The legalities of seismic activity in Louisiana are about as murky as the state's ubiquitous bayou waters. Indeed, to say the Mineral Code fails to adequately address the myriad issues indigenous to modern-day 3-D seismic operations there is at best an understatement.
Following on the heels of other seismic-related issues that have landed in the courtroom, a current flap over data acquisition and ownership just might be the proverbial straw that breaks the camel's back.
Billions of dollars -- and perhaps the future of exploration in Louisiana -- may be at stake.
It all began innocently enough when Union Pacific Resources (UPR) acquired an undivided interest in a lease taken from Musser-Davis Land Co. to explore for oil and gas on lands in Beauregard Parish.
Unfortunately for UPR, the Musser-Davis Land Company (which is wholly owned by the University of Iowa and consists of only some tracts of land in the parish) didn't equate seismic activity with oil and gas exploration.
When UPR contacted Musser-Davis to relate its intent to conduct a 3-D seismic survey over the property, it received an ultimatum to enter into a new contract giving the landowner sole ownership and control of the acquired data.
Following unsuccessful negotiations, UPR told Musser-Davis that it would not physically enter the property but would undershoot it instead. The landowner promptly obtained a temporary restraining order and preliminary injunction against UPR in state court.
The customized lease agreement between the two parties gave UPR the exclusive right to explore and contained language common to most leases routinely drafted for oil and gas exploration, which operators historically have relied on for seismic operations.
"It's fairly widely recognized or thought that in a lease granting the right to explore that it includes seismic," said Tommy Smart, partner in the law firm of Onebane, Bernard, et al in Lafayette. "The lease gave the lessee the right to explore and didn't specifically say yea or nay on seismic, which is typical of most leases in effect."
Smart's firm has filed an amicus curiae brief on behalf of the Louisiana Independent Oil & Gas Association and the Louisiana Mid-Continent Oil & Gas Association, in support of UPR's position.
Of particular interest to the oil and gas community is an amicus brief filed recently on behalf of the International Association of Geophysical Contractors (IAGC) and the American Petroleum Institute, which notes:
"The State of Louisiana is the state's largest landowner, and the statutes governing the state's mineral resources reflect that (1) seismic surveying is inherent in the right to explore for minerals, and (2) lawfully acquired data is the property of the lessee or permittee, not the state."
Ironically, failure to conduct seismic activity under a lease agreement has the potential to land an operator in court. One of the duties required of a lessee is to be a prudent operator, and nowadays this includes seismic data acquisition more often than not.
Surprise Ruling
On the basis of diversity jurisdiction, UPR opted to have the case removed to the federal district court in Lake Charles, and the parties partially settled it.
UPR was allowed to enter the property and conduct the survey on the condition that the data would not be disseminated -- pending a final decision on the litigation. Also, both parties agreed that the ultimate consideration due to Musser-Davis would be based on the outcome of the litigation.
To the surprise of the oil and gas interests, U.S. district judge Edwin Hunter rendered a ruling harsh enough to make the original state court venue comparable to Eden, regardless of its potential for political influence.
The judge held that UPR did not have the right to conduct a seismic survey under the lease and that any data from such a survey would be owned exclusively by the landowner.
UPR promptly appealed the decision to the 5th Circuit Court of Appeals in New Orleans. Both sides are squaring off to argue the case before the court.
Perusing the chain of events in the ongoing saga brings to mind the adage "don't ever assume something ..."
"I think (Judge) Hunter didn't realize the big picture and viewed it as a narrow issue," said Sidney Powell, an attorney representing UPR. "Our side may have assumed that because it was so routine and so customary to do seismic this way that he would know that."
"Part of what you've got with all this stuff is there's not a lot of law yet in Louisiana on the seismic issues," Smart added, "and we're getting some real unpredictable decisions on these issues from courts that aren't as experienced in oil and gas matters."
Extreme Impact?
Should the ruling issued by Hunter be allowed to stand, the negative impact on current and future seismic activity in Louisiana could be extreme.
"The court's decision that 'seismic data is owned exclusively by the landowner' clouds the title to billions of dollars worth of seismic data collected in Louisiana, as well as jeopardizing future exploration in the state," said Charles Darden, president of the IAGC.
There could be trespass liability where the operator relied only upon a lease to conduct past seismic activity, as well as liability for unlawful dissemination of data. Data ownership uncertainty and landowner claims for a share of payment received for data would create far-reaching problems.
Darden cautioned that court decisions affecting industry in localized cases have a tendency to expand to jurisdictions far away.
In fact, Steve Mitchell, vice president of operations at Fairfield Industries, predicted Hunter's ruling, if allowed to stand, " would effectively shut down exploration in the U.S. as we know it."
Mitchell noted that lessees could circumvent the problem by acquiring a specific permit from the landowner, but he emphasized that this would only resolve the issue for future data.
"All past data sets being used would be illegal or invalid," he said, "so who would have data anymore?"
Unacceptable leasing and permitting scenarios undoubtedly would become the order-of-the-day. Landowners could demand ownership of data and/or demand a share of data sales, which, in all probability, would diminish the number of surveys.
Survey permitting costs likely would escalate dramatically. Given the complexity of property ownership in Louisiana, permitting already is a lengthy and costly process.
Today, seismic survey permits per se are de rigueur for the contracting party wanting to conduct operations over a property where it has no lease agreement. However, a seismic permit acquired by an operator who already holds a lease is another matter entirely.
Keith Calcote, senior counsel at UPR, explained, "The term 'permit' is unfortunate in this instance, because it's just an agreement reached with the landowner to cover any damage that occurs as a result of seismic operations," he explained. "It's not permission to go on the land, because with a lease to explore you don't need to get permission to go on the land and do seismic."
Calcote said that Musser-Davis cited certain cases as precedent in district court that were actually trespass cases. "There is a vast difference if you're on land doing seismic without a lease or a permit," he noted.
Lake Charles attorney John Scofield, who has filed a brief on behalf of Musser-Davis, said he preferred not to comment on this or any other issues pertaining to the case.
Anxiously Waiting
Smart asserted that the district court's dual holding is reflective of a misinterpretation of the rights granted under a mineral lease.
The court, he continued, based its decision on La. R.S. 30:217, which requires that a party obtain consent before conducting seismic operations. The ruling stated that consent is not to be obtained "by implication, by inference, or by supposition," and that "the consent of the landowner must be obtained, period. "
The far-reaching consequences of the case have industry players anxiously awaiting the outcome.
"We expect it to be resolved sometime in '99, but anything but a complete reversal would have a negative impact on all geologists," Calcote said... and on a lot of other folks as well.
Meanwhile, the oil finders may have to rely on the Pollyanna Factor for consolation: The scary thought of depleted state coffers resulting from a curtailment of E&P activity might move Louisiana's state solons to take action.
"This is something the legislature needs to address specifically and fix, which would be a good outcome for the future," said attorney Powell. "There are a lot of issues related to it that need to be legislated."