Articles Posted in Energy, Oil & Gas Law

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Nelson Industrial Steam Company (“NISCO”) was in the business of generating electric power in Lake Charles. In order to comply with state and federal environmental regulations, NISCO introduces limestone into its power generation process; the limestone acts as a “scrubbing agent.” The limestone chemically reacts with sulfur to make ash, which NISCO then sells to LA Ash, for a profit of roughly $6.8 million annually. LA Ash sells the ash to its customers for varying commercial purposes, including roads, construction projects, environmental remediation, etc. NISCO appealed when taxes were collected on its purchase of limestone over four tax periods. NISCO claimed its purchase of limestone was subject to the “further processing exclusion” of La. R.S. 47:301(10)(c)(i)(aa), which narrowed the scope of taxable sales. The Louisiana Supreme Court granted NISCO’s writ application to determine the taxability of the limestone. The trial court ruled in the Tax Collectors' favor. After its review, the Supreme Court found that NISCO’s by-product of ash was the appropriate end product to analyze for purposes of determining the “further processing exclusion’s” applicability to the purchase of limestone. Moreover, under a proper “purpose” test, the third prong of the three-part inquiry enunciated in "International Paper v. Bridges," (972 So.2d 1121(2008)) was satisfied, "as evidenced by NISCO’s choice of manufacturing process and technology, its contractual language utilized in its purchasing of the limestone, and its subsequent marketing and sale of the ash." Therefore the Court reversed the trial court and ruled in favor of NISCO. View "Bridges v. Nelson Industrial Steam Co." on Justia Law

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This case was brought by the plaintiffs, mineral royalty owners, against defendants, mineral lessees and working interest owners, for unrecovered hydrocarbons after two wells ceased production. Following a lengthy bench trial, the district court concluded plaintiffs had not proven the operators caused any loss of hydrocarbons and dismissed their claims with prejudice. The single issue before the Louisiana Supreme Court was whether the district court committed manifest error in ruling in favor of defendants, finding their experts more credible than plaintiffs' expert. The Court of Appeal reversed. The Supreme Court found that the appellate court was incorrect in its analysis of the manifest error review standard, and after reviewing the record, the Supreme Court concluded there was a reasonable basis for the district court's conclusion on causation. Therefore, it's conclusion was not clearly erroneous. The Court reversed the Court of Appeals and reinstated the judgment of dismissal. View "Hayes Fund for the First Untied Methodist Church of Welsh, LLC v. Kerr-McGee Rocky Mountain, LLC" on Justia Law

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This case arose from a petition filed by vendors of mineral rights, plaintiff John C. McCarthy, individually and as trustee of the Kathleen Balden Trust, and plaintiff Marjorie Moss. Plaintiffs named as defendant Evolution Petroleum Corporation, which was formerly known as Natural Gas Systems, Inc. Plaintiffs also named as a defendant NGS Sub. Corp. (“NGS”). Plaintiffs sought damages and rescission of their sale of royalty interests in mineral leases within the Delhi Field Unit, located in Richland Parish. Plaintiffs alleged fraud and error as grounds for rescission. The defendants filed a peremptory exception of no cause of action, which the district court granted, and the case was dismissed. In the first of two appeals in this case, the appellate court affirmed the exception of no cause of action, but reversed the dismissal with instructions to the district court on remand to allow the plaintiffs the opportunity to amend their petition to state a cause of action. The cause of action that plaintiffs came up with was, according to the appellate court, "novel and untested," and the Supreme Court granted review to determine whether that cause of action comported with Louisiana mineral law. The purported cause of action imposed a duty on a mineral lessee purchasing the lessor’s mineral royalty rights to disclose to the lessor that the lessee has already negotiated the resale of the mineral rights to a third party for a significantly higher price. Finding the lessee’s duties upon which the appellate court premised its cause of action to be expressly excluded in the Mineral Code, the Supreme Court reversed the appellate court’s decision, and reinstated the district court’s decision, which ruled plaintiffs failed to state a cause of action and dismissed this case with prejudice. View "McCarthy v. Evolution Petroleum Corp." on Justia Law

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Based on an agreement, an oilfield operator was authorized to charge certain costs against revenues prior to paying the oilfield owners. After a dispute arose, an auditor examined the oilfield operator's costs charged to the oilfield owners and found approximately $1 million as being unsubstantiated and, therefore, impermissibly charged to the owners by the operator. The arbitrator reached a different conclusion regarding what charges were permissible and awarded the owners approximately $1.6 million. Satisfied with the arbitrator's decision, the oilfield brought an action in the district court to confirm the award. The oilfield operator, however, moved to vacate the award. The operator argued that the arbitrator improperly considered certain employment documents and that the arbitration was limited in scope by the auditor's findings of the unsubstantiated charges. The district court confirmed the award and denied the operator's motion. The court of appeal affirmed, with one judge dissenting. The issue this case presented for the Supreme Court's review as whether an accountant, serving as an arbitrator, exceeded his arbitral authority. Finding that the arbitrator acted pursuant to the authority lawfully and contractually vested in him by the parties, the Supreme Court affirmed. View "Mack Energy Co. v. Expert Oil & Gas, LLC" on Justia Law

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The issue this case presented to the Supreme Court centered on the lower courts’ interpretation of portions of a written mineral agreement. The agreement was prepared by a mineral leaseholder and ostensibly conveyed to an exploration company an “exclusive option to sublease” at least 15 percent of the leaseholder’s mineral rights. The lower courts interpreted the agreement as imposing an obligation on the exploration company to execute the sublease rather than simply allowing the exploration company the right to execute the sublease. Because the exploration company did not execute such a sublease, the lower courts awarded damages to the leaseholder for breach of contract. When the Court granted certiorari review, the lower courts had awarded to the leaseholder other damages, related to the exploration company’s obligation to execute a mineral sublease. The Supreme Court determined that the lower courts erred in ruling that the exploration company was obligated by the agreement to sublease mineral rights. Instead, the Court found the agreement afforded the exploration company a non-binding option to sublease (for which the exploration company paid $1.4 million), but that if the exploration company exercised the non-binding option, it was then obligated to sublease at least 15 percent of the leaseholder’s rights described in the agreement. Accordingly, the damage award on the breach of contract claim for failing to sublease at least 15 percent of the leaseholder’s mineral rights was reversed. However, the Court also found the exploration company breached its obligation to complete a seismic survey, and the Court affirmed the corresponding award of damage. Because the record did not support a finding that the exploration company acted in bad faith, we examine the effects of a contractual prohibition against consequential damages that the lower courts refused to apply based on those courts’ findings of bad faith. Because of the court of appeal's error, any meaningful review of the merits of the exploration company’s argument that its reconventional demand for improper use and sharing of its seismic data was improperly dismissed. The case was therefore remanded to the court of appeal the question of the propriety of that dismissal and, as that court then deems necessary, the question of whether the record supports the exploration company’s request for relief, or whether remanding to the district court for the taking of additional evidence is required. View "Olympia Minerals, LLC v. HS Resources, Inc." on Justia Law

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The issue this case presented to the Supreme Court involved mineral rights and royalties associated with a production well located on a certain tract of land owned by the plaintiffs in Terrebonne Parish. Two conveyances were at issue: a 1966 mineral deed and a 1992 cash sale. The plaintiffs asserted the 1966 mineral deed did not create a valid mineral servitude and, consequently, sought to be declared as owning 100% of the mineral rights since their purchase of the subject property by act of cash sale in 1992, and demanded to be awarded the royalties due from June 29, 1997, until the well stopped producing sometime in 2001 or 2002. Plaintiffs further asserted a violation of the Louisiana Unfair Trade Practices Act based on the allegation that various acts of the defendants amounted to a tortious conspiracy to deprive the plaintiffs of the royalties due them. The trial court ruled in the plaintiffs’ favor, finding the 1966 deed did not create a valid servitude over the subject property, plaintiffs were the owners of the mineral rights as of the 1992 purchase, and the defendants’ conduct amounted to unfair trade practices. The appellate court reversed and vacated the judgment, finding that the 1966 mineral deed had created a valid mineral servitude and that the 1992 act of cash sale had placed the plaintiffs on notice that the mineral rights to the property had been previously conveyed. The appellate court then remanded the case for consideration of the remaining issues associated with any rights the plaintiffs may have acquired from settlements with predecessor mineral interest owners in 2001 and 2005. After its review of the case, the Supreme Court affirmed the court of appeal: the 1966 mineral deed was sufficiently specific to identify the property to be conveyed and, thus, to create a valid mineral servitude and to place third parties on notice of the existence of that servitude. Plaintiffs did not acquire the mineral rights to the subject property via the 1992 warranty deed. Furthermore, the actions of the defendants did not rise to the level of an unfair trade practice within the meaning of the act. View "Quality Environmental Processes, Inc. v. St. Martin" on Justia Law

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Through a series of assignments, Clovelly Oil Company and Midstates Petroleum Company, LLC, were parties to a 1972 joint operating agreement (JOA). The issue before the Supreme Court was whether a lease acquired by Midstates in 2008 was subject to the provisions of the JOA. Upon review, the Court found that the lease in question was not subject to the JOA, and reversed the appellate court and reinstated the trial court's ruling.View "Clovelly Oil Co. v. Midstates Petroleum Co., LLC" on Justia Law

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Plaintiffs the State and the Vermilion Parish School Board filed a "Petition for Damages to School Lands" in 2004 seeking damages and remediation of a sixteenth section of property in Vermilion Parish owned by the State and managed by the School Board. The property was allegedly polluted by oil and gas exploration and production performed pursuant to an oil, gas and mineral lease originally granted on the property in 1935 and a surface lease entered into in 1994. The plaintiffs claimed damage to the land’s soil, surface waters and ground waters. Plaintiffs raised various causes of action including negligence, strict liability, unjust enrichment, trespass, breach of contract and violations of both the Mineral Code and the Civil Code. Several defendants were named in the original petition and in supplemental and amending petitions as companies which conducted, directed, controlled or participated in various oil and gas exploration and production activities as operators and/or working interest owners, and/or joint venturers in the mineral interest. At the time of this appeal, the remaining defendants were Union Oil Company of California; Union Exploration Partners; Carrollton Resources, L.L.C.; Chevron USA Inc.; and Chevron Midcontinent, L.P. In a motion for summary judgment, Chevron USA Inc. sought dismissal from suit, which was denied. Upon review of Chevron's argument that it should have been dismissed from the suit, the Supreme Court agreed with the court of appeal’s conclusion that there seemed to be a genuine issue of material fact as to Chevron USA Inc.’s successor status to Union Oil Company of California, and as such, should not have been dismissed from the case. Consequently, the Court affirmed the court of appeal’s opinion in this regard. View "Louisiana v. Louisiana Land & Exploration Company" on Justia Law

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Plaintiffs owned an undivided five-sixths interest of land on which they executed an oil and gas lease to Prestige Exploration, Inc. Plaintiffs ownership interests were managed by Regions Bank who helped negotiate the terms of the lease. Prestige acquired the lease on behalf of Defendant Matador Resources Company. The issue before the Supreme Court centered on the extension of that lease. Plaintiffs sought to rescind or reform the extension agreement to make it applicable only to a portion of their property. After several preliminary partial summary judgment rulings, a jury found in favor of Defendant for the extension to cover the entirety of Plaintiffs' land interest. The appellate court affirmed in part, reversed in part, and reformed the lease to extend only to the portion of land for which Plaintiffs asked. Upon review, the Supreme Court found that Plaintiffs were precluded from rescinding the agreement on "excusable error." Further, the Court found no manifest error in the district court proceedings. The Court reversed the appellate court's judgment and reinstated the trial court's judgment in its entirety. View "Peironnet v. Matador Resources Co." on Justia Law

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The Supreme Court granted certiorari in this case to determine whether the district court or the Louisiana Public Service Commission (LPSC) has subject matter jurisdiction to adjudicate a claim by a putative class of utility ratepayers in the City of Opelousas against Cleco Corporation and Cleco Power, LLC (Cleco). The ratepayers sought reimbursement for alleged overcharges for electricity for a period of nearly twenty years, based on a franchise agreement Cleco signed with the City of Opelousas in 1991. Upon review of the matter, the Supreme Court reversed the judgment of the district court and sustained Cleco's exception of lack of subject matter jurisdiction because this is primarily a rate case that must be decided, in the first instance, by the LPSC. Furthermore, the Court found that LA. CONST. art. IV, section 21 (C) was inapplicable, which excludes from the LPSC's exclusive authority a public utility owned, operated, or regulated by a political subdivision, as this case did not involve a municipally-owned public utility company. Accordingly, the rulings of the lower courts were vacated and the ratepayers' claims were dismissed.View "Opelousas Trust Authority v. Cleco Corporation" on Justia Law