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Energy & the Law

108 Year-Old Lease Survives

Posted in Lease Disputes

Honus-Wagner-100-Years-Ago-Today1-650x365Co-author Brooke Sizer

A baseball question: You’ve got men on late in the game; a base hit to the right side wins. Do you put the bat on the ball for a single or swing for the deep seats, risking the game-ending strikeout?

The Stiles leases were executed in 1907, when Honus Wagner was in his prime. Covering 3,214 acres in Caddo Parish, Louisiana, they were for a primary term of ten years ” … and as much longer thereafter as gas or oil is found or produced in paying quantities … ”  The leases are held by several hundred shallow wells.  In 2007, in Regions Bank v. Questar Exploration the plaintiffs sued for failure to reasonably develop at depths below 6,000 feet. The suit was amended to assert that the leases had terminated by operation of Civil Code Art. 2679, which limits the duration of a lease to 99 years.

The trial court dismissed the case: Civil Code Art. 2679 does not apply to mineral leases.  Plaintiffs appealed.

Plaintiffs’ argument

Article 2679 applies because of Mineral Code Section 2: The Code is supplementary to the Civil Code and its provisions apply specifically to the subject of mineral law.  In the event of conflict between the two, the Mineral Code prevails. If this Code does not expressly or impliedly provide for a particular situation, the Civil Code or other laws apply.

Exxon’s argument

The habendum clause (“thereafter … ”) is connected directly to the production of oil and gas and Article 2679 has no application for mineral leases.  Mineral Code Section 115(A) requires that a mineral lease have a term, and prohibits a term of more than 10 years without operations or production.

The conclusion

Exxon wins. The Stiles leases are are mineral leases governed by their terms and the Mineral Code.  The habendum clause balances the interests of the lessor and lessee.  Plaintiff’s argument runs contrary to well-established practices.

The habendum clause is two-tiered. The first is of a definite duration and the second is of an indefinite duration.  For the habendum clause to  extend the lease a well must have already been drilled and tested or began producing, and still producing, when it entered the second term.  That the “secondary term” is limited to 99 years is contrary to the concept of maintaining a lease for as long as minerals are producing in paying quantities.

The 99-year limit has no rational application to mineral leases. Article 115 provides for a maximum secondary term based upon continued operations or production.  A mineral lease will terminate at the expiration of the agreed term or upon the occurrence of an express resolutory condition.

The takeaway

Should plaintiffs have stayed with failure to reasonably develop instead of swinging for the fences? (We ask rhetorically, ignorant of why they did what they did.) The court said that if it found the leases were perpetual then they would be void from inception, as in from 1907. What were the chances of such a radical and unsettling result? About as much as Jeb Bush winning in Iowa. Or a Bigfoot sighting. Or Bigfoot winning in New Hampshire. Intermediate appellate courts are not known for legal adventurism.

 A musical interlude about Louisiana by a Texan.