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BOUTTE v. CHEVRON OIL CO.

August 4, 1970

Edwin C. BOUTTE et al.
v.
CHEVRON OIL COMPANY


Mitchell, District Judge.


The opinion of the court was delivered by: MITCHELL

This cause came on for trial on June 15, 1970, and, considering the evidence presented and the stipulations entered into by counsel for the parties, the Court makes the following findings of fact and conclusions of law.

 FINDINGS OF FACT

 I

 This is a class action, under Rule 23 of the Federal Rules of Civil Procedure, properly brought on behalf of approximately 1830 owners in indivision to set aside a mineral lease which was executed on February 24, 1960 by the Mineral Board, *fn1" on behalf of the heirs of Francois Zenon Boutte, to the defendant, Chevron, pursuant to Act 513 of 1952 of the Louisiana Legislature which permits the Mineral Board to lease such property, when it is owned by more than 500 persons in indivision, in the same manner as state owned lands. The 253 acre tract in question is a strip of land that had not been disposed of by Francois Zenon Boutte and was held to belong to his heirs. *fn2"

 Not all of the plaintiffs are Boutte heirs. For example, Fritz J. Muller purports to own mineral leases executed by some of the Boutte heirs in 1966, subsequent to the Chevron lease, and he also claims to own an undivided interest in the lands covered by Chevron's lease. *fn3"

 The initial consideration for the Chevron lease was $103,753.67, with delay rentals of $51,876.84 per annum. *fn4"

 Plaintiffs aver that Chevron's lease expired on February 24, 1961 for the following reasons: *fn5"

 
1 -- That no actual drilling or mining operations were commenced on the leased premises or delay rentals paid on or before February 24, 1961.
 
2 -- That the unitization of parts of the leased property before February 24, 1961 into the "E.P. Brady, et al -- Boutte Heirs Unit #1" and into the "8400 Foot Sand Unit No. 1" by Order No. 118-B of the Louisiana Commissioner of Conservation was improper.

 Alternatively, plaintiffs want Chevron's lease cancelled because:

 
3 -- Plaintiffs claim Chevron failed to pay royalties as provided under paragraph 6 of the lease, for reasons alleged.
 
4 -- Unreasonable delay in paying the first royalty more than ten months after initial production, without any just reason therefor.
 
5 -- Plaintiffs finally claim that Chevron did not fulfill its obligation under paragraph 6 of the lease due to the fact that Chevron sold the gas produced to pipeline purchasers for a higher price than for which it accounted to plaintiffs, including various costs, and that it accounted to plaintiffs at a lower price, including deduction of various costs, that should have been paid by Chevron.

 Between February 24, 1960 and February 24, 1961, two producing units were drilled on property which had been unitized with the Boutte lease.

 The first unit, E.P. Brady et al-Boutte Heirs Unit No. 1, was a voluntary unit created in March of 1960, on which production commenced in the same month. Plaintiffs contend that the Mineral Board lacked the power and authority to enter into this unitization agreement.

 The second unit, a Commissioner's unit, was created by the Department on February 1, 1961 by Order No. 118-B issued under the Louisiana Conservation Statute, L.S.R. 30:1 et seq. By minute entry of March 10, 1969, this Court held the unit was not to be subject to collateral attack by plaintiffs. *fn6" The parties have stipulated that the well for this unit has been in continuous gas production since February 2, 1961. However, Exhibits "P-21" and "C-13", which granted to Chevron "Authority to Produce" from this well were issued by the Department by document dated March 20, 1961. *fn7"

 II

 Subsequently, the Department issued Order No. 584-A-2, effective February 16, 1967. This order superceded the E.P. Brady et al -- Boutte Heirs Unit No. 1, the voluntary unit, and divided it into two producing units. *fn8"

 III

 All orders of the Commissioner involving the Boutte acreage were validly issued and no evidence was offered nor objection made by the Boutte Heirs to any proposal presented by Chevron at any of the hearings.

 IV

 While the respective unit wells are located upon the respective areas designated as unitized areas, none are located upon Boutte land covered in Chevron's February 24, 1960 lease. *fn9"

 V

 The parties have stipulated that gas sold in intrastate commerce is sold for 13 cents per thousand cubic feet (mcf).

 VI

 As gas sold by Chevron to Southern is resold in interstate commerce, its price is subject to regulation by the FPC.

 VII

 Since April 1, 1959, Chevron has received 23.675 cents per mcf for gas delivered to Southern. Under FPC order issued June 4, 1959, the difference in price of 10.675 cents per mcf is not final, but is subject to refund to Southern if and when ordered by the FPC, and Chevron (as required by the FPC order) has executed an agreement to do so.

 VIII

 The FPC has not finally approved any price above 13 cents per mcf, the price initially stipulated in an agreement entered into by Chevron and Southern on July 31, 1951.

 IX

 The initial price of 13 cents per mcf consisted of 12 cents per mcf for gas and 1 cent per mcf for the Louisiana gas gathering tax imposed by L.R.S. 47:671. This tax was increased to 2 cents per mcf by Act 8 of 1958 (L.R.S. 47:678) and, the 1951 agreement between Southern and Chevron, was amended to increase from 1 cent per mcf to 1.5 cents per mcf the tax reimbursement.

 X

 The gas gathering tax was not levied against royalty owners but was imposed on Chevron as an excise tax for the privilege of being "engaged in gathering gas produced in this state". *fn10"

 XI

 Consequently, no portion of that gathering tax was at any time charged by Chevron to royalty owners under applicable leases, and no royalties were due on the 1 cent or 1.5 cents per mcf paid by Southern to Chevron as reimbursement for the gas gathering tax levied and paid entirely by Chevron.

 XII

 Under the terms of the 1951 agreement between Chevron and Southern, the gas gathering tax reimbursement of 1.5 cents ceased on December 1, 1958 (Act 3 of Extraordinary Session of 1958, L.R.S. 47:681.1), and a reimbursement of 1 cent per mcf for the gas severance tax commenced. Accordingly, the tax reimbursement under the 1951 agreement for the first time became a reimbursement for the gas severance tax, ...


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