell: the owner of an executive right is entitled to bonuses and rentals Swope v. Holmes: a lessor may obtain a cancellation for failure to protect the leased premises against drainage through wells on adjoining property Trahan v. Superior Oil: findings and decisions of the Commissioner of Conservation may not be collaterally attacked Vincent v. Bullock: establishes that a mineral royalty is subject to a prescription of nonuse period of 10 years