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Rainbow Gun Club, Inc. v. Denbury Resources, Inc.

Court of Appeals of Louisiana, Third Circuit

May 23, 2018

RAINBOW GUN CLUB, INC., ET AL.
v.
DENBURY RESOURCES, INC., ET AL.

          APPEAL FROM THE THIRTY-EIGHTH JUDICIAL DISTRICT COURT PARISH OF CAMERON, NO. 10-19147 HONORABLE PENELOPE QUINN RICHARD, DISTRICT JUDGE

          J. Michael Veron Alonzo P. Wilson J. Rock Palermo III Julia Love Taylor Turner D. Brumby Veron, Bice, Palermo & Wilson, L.L.C. COUNSEL FOR PLAINTIFFS/APPELLEES: Rainbow Gun Club, Inc., et. al.

          Glenn W. Alexander Jones Law Firm COUNSEL FOR PLAINTIFFS/APPELLEES: Rainbow Gun Club, Inc., et. al.

          Edward Saal, Jr. 504 Second Street COUNSEL FOR PLAINTIFFS/APPELLEES: Rainbow Gun Club, Inc., et. al.

          Robert L. Cabes Andrew J. Halverson Milling Benson Woodard, LLP COUNSEL FOR DEFENDANT/APPELLANT: SKH Energy Partners, LP.

          Court composed of Shannon J. Gremillion, Phyllis M. Keaty, and D. Kent Savoie, Judges.

          D. KENT SAVOIE JUDGE.

         Defendant, SKH Energy Partnership, LP (SKH), appeals the trial court's judgment holding it liable for its virile share of damages resulting from a subsequent mineral lease assignee's breach of its duty to operate the property as a reasonably prudent operator. In addition, the Plaintiffs appeal the trial court's award of legal interest from the date of judicial demand. For the following reasons, we amend the judgment with respect to the judical interest awarded by the trial court, but otherwise affirm.

         FACTUAL AND PROCEDURAL BACKGROUND

         The 170 Plaintiffs in this matter are lessors of various mineral leases as well as the owners of royalties of those leases. Between 1998 and 2001, various Plaintiffs granted multiple mineral leases directly to SKH, whose interest in those leases were ultimately assigned to Denbury Resources, Inc., Denbury Onshore, LLC, and Specter Exploration, Inc. (collectivey, the Denbury Defendants). The leases involved various tracts of land in Cameron Parish, Louisiana. In 2003, Denbury Resources, as the operator, spudded the Rainbow Gun Club Well No. 1 on land covered by the mineral leases at issue, and the well was completed in July 2003. The well produced dry gas until December 2006, and it was then plugged and abandoned in July 2008.

         On February 19, 2013, Plaintiffs filed suit against the Denbury Defendants and SKH, as well as Cinco Energy Land Services (Cinco) and Petro E, LLC (Petro E), wherein they allege that as the well was being drilled, drill pipe was stuck in the original hole, and that the stuck pipe could not be, and was not, adequately sealed. Plaintiffs allege that, as a result, there was an "extraneous water invasion" that irreparably damaged the underground gas reservoir and access to the gas reservoir was lost. Plaintiffs further assert in their petition that due to Defendants' negligence and breach of their obligations under the mineral leases, they are entitled to lost royalty income they would otherwise have received had the well and reservoir not been damaged.

         On April 15, 2015, Cinco filed a motion for summary judgment seeking dismissal of Plaintiffs' claims against it, arguing that it did not own a working interest in the well at issue and never owned any interest in the applicable lease(s). Plaintiffs did not oppose Cinco's motion, and their claims against Cinco were dismissed.

         On September 25, 2015, Petro E filed a motion for summary judgment seeking dismissal on the grounds that it had no involvement in the drilling of the well at issue. Plaintiffs did not oppose Petro E's motion for summary judgment, and their claims against it were also dismissed.

         Prior to trial, Plaintiffs settled with the Denbury Defendants so that at the time of trial on July 11, 2016, SKH was the only remaining Defendant. Plaintiffs and SKH jointly submitted written stipulations in connection with the trial, including stipulations that the operator, Denbury Resources, stuck the drill pipe, that "sticking drill pipe is known by all prudent operators to be an undesireable event that should be avoided at all costs, " and that "imprudent and unreasonable actions of the operator, Denbury Resources, . . . caused the loss of recoverable reserves[.]" They further stipulated that prior to the drilling of the well, SKH had assigned 100% of its interest in the applicable mineral leases, so that SKH did not own any of the leases during the drilling and production operations of the well.

         The parties also stipulated that, in accordance with the mineral leases at issue, Plaintiffs collectively owned a 0.13123906 royalty interest. During trial, Plaintiffs called an expert witness, William Griffen, who testified that 12.06 billion cubic feet of gas that could have otherwise been ...


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