By Jessica Gladney
The Fifth Circuit recently reversed the district court’s grant of partial summary judgment in Dore Energy Corp. v. Prospective Investment & Trading Co. Ltd., No. 08-30186 (5th Cir. 5/28/09). The dispute in Dore centers on the interpretation of a 2002 settlement agreement between the parties to certain mineral leases in Cameron Parish. Dore Energy Corp. filed suit in 2000 against the lessees of a 1927 mineral lease seeking to cancel underdeveloped portions of the lease. The parties reached a settlement agreement on January 28, 2002, in which the lessees agreed to release their interest in all of the mineral lease except for three specified sections of land, referred to as the “Retained Area.” The settlement agreement provided that three years after the agreement, the portions of the Retained Area that were not then in “producing units” would be released. The agreement also imposed an obligation on the parties to attempt to negotiate in good faith the size and extent of the producing units before instituting a proceeding before the Louisiana Commissioner of Conservation to settle any disputes.
On January 28th, 2005, only one of twenty-five existing wells in the Retained Area was still producing from the depth identified in its unit designated by the Commissioner of Conservation. In March 2005, Dore sent letters to the lessees demanding that they surrender the lease to all acreage other than that related to the one well producing at the unit designation depth. The lessees offered to negotiate with Dore regarding the shape and configuration around the wells, to include wells that had been recompleted into shallower zones than those specified in unit designations, but Dore instead filed suit in September 2005 seeking enforcement of the settlement agreement. The district court granted Dore partial summary judgment, finding that since only one well was producing at its unit designation depth and no voluntary units had been formed between 2002 and 2005, only one well in the Retained Area constituted a “producing unit.” The district court therefore canceled the lease on the rest of the Retained Area, effective January 28, 2005.
The Fifth Circuit determined the provision in the settlement agreement that required the parties to negotiate in good faith as to the size and extent of producing units before pursuing a determination from the Louisiana Commissioner of Conservation was not subject to the three-year time limit. Since no time limit for this provision was provided by the agreement, the obligation must be performed within a reasonable time. The Fifth Circuit remanded the case to the Western District of Louisiana for a determination as to whether the lessees breached the settlement agreement by failing to institute negotiations within a reasonable time. While recognizing that the agreement may have been breached, the court emphasized specific performance as a potential remedy and expressly stated, “The remedies available under Louisiana law and by these pleadings for such a breach do not include forfeiture.”