Ross et al v. Enervest Operating, L.L.C. et al has several teachable moments for Louisiana royalty owners.
“Nice to Meet You” is Not a Demand
Under the Louisiana Mineral Code, a lessee is entitled to written notice from the lessor that royalties are due. The court concluded that such a notice must be more than a notification that the royalty owner had purchased the land. An “introductory letter” that doesn’t indicate that the lessor is requesting royalties or that any royalties were past due is insufficient. It was helpful to the equities of the case that the lessee in charge of royalty payments paid royalties immediately after receiving notice that the monies were past due.
Is it a Royalty or a Rental?
Ross also differentiates between the Mineral Code definitions of a “rental” – money or other property given to maintain a mineral lease in the absence of drilling or mining operations or production of minerals, and “royalty” – any interest in production from or attributable to land subject to a mineral lease that is payable to the lessor. A payment for production is a royalty, no matter if the value paid never exceeds an annual minimum payment required. In Ross, the annual payment was a royalty because the amount was tied to the amount of gas production. Had the payment been a rental, a breach of the lessee’s duty could have resulted in forfeiture of the lease.
The Lessee’s Duty of Good Faith Has Limits
The decision also addressed lessees’ duty to perform their obligations in good faith. The court concluded that the party responsible for royalty payments does not have the obligation to pursue knowledge of lessors’ change of address and/or ownership in the property upon which monies were due. The plaintiffs were in a much better position to be aware of address and/or ownership changes regarding property they owned. Lessees everywhere will appreciate the court’s rejection of the assertion that lessees’ duty included investigation of the conveyance records of the parish where the property is located.
Ancient Agreements Count
Ross also discussed the effect of amendments in 1921 and 1935 to a 1916 oil and gas lease. Space doesn’t permit discussion of that aspect of the decision, except to say that you will be bound by the lease language agreed by your predecessors 78 years ago, despite the efforts of your very capable lawyer to contort it into something else.
Ross is rather long on facts. If you have an interest in these issues I recommend you read the decision itself.
Thanks to Katie Beard, our summer intern and SMU law student, for her capable assistance.
Why Lou Brock? He knew how to steal a base, and he’s from Morehouse Parish, where this case originated.