3 Year Liberative Prescription Applicability

Louisiana Civil Code 3494(5) says that 3 year liberative prescription applies to underpayments and overpayments of royalties.

Question: Does this mean that such prescription is applicable in the event that a producing well exists and no royalty payments have ever been paid to the lessor who for whatever reason made no demand for payment during the first 3 years of the well's existence?

Thanks in advance.

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Oil & Gas ProPermalink Reply by Andrew on May 20, 2012 at 4:48
This is not legal advice, and I'm not a lawyer,,

This is the situation that came up in Wells v Zadeck, 2012 WL 1059071. The court chose to apply the ten year prescriptive period for a personal action in that case, but the real point of the case was that the doctrine of contra non Valentum may apply to suspend prescription if the mineral owner neither knew nor should have known that their royalties were underpaid.

However, the situation you described is different from Wells in that there is a lease between the parties, which suggests that the lessor should have known there may be production and he was owed royalties. Even though a lease is a contract, the three year prescriptive period rather than the ten year period applies. The reason no demand was made would be highly significant.
Permalink Reply by drillbit on May 20, 2012 at 4:55

Thanks for your response Andrew.


Oil & Gas ProPermalink Reply by HBP on May 20, 2012 at 5:41

pegging the date when the 3 years begins running can be an arguable issue in some cases.  It can be a fact based determination, especially if Contra non Valentem can be claimed.  W/o CNV facts, and if it is just an underpayment claim, the court can peg the 3 year to when you received, or where notified of the payment at issue (not the date of actual sales).     

Either way, I would recommend any owner engage a professional to review their royalty interest, payments and deductions, in conjunction with their lease terms, for accuracy of payment before 3 years from date of first sales per well so that you be prepared to address any issue in time.  If your interest may not be worth engaging an OnG attorney or CPL, then at least take a pencil to it all yourself - just in case.

A side note, CHK appears to have engaged a firm to go after their overpayments (bonus or royalty paid to a non-owner that they can't re-coup through future royalty).  I think a handful of folks in NW LA have found that out when the petition is served upon them.  I haven't seen the other operators do this on as large a scale.  It is CHK's right, but I wish they showed the same  interest when they underpay...


Oil & Gas ProPermalink Reply by Andrew on May 20, 2012 at 6:00

It is also worth noting that every under/overpayment is a separate claim and so prescription commences (if not suspended) from the date of each separate under/overpayment. Each claim will have its own prescriptive period.


Oil & Gas ProPermalink Reply by HBP on May 20, 2012 at 8:49

Good point Andrew  You only lose your claim on a month by month basis as they fall past the 3 years (if they are paying/providing notice of payment on a month by month basis, etc...). 

But still a good idea to review before 3yrs since the early months are usually the ones with the best volume.  So if there is a discrepancy to claim, you don't want to lose those months.

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