B. A. Kelly Land Co. v. Aethon Energy: Important Ruling For Unleased Mineral Interests

This ruling by the Second Circuit Court Of Appeal is relevant for all Unleased Mineral Owners in regard to written demand to their operator for quarterly reports required under Louisiana Law.

  1. B. A. Kelly Land Co. LLC v. Aethon Energy

https://www.la2nd.org/getfile.php?f=4781

 

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Less legalize and quicker read.

United States Fifth Circuit Weighs in on La. R.S. 30:103.1 and 103.2 Notice Requirements 

By Michael Ishee & Brittan J. Bush on March 17, 2022 .theenergylawblog.com

Louisiana Revised Statutes 30:103.1 et seq. have been heavily litigated in recent years, but there are only a handful of reported decisions interpreting these statutes. Many of these decisions involve whether a party complied with the strict notice requirements contained in the statutes. B.A. Kelly Land Company, L.L.C. v. Aethon Energy Operating, L.L.C., 25 F.4th 369 (5th Cir. Feb. 11, 2022), provides further guidance on what must be contained in correspondence from parties making demand on an operator under La. R.S. 30:103.1 and 103.2.

In the suit, the plaintiff, B.A. Kelly Land Co., L.LC. (“Kelly”), owned a 160-acre tract of land in Bossier Parish, Louisiana. This acreage was included in two drilling units created by the Commissioner of Conservation under La. R.S. 30:9(B) in which Aethon Energy Operating, L.L.C. (“Aethon”) was the designated operator.  Kelly filed suit claiming that Aethon failed to furnish reports under La. R.S. 30:103.1 and sought to enforce the forfeiture penalty contained in La. R.S. 30:103.2.

Kelly moved for partial summary judgment against Aethon, citing a December 15, 2017 letter and April 17, 2018 letter as satisfying the requirements of La. R.S. 30:103.1 and 103.2, respectively. The district court, however, denied Kelly’s motions and found that both letters were insufficient under the statutes primarily because neither letter referenced La. R.S. 30:103.1 and La. R.S. 30:103.2 or used the term “initial report” or “quarterly report.” The district court made this ruling despite the fact that the December 15, 2017 letter closely tracked the language of La. R.S. 30:103.1 and stated as follows:

Please send the following information on each of the wells listed below:

  1. The total amount of oil, gas or other hydrocarbons produced from the unit lands since November 10, 2013 for each well;
  2. The price received on that product from any purchaser of unit production;
  3. Operating costs and expenses since November 10, 2013 for each well;
  4. Any additional funds expended to enhance or restore the production of the unit well(s) since November 10, 2013 for each well.

In addition, the April 17, 2018 letter also closely tracked La. R.S. 30:103.2’s language and, in pertinent part, stated as follows:

[t]his letter is to call to your attention your company’s failure, as unit operator of the 3 units, to comply with Louisiana law which requires an operator to report to an unleased owner in a unit ongoing operating costs and expenses for the unit well by sworn, detailed, itemized statements.

On appeal, the United States Fifth Circuit noted it was undisputed that Aethon failed to timely send reports in response to the December 15, 2017 letter or timely cure this failure in response to the April 17, 2018 letter. Thus, the issue presented was whether the letters relied upon by Kelly satisfied the requirements of La. R.S. 30:103.1 and 103.2.

As to the December 15, 2017 letter, the Fifth Circuit determined that the district court erred insofar as it read into the statute the requirement that an owner requesting reports must expressly cite the statute by title or statute number or use the terms “initial report” or “quarterly report.” The Court confirmed that the December 15, 2017 letter complied with the express requirements of the La. R.S. 30:103.1 because “it was (1) in writing; (2) sent by certified mail addressed to Aethon; and (3) contained the name and address of Kelly, the unleased mineral owner.”

The December 15, 2017 letter also expressly identified Kelly as an “[u]nleased [o]wner of oil and gas interests” and identified the units operated by Aethon, along with the names and serial numbers of wells operated by Aethon. Moreover, the Fifth Circuit confirmed that the information requested in the December 15, 2017 letter tracked the language used in La. R.S. 30:103.1 to describe the information that must be reported by the operator, and the letter even referenced an earlier request to a prior operator for “sworn, detailed, itemized statements of the costs and production for these wells and units.” Therefore, the Fifth Circuit concluded Aethon received sufficient notice that Kelly was making demand for reports to satisfy La. R.S. 30:103.1.

As to the April 17, 2018 letter, the Fifth Circuit rejected the district court’s finding that the letter failed to comply with La. R.S. 30:103.2 because it did not expressly cite La. R.S. 30:103.1 or 103.2 or “reference the possibility of ‘a lawsuit, penalty or forfeiture under § 103.2.’” Instead, the Fifth Circuit noted that the statute only required the notice to “call[ ] attention” to an operator’s “failure to comply with the provisions of R.S. 30:103.1.”

The April 17, 2018 letter specifically identified the prior letter dated December 17, 2017 that was sent by certified mail, and it noted in that prior letter Kelly identified itself as an unleased owner requesting “written reports concerning operating costs and expenses[.]” In addition, the Fifth Circuit recognized that the letter tracked critical language of La. R.S. 30:103.2. As a result, it satisfied La. R.S. 30:103.2.

In sum, the Fifth Circuit concluded the district court erred by imposing requirements that were not supported by the language used in La. R.S. 30:103.1 and 103.2. As such, the Fifth Circuit reversed the district court and ruled in favor of Kelly on its forfeiture claim under La. R.S. 30:103.2.

While sufficient notice under La. R.S. 30:103.1 and 103.2 is an issue that may differ from case to case depending on the content of a party’s notices, this decision provides another data point in an area of oil and gas law with significant consequences for operators in Louisiana. It also provides an important reminder for operators to remain vigilant when receiving correspondence from owners that could be interpreted to be a demand under either La. R.S. 30:103.1 or 103.2. Although a potential demand may not reference the statutes expressly, a court could find the correspondence contains sufficient information to reasonably alert the operator of its intent and expose the operator to the harsh penalty found in La. R.S. 30:103.2.

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Skip:

The Fifth's Circuit's ruling reported by Liskow appears in conflict with the La 2nd's ruling posted in the thread.  Could you post the 5th's ruling or link as well?

Thanks for pointing out the conflict.  Can;t find a copy quickly.  Will look later.  Seen the ruling in Ganey v. Cupstid, 43nd. Judicial District Court?

I see great questions for next year's law school and La. Bar exams arising from these two cases.

Randy and I discussed them at our lunch today.  Both are similar legal questions. Taken together, the rulings make it easier for unleased mineral owners to demand the quarterly production reports that are authorized in the mineral code.

Hey Skip, hope all is well. This is a blast from the past considering that I uncovered the title bust while working for Anadarko and acquired a new lease from BA Kelly on the Haynesville rights. It wasn't easy but overall it was a good experience and one that I won't forget.

All good here, Joseph.  Congrats on the title due diligence.

FYI HAPL's Louisiana Social is being held in Houston on May 5th at the Ragin' Cajun on Richmond if you are interested.

Thanks for the mention.

Good morning, would you mind sharing what HAPL is? I'm curious if this is something UMO's would be interested in.

It's a social event for land men. 

https://www.hapl.org/

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