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June 25, 2004

LSC May Decide Extent of Mineral Lessee's Obligation to Restore

Today the Louisiana Supreme Court granted writs in Terrebonne Parish School Board v. Castex Energy, Inc. The Court's eventual decision will likely determine the existence and extent of a mineral lessee's obligation to restore land to its original condition at the end of the lease, when the lease contains no express provision requiring restoration.

Some history: In Corbello v. Iowa Production, the Louisiana Supreme Court held that when a mineral lease obligates the lessee to restore the property, the lessee must do just that, even if the cost of restoration greatly exceeds the value of the property. But Corbello did not address what happens when the lease does not contain an express provision requiring restoration.

The First Circuit's decision in Terrebonne Parish School Board v. Castex Energy, Inc. answered the question left unanswered in Corbello, holding that La. R.S. 31:122 creates an implied obligation to restore the property. But this implied obligation "is limited by a standard of reasonableness which balances the cost of perfect restoration against the value of the use to which the land is being put." Applying this reasonableness standard, the First Circuit affirmed the trial court's order requiring less-than-perfect restoration. At the same time, applying Corbello, the First Circuit held that reasonable restoration could substantially exceed the fair market value of the land. But the First Circuit vacated the trial court's order requiring the lessees to pay the cost of restoration. Instead, because the lessees were willing to actually perform the restoration, the trial court ordered the judgment to be amended to order specific performance of the obligation to restore.

I don't know who applied for writs or what issues were raised in the parties' writ applications. But my guess is that the Supreme Court's eventual decision in this case may answer the following questions:

(1) At the end of a mineral lease, must the mineral lessee restore the property to its pre-lease condition, even though the lease contains no clause explicitly requiring restoration?

(2) If so, is the obligation to restore limited by (a) the value of the land, or (b) the reasonableness standard adopted by the First Circuit?

(3) If the mineral lessee must restore, should the court render a money judgment for the cost of restoration, or should the court instead order specific performance of the obligation to restore?

Posted by RPW at June 25, 2004 06:56 PM
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