The Louisiana Second Circuit Court of Appeal has recently issued two important decisions addressing whether certain mineral reservation language created a fixed term or instead simply restated the customary ten-year prescriptive period for these mineral rights. Both cases emphasize why special, carefully drafted language is needed to create a mineral reservation with a fixed, non-extendable term of ten years or less.
In Louisiana, a mineral servitude can be created two ways: either when a landowner reserves all or a part of the mineral rights in a transfer of land, or when a landowner conveys mineral rights to another party. Under La. R.S. 31:27(1), a mineral servitude is extinguished by, among other things, prescription resulting from nonuse for ten years. Under La. R.S. 31:29, prescription of nonuse can be interrupted by good faith operations for the discovery and production of minerals. Under La. R.S. 31:72, the parties to an act creating a mineral servitude may alter the applicable legal rules, subject to certain limitations provided in the Mineral Code. Mineral Code article 74 provides one such permissible alteration: “The parties may either fix the term of a mineral servitude or shorten the applicable period of prescription of nonuse or both. If a period of prescription greater than ten years is stipulated, the period is reduced to ten years.”
The comments to Mineral Code article 74 indicate that although “consideration was given to the matter of establishing rules of construction,” it was ultimately determined that these comments would be offered as mere guidelines for contract interpretation and construction by the courts. These comments discuss the Louisiana jurisprudence addressing the limitation on parties’ ability to contract for a prescriptive period longer than ten years. They also provide reference to Louisiana case law holding that a term specified in a mineral reservation is still subject to the rules of prescription of non-use for the duration of the interest created. The comments further highlight the difficulty associated with construing instruments specifying a period less than ten years, providing, in pertinent part:
[I]t is rare that a party will, in the ordinary situation, contract for the creation in his favor of an interest with a fixed term less than ten years. Thus, it is suggested that in the absence of some expression to the contrary in the instrument in question, the specification of a period less than ten years for a mineral servitude should be construed as an agreement on a prescriptive period less than ten years, and the interest should be considered subject to the rules of use and thus renewable by exercise of the rights granted or reserved. Parties are, of course, free to specify that the stated number of years is the term of the interest and not a prescriptive period. (Emphasis added)
What the comments do not specifically address, however, is the interpretation of language creating a mineral servitude with a reference to a ten year period. This article highlights two recent cases that address such reservation language.
In Taylor v. Morris (49,425 (La. App. 2 Cir. 10/1/14), 150 So.3d 952), the court interpreted the following mineral reservation language:
Vendor hereby reserves all oil, gas and/or mineral rights above and/or below the ground for a period of ten (10) years from the date of this Cash Sale Deed.
In January 1999, Taylor Properties, Inc. purchased a 120 acre tract of land in DeSoto Parish in five separate transactions and each deed contained this same mineral reservation. Later, it transferred the lands to Charles Taylor and others. Drilling operations began on a unit well in October 2008—that is, within ten years after the original sale of the property to Taylor Properties, Inc. In August 2009, the landowners filed suit claiming the “term mineral servitudes” had expired and thus seeking a judgment recognizing their ownership of the mineral rights.
Citing Mineral Code article 74 and the case of St. Mary Operating Co. v. Champagne (945 So.2d 846 (La. App. 3 Cir. 12/6/06), writ denied, 07–0301 (La. 4/5/07), 954 So.2d 140), the trial court held that because the parties did not specifically state otherwise, the phrase “for a period of ten years” was merely a restatement of the default prescriptive period for all Louisiana mineral rights. Because the deeds included no affirmative statement that the mineral servitude was created for a period of just ten years and would not be subject to interruption of prescription, the court did not consider the servitude to be a term servitude that would not be subject to continuation by the interruption of prescription. Because there had been good-faith drilling operations within ten years, the trial court held that prescription had been interrupted and thus that the mineral servitudes remained in effect. The landowners appealed.
The Second Circuit affirmed the ruling of the lower court, stating “we find the language in the deeds by which the mineral servitudes were created said nothing about a limitation of the ten year prescriptive period imposed by law.” Because the mineral servitudes at issue were “silent as to the pertinent prescriptive period and whether it was subject to interruption,” application of the ten year prescriptive period imposed by law was appropriate.
In St. Mary the court was tasked with determining whether the phrase “for a period of ten years” was intended to create a ten-year term or to merely restate the parties’ adoption of the default ten-year prescriptive period imposed by law. The specific language in St. Mary read:
Vendors reserve unto themselves all of the minerals … for a period of ten years, this being a reservation of royalties, executive rights, bonuses, delay rentals, and all other mineral rights whatsoever.
Finding the words of the contract to be clear and unambiguous in their legal meaning and effect, the St. Mary court held that the phrase “for a period of ten years” is “a restatement of the default prescriptive period assumed into all mineral rights created in the State of Louisiana because the parties did not specifically state otherwise.” The court relied on the comments to Mineral Code article 74, particularly, the statement that the parties are “free to specify that the stated number of years is the term of the interest and not a prescriptive period”; the court found that the language used in the mineral reservation at issue was not specific enough to create a fixed term mineral servitude.
On the same day that the Taylor v. Morris decision was rendered, another Second Circuit panel, in Moffett v. Barnes (49,280 (La. App. 2 Cir. 10/1/14), 149 So.3d 475), interpreted the following mineral reservation language included in another act of sale:
Vendor retains all oil, gas and other mineral rights in the land herein conveyed for ten (10) years.
In February 2000, the Barnes sold two tracts of land in DeSoto Parish to the Moffetts and the act of sale included the mineral reservation above. In 2002, the Barnes granted a mineral lease over one of the tracts. The lessee then drilled a well on the lease, and production began in August 2007. In 2009, the Barnes granted a mineral lease over the other tract; the lessee then drilled a well under the lease, and production from that well began in March 2010. The lessees had continued to pay all royalties to the Barnes. The Moffetts asserted that starting in March 2010 (that is, after expiration of the ten years stated in the act of sale, they should have begun to receive royalties under the leases. After their failed attempts to secure these royalties from lessee, the Moffetts filed suit seeking a declaratory judgment as to the ownership of the minerals after February 2010.
The trial court found that the question of whether the reservation created a ten year term not subject to prescription or merely reaffirmed the parties’ adoption of the ten year prescriptive period provided by law was squarely addressed in St Mary.
On appeal, the Moffetts argued that use of the phrase “for ten years” removed the case from the purview of St. Mary and from the normal prescription rules since the reservation at issue does not use the word “period.” But the Second Circuit agreed with the district court’s analysis and thus held that the mineral reservation was still in effect.
It appears that a common theme, nay a rule has emerged. At least in the Second Circuit, the court is absolutely unwilling to read the establishment of a term into the language of a mineral reservation when on its face, the reservation appears to merely confirm the ordinary ten year prescriptive period for a servitude and does not expressly reject or renounce the normal operation of nonuse and interruption provided by law. Whether the time stated applies “for ten years” or “for a period of ten years” is inconsequential. If the reservation does not use words like “regardless of any operations for the discovery and production of minerals,” “the parties hereto establish a term of interest, not a mineral servitude and not subject to the rules of prescription,” or “the vendor expressly renounces his rights to maintain the servitude for any reason after the expiration of 10 years” then we can expect Louisiana courts to continue to provide strict construction in interpreting similar language with reference to ten years (or a ten year period) in mineral reservations. Therefore, the lesson to take away is to say what you mean, and mean what you say, when drafting language intended to create a term mineral servitude.