Hines, Billy H.

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Louisiana Law ReviewVolume 15 | Number 4June 1955Mineral Rights - Cancellation of Lease - Obligationto DevelopBilly H. HinesThis Note is brought to you for free and open access by the Law Reviews and Journals at LSU Law Digital Commons. It has been accepted for inclusionin Louisiana Law Review by an authorized editor of LSU Law Digital Commons. For more information, please contact kreed25@lsu.edu.Repository CitationBilly H. Hines, Mineral Rights - Cancellation of Lease - Obligation to Develop, 15 La. L. Rev. (1955)Available at: https://digitalcommons.law.lsu.edu/lalrev/vol15/iss4/26NOTESMINERAL RIGHTS-CANCELLATION OF LEASE-OBLIGATIONTO DEVELOPPlaintiff lessor and defendant Shell Oil Company on July30, 1935, executed an oil and gas lease covering an eighty-fouracre tract for a primary term of ten years. Subsequently, theother defendant Vanson Production Corporation acquired theentire lease from Shell Oil Company. On July 23, 1945, forty-four acres of the leased tract were included in a drilling unitformed by the Department of Conservation. No well was everdrilled on the leased premises, but a producing gas well wasbrought in on the portion of the unit outside the leased prem-ises after the expiration of the primary term of the lease.Alleging that defendants had failed to develop the portion ofthe leased tract lying outside the unit and that plaintiff hadreceived from another party a bona fide offer to develop it,plaintiff sought cancellation of that portion of the lease. De-fendant Shell Oil Company obtained a judgment of nonsuit.From a judgment on the merits in favor of defendant VansonProduction Company, plaintiff appealed. Held, reversed. Inrefusing to drill a well on plaintiff's land outside the unit wherethe plaintiff had received another party's bona fide offer to doso, defendant failed to fulfill its obligation to develop. Plaintiffwas entitled to cancellation of the lease on the portion of theleased premises lying outside the unit. Nunley v. Shell Oil Co.,76 So.2d 111 (La. App. 1954).In Hunter Co. v. Shell Oil Co.1 and LeBlanc v. DancigerOil & Refining Co., 2 the court denied the lessor a cancellationof the lease on the portion of the leased premises lying outsidethe unit. However, in those cases a well had been drilled onthe unit during the primary term of the lease. Moreover, ineach case the plaintiff was relying on the failure of defendantduring the primary term of the lease to drill a well on theportion of the leased premises lying outside the unit, and not,as in the instant case, on defendant's failure to develop thatportion. In the Hunter and LeBlanc cases the court held thatthe lessee's obligation to drill a well had been fulfilled by thedrilling of a well on the unit, although not on the leased prem-1. 211 La. 893, 31 So.2d 10 (1947); The Work of the Louisiana SupremeCourt for the 1946-1947 Term--Mineral Rights, 8 LOUISIANA LAW REVIEW 212,216 (1948); Comment, 12 LouISIANA LAW REVIEW 445, 452 (1952).2. 218 La. 463, 49 So.2d 855 (1950); The Work of the Louisiana SupremeCourt for the 1950-1951 Term-Mineral Rights, 12 LoUISIANA LAW REVIEW131, 132 (1952); Comment, 12 LOUISIANA LAW REVIEW 445, 452 (1952).1955]LOUISIANA LAW REVIEWises, during the primary term of the lease. Therefore, in bothcases, since a well had been drilled and since the lessor failedto show nondevelopment of his leased premises, the court re-fused to cancel the lease on any portion of the premises. How-ever, the court's language in the Hunter case is significant:"[I]f the producing well in the unit is not sufficient to meetthe obligation of adequate development of the property coveredby the lease, the law gives plaintiff a remedy."'3 Thus thecourt recognized that the lessee was under an obligation todevelop the leased premises sufficiently. The court in Carter v.Arkansas-Louisiana Gas Co. also recognized the lessee's obliga-tion to develop by saying that "the main consideration of amineral lease is the development of the leased premises forminerals."'4 In Eota Realty Co. v. Carter Oil Co.5 the same pointwas also emphasized.In the instant case no well had been drilled on the unitduring the primary term of the lease. Moreover, the lessor wasable to prove that defendant lessee had failed to reasonablydevelop the leased premises. The lessor showed that a prudentoperator had made a bona fide offer to lease the forty-acre por-tion of the premises lying outside the unit and had offered bothimmediate payment and his promise to drill a well. The lessee,on the other hand, introduced the opinion of a geologist thatall of that portion of plaintiff's premises, with the possibleexception of one acre, would be completely unproductive. Thecourt, however, pointed out that the opinions of geologists arefrequently erroneous and refused to accept his opinion. Thedefendant further maintained that he should be allowed toretain the lease because of certain privileges such as layingpipelines and because the property might become valuable sub-sequently as a result of possible production from another for-mation. In rejecting this contention, the court stated that allrights of a lessee are determined on the basis of his compliancewith his obligation to develop prudently and reasonably theleased premises.It is submitted that the decision in the instant case is sound.As indicated above, it can be distinguished from the Hunter3. 211 La. 893, 905, 31 So.2d 10, 14 (1947).4. 213 La. 1028, 1034, 36 So.2d 26, 28 (1948); The Work of the LouisianaSupreme Court for the 1947-1948 Term-Mineral Rights, 9 LOUISIANA LAWREVIEW 189, 191 (1949).5. 225 La. 790, 74 So.2d 30 (1954); The Work of the Louisiana SupremeCourt for the 1958-1954 Term-Mineral Rights, 15 LOUISIANA LAW REVIEW300, 309 (1955); 3 OL & GAs REP. 1876 (1954).[VOL. XVNOTESand LeBlanc cases. The decision is also consistent with a deci-sion rendered in Mississippi. In Texas Gulf Producing Co. v.Griffith, the Mississippi Supreme Court, confronted with a simi-lar fact situation, allowed cancellation of the lease on the por-tion of the tract lying outside the unit and said that to holdotherwise would "be a violation of the constitutional guarantythat no person shall be deprived of his property without dueprocess of law." A most significant point in the instant caseis that plaintiff lessor was able to overcome a geologist's testi-mony by showing that he had received from a prudent operatora bona fide offer to drill if the land was freed from the lease.The Court of Appeals for the Fifth Circuit in Romero v. HumbleOil and Refining Co.7 had taken a step in that direction, buthad required the plaintiff's offeror to give assurance that hewould drill before the lease to defendant would be cancelledfor nondevelopment. Because of the importance the court inthe instant case seemed to place on the fact that a well hadbeen drilled during the primary term in both the Hunter andthe LeBlanc cases, it is not entirely clear whether the resultreached in the instant case would have been the same had thelessee drilled during the primary term. However, the remedyafforded the lessor in the instant case was probably within thecontemplation of the court in the Hunter case.8 It is submittedthat regardless of when the well is drilled on the unit, if thelessor can prove that the lessee has not adequately developedthe portion of the leased premises outside the unit, then thelease on that portion should be cancelled.Billy H. HinesMINERAL RIGHTS-INTERPRETATION OF LEASE-EFFECT OF SIGNINGA DIVISION ORDERPlaintiff lessors sued to cancel a mineral lease for failure oflessee to drill or pay delay rentals as required by the terms ofthe contract.' The lessee had completed and placed in production6. 65 So.2d 447, 452 (Miss. 1953), 2 OIL & GAs REP. 1103, 1111 (1953).7. 194 F.2d 383 (5th Cir. 1952), 1 OIL & GAS REP. 358 (1952).8. See language quoted page 854 supra.1. Section 4 of the lease provides in part: "If operations for the drillingof a well be not commenced on said land, or any unitized area hereunder,on or before the 3rd day of September, 1949, this lease shall terminate,unless Lessee on or before that date pays to lessor a rental. Wilcox v.Shell Oil Co., 76 So.2d 416, 419 (La. 1954).1955]

Mineral Rights - Cancellation of Lease - Obligation to Develop

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Mineral Rights - Cancellation of Lease - Obligation to Develop

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