Rumblings From A Louisiana Seismic Agreement

by Gray Reed & McGraw

If the significance of a lawsuit can be gauged by the 23 lawyers and 10 firms identified in the opinion, Olympia Minerals, LLC, et al v. HS Resources, Inc., et al., is as noteworthy as Bush v. Gore, Brown v. Board of Education, and even Kramer v. Kramer.

The Contract

The Olympia entities were the property owner and working interest owner of land in Calcasieu and Beauregard Parishes. Under the “North Starks Project Agreement”, HSR and Aspect Resources were to conduct a 3-D seismic survey of 135 square miles of land and to lease a minimum of 15% of the land. In exchange, HSR and Aspect received a 12-month non-exclusive geophysical permit covering all interests and a 12-month exclusive option to sublease the land.

The NSPA said: 

  • “HSR and Aspect shall lease a minimum of 15% of the EPMI Lands subject to the exclusive option, and shall work jointly with EPMI (the original contracting party) to prioritize the … Lands that may be subject to prescription and actively manage the exploration program to maximize … preservation of its mineral interests.”
  • “HSR and Aspect shall notify EPMI prior to commencement of the survey of the final shoot outline and shall furnish a copy of the pre-plot to EPMI. HSR and Aspect shall not be obligated to include all … lands optioned hereunder in the final survey outline.”
  • “HSR and Aspect shall provide to EPMI a copy of the 3-D seismic data across the Lands…the seismic data furnished to EPMI shall include field and support data”.

The Facts

Aspect completed a 3-D seismic survey of the south half of the land and delivered the results to EPMI, which were later delivered it to Olympia. Olympia then realized that the field data had not been delivered. This information was important to Olympia. HSR and Aspect also failed to lease at least 15% of the land.

The Questions for the Court

  • Did Aspect have an obligation or an option to lease 15% of the mineral interest?
  • Did Aspect have a duty to conduct a seismic survey over all the lands?
  • Was Aspect required to deliver all seismic data, including the field data, to Olympic?

Olympia sued HSR and Aspect , alleging breach of the agreement and sought dissolution, damages and specific performance of the portion of the contract requiring aspect to turn over all of the field data.

The Result

Aspect failed to perform all three of the major obligations in the NSPA within the 12 month period and breached the contract. The contract was not an option, but instead an obligation, to lease the 15% minimum.

The court relied on La. Civil Code Articles 2049 and 2050 requring interruption of contractual provisions so as to give each the meaning suggested by the contract as a whole. To give meaning to ”HSR and Aspect shall not be obligated to include all EPMI Lands optioned…” would negate the survey obligation altogether. Therefore, Aspect breached its obligation to conduct a seismic survey over all the land.

The appellate court upheld trial court findings that HSR and Aspect breached the requirement that field data be made available to Olympia and exacerbated the breach by failing to provide the data upon request. The court ordered specific performance of Aspect’s obligation to deliver the field data and associated records and awarded $1,101,875 in lost bonuses and rentals. An award of $7,000,000 in lost royalties was deemed to be speculative.

A Factor

Apparently important to the court’s ruling was HSR and Aspect’s “conscious and calculated business decisions” to breach the contact and their “blatant refusal to perform that obligation  … “.

A case from southwest Louisiana crys out for some John Delfaose.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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