Legislation MISSISSIPPI-OIL AND GAS (John Land McDavid, Reporter) The 1987 Mississippi Legislature passed three bills, all approved by the Governor, intended to encourage additional oil and gas drilling. Severance Tax Exemption-New Wells Senate Bill No. 2111 amended Miss. Code Ann. 427-25-503 and 27-25-703 (1972) to allow an exemption to the 6% (of value at point of production) severance tax on oil and gas. The exemption on oil provides that oil produced from a well for which drilling is commenced after March 15, 1987, and before July 1, 1988, shall be exempt from severance taxes if the average value of oil for the month, as determined by the State Tax Commission, does not exceed $25.00 per barrel. This exemption will apply to the first 50 barrels of oil removed from the ground in each day from wells drilled to a depth of 12,000 feet or less and wall apply to the first 100 barrels of oil removed from the ground in each day from wells drilled to a depth greater than 12,000 feet below the surface. The oil exemption will extend until June 30, 1990. Natural gas and condensate produced from any wells for which drilling is commenced after March 15, 1987, and before July, 1988, will be exempt from the 6% (of value at point of production) severance tax for a period of two years beginning on the date of first sale of production from such wells. Risk Compensation Requirements Redword Miss. Code An. 453-3-72(2) (1972), provided for the forced pooling of drilling units and allowed operators and other expensebearing interestsho recover out of production, if any, 250% of cost from non-commenting owners. The statute previously required owners of a majority of drilling rights to agree to the drilling of the well before apetition could be filed with the State Oil and Gas Board requesting fisk compensation (or "risk penalty") charges against Don-consenting owners. Section 53-3-72(2) was amended by Senate Bill No. 7774 to require the owners of only one third of drilling rights to agree to the drilling of the well before risk compensation charges can be requested. overlay a buried pediment with gold-bearing ores. Wood staked lode claims and some placer claims over the existing association claims. The Moshers objected to the overstaking and Amax commenced a quiet title action in Federal District Court. Following the trial, but before the court had rendered a decision, Amax entered into a settlement agreement with the Moshers to secure title to its Sleeper Mine. However, the peripheral claims remained in dispute. On March 2, 1987 Judge Thompson issued his Memorandum Opinion. He ruled that the senior and junior claims were both "procedurally proper" but that neither the Moshers nor Amax had made a discovery of valuable minerals or satisfied the requirements of pedis possessio. The court also ruled that the "dual staking" of both lode and placer claims by Amax did not constitute an abandonment of either claim group. Amax presented evidence that its geologists had conducted shallow pit sampling, biogeochemical and geomicrobial sampling. resistivity/inverse-polarization geophysical testing, ground magnetic testing, and gravimetric testing on the disputed property. Although gold was detected in several samples; the court found that Amax's efforts demonstrated only a "promising potential for exploration" that fell short of a legal discovery on each Amax claim. Similarly, the "haphazard operation" of the Moshers, and ques tionable assay techniques did not constitute a discovery of minerals sufficient to satisfy the "prudent man" test: Defendants note correctly that courts typically view the evidence of discovery more in favor of the senior locator in a dispute between rival claimants. That advantage is of no aid to defendants on the GR claims. Under any view of the evidence, they have failed to prove credibly, with respect to each particular claim, placer mineralization which would-lead-areasonable and prudent miner to conclude that there is a reasonable prospect of developing a profitable mine....The advantage of being the senior locator cannot displace the need to prove the elements of discovery. Judge Thompson next ruled that neither party had satisfied the requirements of the doctrine of pedis possessio: No party has occupied the claims in dispute actually, physically and continually. Amax has an operation of exclusion over the entire area under the guise of its Sleeper Project, but that alone does not equate to claim-by-claim occupancy.... Assessment work and sampling on the claims in dispute have not brought the parties to the claims with the frequency of an occupation. Diligent, bona fide work directed toward making a discovery on each claim is not the case either. The Amax sampling subject area was admittedly geared toward initial claim validation.... Other than a general enthusiasm to explore the subject area further, no plan was put before the Court to permit it to find reasonable likelihood of near future development of each subject claim. . . . Amax seeks to have the doctrine extended to recognize the realities of modern day practices in Nevada's gold mining industry. The Court recognizes these realities, but does not think that the doctrine should in this case afford Amax relief.... The doctrine favors the prospector in actual possession, protecting him against forcible clandestine or fraudulent intrusions by others so that he may continue to prospect the area of possession diligently. There is a great difference between this and recognizing some right short of discovery to support contiguous, unoccupied claims located solely upon geological inferences and an areawide program of exclusion. The court then held that "the land remains in the public domain open to peaceable exploration by the parties or by any other citizen." This Delphic declaration led to additional controversy. Amax, taking the position that it could validate its claims by making the first discovery, commenced a program of mechanized sampling and drilling on the claims; it also posted armed guards in the contested area with orders to exclude any other party attempting to sam. ple or make a discovery. The Moshers felt that the court had declared all claims to be void, and they proceeded to relocate the contested ground with placer and lode claims. A confrontation be tween the parties was teinporarily resolved when Amax and the Moshers' lessee agreed to conduct a joint drilling program in the contested area. The Amax case suggests that the doctrine of pedis possessio in Nevada will be given a restrictive interpretation (at least in the federal courts). Judge Thompson's decision is also noteworthy because of its ruling that the senior locator must demonstrate a "prudent man discovery" in order to uphold his claims against a rival locator. The Memorandum Decision will not be published in the Federal Supplement. Copies can be obtained from the Federal Court Clerk in Reno (Case No. R-85-162-BRT) or from this reporter. NEW MEXICO-OIL AND GAS Oil & Gas Leases-Dry Hole, Additional Drilling & Pooling In Owens v. The Superior Oil Company, 26 St. B. Bull. (1987), the New Mexico Supreme Court held that a well commenced on pooled acreage after the expiration of the primary term of an oil and gas lease was sufficient to hold the lease in effect under the dry hole, additional drilling, and pooling provisions of the lease. Farmout-Acreage Contribution --Subsequent Operations In Harper Oil Company v Yetes Petroleum Corporation. "33 P1313 (1987), the New Mexico Supreme Court reviewed a trial court construction of an operating agreement which was held to be ambiguous. The supreme count's review was based upon a challenge to the sufficiency of the evidence. The court affirmed the trial count, holding that the evidence was sufficient to support the trial count's construction of the agreement. While the decision does not announce any new legal principles, it illustrates the fact that care should be taken in the drafting of operating agreements to avoid subsequent dispute Harper involved the typical situation in which an operating agreement is circulated by the operator to the non-operating participants in a well. Phillips Petroleum Co., one of the non-operators, insisted upon an amendment which provided that with respect to wells drilled after the initial well required by the agreement, Phillips could elect either to participate of to assign its interest to the operator, reserving an overriding royalty interest.It appears that the agree ment was prepared on some version of the AAPL Form 610 Model Form Operating Agrement. The initial well was drilled. Phillips elected not to participate in subsequent wells and assigned its interest to the operator pursuant to the amendment. Harper Oil Company, also a non-operator, claimed that the operating agreement gave in the right to share prorata in the interest which Phillips assigned to the operator pursuant to the amendment. Harper's claim appears to have been based upon Article VIII(C) of the operating agreement, which dealt with acreage (and cash) contributions, and upon Article VI(B)(2), which deal with subsequent operations by less than all parties. The supreme court affirmed the trial court and held that the Phillips amendment was ambiguous when read in connection with the provisions of the operating agreement referred to above. The trial court held that neither of these provisions gave Harper a right to share pro rata in the interest assigned by Phillips to the operator. Based upon evidence that the acreage contribution provision would apply only when a person not a party to the operating agreement The lease provided that if the lessee drilled and abandoned a dry hole, the lease would not terminate if the lesser commenced additional drilling operations within 60 days thereafter. The same paragraph also provided that if the lease was not producing at the end of its primary term, but the lessee was then engaged in operations for the drilling of a well, the lease would remain in force so long as "such operations or said additional operations" were com-made an acreage contribution, the supreme court held that there was menced and prosecuted with no cessation of more than 60 consecutive days. If such operations resulted in production, the lease would remain in effect for so long thereafter as production was obtained from the leased lands or lands pooled therewith. The lessee was engaged in drilling operations at the expiration of the primary term of the lease. These operations resulted in a dry hole. Three days later, the lessee commenced drilling operations on a new well which was not located on the leased lands. Eleven days later, the lessee filed a designation of pooling pursuant to the pooling provision of the lease. The pooled area included the well location as well as lands covered by the lease. The subsequent drilling operations resulted in a producing well on the pooled area... The mineral owners sued to obtain a release of the lease, claiming that the lessee's actions had not maintained the lease beyond the expiration of its primary term. The court held that the effect of drilling the dry hole was to maintain the entire lease in effect, including the pooling provision, for a period of 60 days thereafter. Because a por. tion of the leased lands was properly pooled during the 60-day grace period, and because drilling operations were commenced on the pooled area during the 60-day grace period, and because the drilling operations were continuously conducted and resulted in a producing well, the lease did not expire. This case appears to be the first reported decision in New Mexico Which deals with the interaction of the pooling and dry hole/additional drilling provisions of an oil and gas lease after the expiration of the primary term. The case provides clear authority that in a proper case the pooling power may be exercised after the expiration of the primary term of the lease, and that the lease may be maintained by operations conducted on the pooled area, even though they are not conducted on the lands covered by the lease. sufficient evidence to support the trial court's conclusion. With respect to the provision of the operating agreement relating to nonconsent operations, the trial court and the supreme court both held that the Phillips amendment removed Phillips' interest from the operation of the provision, and that the amendment did not inure to Harper's benefit. NORTH DAKOTA--OIL AND GAS Jane Fleck Romandoy & Owen L. Anderson, Reporters) Pipelines-Ad Valorem Taxation In Phillips Natural Gas Company v. State Board of Equalization, 402 N.W.2d 906 (N.D. 1987 the Supreme Court of North Dakota held that pipelines are subject to central ad valorem ex assessmen by the State Board of Equalization. The court construed article X. section 4 of the North Dakota Constitution to authorize central assessment of linear transportation systems ordinarily extending through multiple geographic taxing districts." The court reversed the trial court which had held that the pipelines were subject to local ad valorem assessment. The court rejected the pipeline owners' arguments that the oil and gas pipelines were personalty and thus subject to certain statutory exemptions. San Diego Union B-16 June 3, 1989 JULIAN-Both sides had brought small arsenals to the peaceful, wooded canyon off State 72. When the gunbattle that left two men daad on Memorial Day was ever, sheriff's deputies collected no Sewer than nine drearms and a supply of ammonition. K-47 semmiautomatic assault 22-caliber rifle, a 1.2mmm 12-gange shotgun and Summ belonged to the Cajon I friends who had come to o explore and target shoot. © 12-gange shotguns and two rides were found near the two Julian residents killed in the hall of gundre In their first detailed accounting of the shootout, sheriff's investigators yesterday told how a confrontation of words later erupted into shots from the two Julian men who apparently thought they were guarding the mine from claim jumpers. The story, based on interviews with the fatally, also tells how family members scrambled in terror after the men began shooting at them and then returned the fire with a shower of bullets that fustantly killed Edward "Joe" Lopes, 66, and mortally wounded Christopher Zerbe, M. Out of concern for the family's safety, officials still will not release the last names of those who survived the encounter on a dirt road six miles east of this commity just outside of Banner. Lt. John Tenwolde identified manbars of the group only as Gus and Mary, both and their children, Matthew, 20, and Heather, 16. With them were friends Roberto, 18, Todd, 24, and Brandy, 14 The family, reached at their rare home yesterday, declined to discuss Monday's incident but said a spokesman would release a statement of their version of the events soon. s and his companions tigators that We're still trying to track the ownership of the claim, and it's diffi calt- it's confusing" said the sher18's Beutenant Tm not satisfied with anything as it regards that property." Tenwolde related that Gus and his wife, with 10 family members and friends, took several vehicles to the remote mine site to picnic, target aboot and explore. Thoir son Matthew, 20, and his 19year-old friend, Roberto, arrived first, at about midday, and were con fronted by two men in a pickup who demanded that they leave. Matthew and Roberto, later identified the Lopes, moved barring a dirt men moved behind a tree for cover. The The pickup backed up a short dia- Then, the family and their friends The truck driver's door suddenly They agreed that the exchange of gunshots lasted only a matter of seconds," Tenwolde said. As Gus and Roberto neared the Inside the pickup was Lopes, shot. Zerbe, who was outside the pickup, was still alive, and Gus kicked away the rifle that was in, or near, his Himsh hand, he told deputies. Matthew and. Deputies received the call at 7:01, Teawolde said the investigation ta "But the real issue is the death of My writing to you is prompted by the letter under date of March 8, 1988, written by Ouachita Forest Supervisor, John M. Curran, to Senator Dale Bumpers. It addresses the "quartz crystal situation in the Ouachita National Forest. Several points made by Curran appear to be at variance with the multiple use and mineral policy of the Forest Service. For instance, Curran vrites: ...that the laws affecting hardrock mining In point of fact, nothing could be further from the truth. The Mining Law of 1872 is doing today exactly what it was designed to do when it vas enacted -- namely, encouraging self-initiated mineral exploration and it does so without thwarting other important public policy objectives. ...the 1872 Mining Law with its provision for patenting away of the surface with mineral estate, will always pose a real threat to sound resource management.... To the contrary, the number of mining claims patented each year is minimal and, in fact, the Mining Law poses no significant problems -- and certainly no threat for federal land managers. The law has not changed in over 100 years, consequently the federal land manager must consider...the loss of valuable surface resources that the public expects and demands to have protected. Continued.. |