Opinion
Civ. No: 97-3556, SECTION: "R"(5).
January 27, 2000.
ORDER AND REASONS
Before the court is the motion of plaintiffs, Hunt Petroleum Corp. and Hassie Hunt Exploration Co., for adoption of the Special Master's Report and entry of judgment in accordance therewith. Defendant, Conn Energy, Inc., has filed a cross motion for entry of judgment, asserting various objections to conclusions made by the Special Master and to plaintiffs' proposed judgment. Having reviewed the record de novo, the Special Master's Report, as amended, the parties' objections, and the applicable law, the Court hereby adopts the Special Master's Report as its opinion in this matter in all respects except for the amount of the monetary damages awarded to Conn. The Court hereby increases Conn's award from $114,927 to $138,723.23.
I. BACKGROUND
A. Procedural History
This case involves complex natural gas balancing and accounting issues arising out of operations on an oil and gas lease at West Cameron Block 171, located on the Outer Continental Shelf in the Gulf of Mexico, offshore of Louisiana. On the parties' joint motion, the Court referred this matter to a Special Master for trial of all issues pursuant to Rule 53 of the Federal Rules of. Civil Procedure on June 17, 1999. The Court appointed John M. McCollam as Special Master. The parties agreed that the Special Master's findings of fact would be final and that only his conclusions of law would be considered by the Court. See FED. R. CIV. P. 53(4); Order of Reference, dated June 17, 1999, at 2. After hearing oral argument and reviewing the parties' briefs, evidence and the applicable law, Mr. McCollam issued his Special Master's Report on November 8, 1999. Mr. McCollam thereafter responded to objections filed by the parties and issued a Supplemental and Amended Report on December 3, 1999. This Court held a hearing on plaintiffs' Motion for Adoption of the Special Master's Report and for Entry of Judgment and Conn's Cross Motion for Entry of Judgment on January 19, 2000.
B. Facts
The Hunts are working interest owners in federal lease No. OSC-G-1997 covering WC 171 (the "Lease"). They sued Conn and Mobil, working interest co-owners, to recover for amounts of gas for which they were "underproduced" via cash or "in kind" balancing. Hunts also sought an accounting from Conn for production revenues Conn had withheld from them. Conn counterclaimed against Hunts for lease operating expenses which Conn, as operator of WC 171, incurred in operating the property. The Hunts contended that Conn's expenses were excessive and that the Hunts were entitled to a number of credits, which, when added to the value of production revenues Conn had withheld from them, resulted in net sums being owed by Conn to the Hunts.
1. Gas Balancing Claim
On October 1, 1991, Mobil assigned its 34.6045% working interest in the WC 171 Lease to Conn, and Conn took over as lease operator on July 27, 1992. At all relevant times, Hunt Petroleum owned an 11.19285% working interest, and Hassie Hunt owned a 10% working interest in the WC 171 lease. A January 1, 1971. Joint Operating Agreement governs the conduct of oil and gas operations on this lease.
During the 1980s, the Hunts committed their entitlement share of the natural gas produced from the wells on WC 171 to ANR Pipeline Company pursuant to long-term "take-or-pay" contracts. These contracts required ANR either to take or pay for certain minimum quantities of gas annually produced from WC 171. ANR refused to take and purchase the Hunts' entitlement share between 1987 and August 1989. The Hunts concluded that they could not sell the gas to another buyer because they were contractually committed to the contracts with ANR. The Hunts thereafter sued ANR in state court, and the parties settled their take-or-pay litigation in August 1989. ( See Special Master's Report Exs. D-3, D-4.) ANR paid Hunt $5,945,592.80, of which $4,452,932 covered Hunt's take-or-pay claims for a number of properties, including WC 171. ( See id. Ex. D-4, at 2.)
At the same time that ANR refused to take gas from the Hunts, Mobil continued to sell to ANR, for its own account, the Hunts' entitlement share of production from WC 171. This resulted in the Hunts' becoming "underproduced" by 293,025 million British thermal units (MMBtu's) of gas as of August 1989, and Mobil's becoming "overproduced" vis-a-vis Hunts in the same amount. From October 1989 to October 1, 1991, Mobil allowed the Hunts to take volumes of gas in excess of their entitlement share of gas ("make-up gas") to begin correcting' the imbalances.
The parties agreed to use December 31, 1998 as the cutoff date for their gas balancing claims. As a matter of law, the Special Master concluded that a gas imbalance existed as of that date in the Hunts' favor in the amount of 243,000 MMBtus. However, subject to certain reservations, the Special Master rejected the Hunts' claim for immediate cash balancing against either Mobil or Conn. Instead, the Special Master held that the Hunts should balance in kind out of Conn's entitlement share of production, beginning with the month of October 1999.
To effectuate a speedy and equitable settlement of the Hunts' gas imbalance claims, the Special Master developed a pricing mechanism intended to protect the Hunts in the event that production from the WC 171 Lease drops below specified levels. The Special Master reached the following conclusions:
1. In the event that Conn has disposed of its entitlement share of production for the months of October and November 1999 by the time judgment is rendered, Conn should account to the Hunts for those volumes of gas at the price received by Conn, less royalty paid.
2. If Conn's entitlement share of gas produced from the WC Block 171 Lease does not equal at least 10,000 MMBtu's per month ("Minimum Make-Up Volume"), Conn and Mobil must pay the Hunts in cash (less royalty) for the value of that amount of gas by which Conn's actual production falls below the Minimum Make-Up Volume.
3. Finally, if Conn does not maintain a three-month running average of 5,000 MMBtus, Conn and Mobil must immediately cash balance the Hunts' entire remaining underproduction (less royalty).
The Special Master recommended that the monthly and three-month running average requirements begin as of October 1999. Furthermore, the Special Master determined that any cash payments should be made by Conn and Mobil within thirty days from the last day of the calendar month or the last consecutive month of the three-month period.
2. Accounting Counterclaim
From March 1996 through December 1998, Conn withheld $225,356 in proceeds (net of royalty) derived from the sale of additional volumes of the Hunts' entitlement share of the gas produced from the WC 171. Lease to offset Hunts' proportionate share of lease operating expenses allegedly owed under the JOA. The Hunts stopped paying these expenses in February 1995 and, after the Hunts refused to pay for more than one year and indicated their continued intention to do so, Conn stopped sending them bills.
In their counterclaim, Mobil and Conn sought to recover for the expenses the Hunts failed to pay from February 1995 through December 1, 1998. The Hunts agreed, and the Special Master found, that the amount of expenses that the Hunts did not pay equals $623,737. Both parties agreed to reduce the amount of the unpaid expenses by (1) offsets for the proceeds of the Hunts' entitlement share of gas production retained by Conn and (2) credits for various audit exceptions raised by the Hunts.
As a matter of law, the Special Master concluded that Conn is entitled to an award of $114,927. This award represents the sums owed by the Hunts on unpaid expenses in the amount of $623,737 less the sum of $508,810, representing the Hunts' proportionate share of certain offsets or credits based on audit exception.
II. DISCUSSION
Because the parties stipulated that the Special Master's findings of fact shall be final, those findings are not subject to review. However, the parties may contest the Special Master's conclusions of law, which this Court reviews de novo. See Cook v. Niedert, 142 F.3d 1004, 1009 (7th Cir. 1997); Hartman v. Duffey, 973 F. Supp. 199, 200 (D.D.C. 1997). This Court held a hearing on this matter on January 19, 2000 and may now adopt the report of the Special Master, modify it, reject it in whole or in part, receive further evidence, or recommit it to the Special Master with instructions. See FED. R. Civ. p. 53(e)(2).
The Court has jurisdiction over this case under the Outer Continental Shelf Lands Act, 43 U.S.C. § 133(a)(i) and 1349. To the extent not inconsistent with federal law, OCSLA mandates application of substantive Louisiana law because the WC 171 Lease is located in the Gulf of Mexico, offshore of Louisiana. See 43 U.S.C. § 1333 (a)(2)(A); Rodrigue v. Aetna Casualty and Surety Co., 395 U.S. 352, 355-57, 89 S.Ct. 1835, 1837-38 (1969); Pittencrieff Resources, Inc. v. Firstland Offshore Exploration Co., 942 F. Supp. 271, 277 (E.D. La. 1996) (citing Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043, 1050 (5th Cir. 1990)).
A. Gas Balancing Claim
1. Existence of a Gas Imbalance
In its cross-motion for entry of judgment, Conn challenges the Special Master's threshold conclusion that a gas imbalance exists. Conn asserts that the Hunts effectively received payment for the same gas at issue here in their August 1989 settlement with ANR for breach of its take or pay contract to purchase Hunts' share of gasp from WC 171. Conn relies on the Settlement Agreement's reference to the Hunts as "sellers" and its provision that the Hunts are liable for all production, severance and other taxes due on the settlement payment. ( See Special Master's Rep. Ex. D-4, Hunts-ANR Settlement Agmt. Aug. 3, 1989, at 5.) As a corollary, Conn argues that Hunt does not have standing to assert a gas imbalance claim because ANR owned the gas at issue. Finally, Conn maintains that it is entitled, at a minimum, to a credit or offset from the Hunt-ANR settlement which would erase any gas imbalance claim.
Conn's claims are without merit. When ANR refused to buy gas from the Hunts, Mobil sold the Hunts' share of gas from WC 171 to ANR and retained the proceeds. ( See Special Master's Rep., Concl. Fact ¶ 16, at 7.) The August 1989 settlement agreement was not for gas delivered but represented a "take-or-pay payment" for gasnot purchased. The settlement payment was also made to terminate the long-term gas contracts. In Diamond Shamrock Exploration Ca. v. Hodel, the Fifth Circuit applied federal law to the interpretation of offshore mineral leases granted by the United States Department of Interior under the OCSLA. 853 F.2d 1159, 1167 (5th Cir. 1988). The Fifth Circuit held that take-or-pay payments were not payments for the sale of gas but were payments for the failure to take gas. Therefore, they were not subject to payment of royalty under a lease agreement requiring royalties to be paid on the "amount or value of production saved, removed or sold." Id. at 1168. Contrast Frey v. Amoco Prod. Co., 603 So.2d 166, 176-78 (La. 1992) (applying Louisiana law to onshore gas lease tying payment of royalties to "sales" of gas and holding that take-or-pay payment is sale of future thing which occurs retroactive to time gas purchase contract is executed if gas is ultimately produced at the wellhead). As in Diamond Shamrock, this case concerns an analysis of federal leases granted by the United States under the OCSLA. (See Special Master's Rep., Concl. Fact ¶ 1, at 2.) Diamond Shamrock offers the closest legal analogy to the facts of this case and supports the argument that the Hunts' settlement of the take-or-pay dispute with ANR did not amount to a sale of gas to ANR. Further, nothing in the Settlement Agreement states that ANR agreed to pay for gas sold by the Hunts or to purchase a gas imbalance claim. ( See Special Master's Rep., Ex. D-4.) Indeed, the Hunts sued ANR for breach of contract for "failing to comply with its obligation to take and pay for the minimum volumes specified in the Contracts." (See id. Ex. D-3, Petition ¶ 5, Rosewood Resources, Inc., et al. v. ANR Pipeline Co., No. 866522, 15th Judicial District Court, Section G, Lafayette, LA.) The nature of this claim is likewise reflected in the Settlement Agreement, which states that ANR paid the Hunts for the release of all claims that could have been asserted under the take-or-pay contracts and for the release of those contracts. ( See id. Ex. D-4, at 2.) Finally, the Court rejects the argument that a sale of gas occurred merely because the Settlement Agreement contains standard language referring to the Hunts as "Sellers" and requiring the Hunts to pay any production or severance tax on the settlement payment. ( See id. at 5.) Because Conn has failed to establish that the ANR settlement constituted payment for gas sold to ANR by the Hunts, the Court rejects Conn's contention that a gas imbalance does not exist and that the Hunts do not have standing to assert an imbalance.
Even if Hunts did sell the subject gas to ANR by means of the Settlement Agreement, Conn has failed to establish what portion of those settlement proceeds are attributable to the WC 171 lease and therefore how much of a credit it might be entitled to. As part of the settlement, ANR agreed to pay the Hunts $5,945,592.80, of which $4,452,932.50 covered the Hunts take-or-pay claims for a number of properties, including WC 171. However, the settlement resolved a lawsuit that covered 22 gas contracts, many of which did not involve WC 171. ( See id. Ex. A to Ex. D-3 Ex. D-4.) Nothing in the agreement identifies the portion of the settlement amount allocated to the WC 171 Lease. Additionally, Conn has not provided any legal authority to support its entitlement to a setoff under Louisiana law. The Court thus cannot find that Conn would be entitled to a credit for any amount received by the Hunts in payment for the WC 171 gas at issue here.
For the foregoing reasons, the Court adopts the Special Master's finding that a gas imbalance of 243,000 MMBtus existed between the Hunts and Mobil and Conn, as solidary obligors, as of December 31, 1998. (See id. Concl. Law ¶ 6, at 50.)
2. Timing of Balancing
Conn further contests the Special Master's conclusion that the Hunts should begin to receive make-up gas out of Conn's share of production from the WC 171 Lease as of October 1, 1999. (See Special Master's Rep., Concl. Law ¶ 20, at 56.) Because the Special Master did not issue his final, amended report until December 1999, Conn argues that the October 1999 start-date prejudices it by forcing it to cash balance for the months which have already passed, despite the Special Master's conclusion that Hunt was not entitled to immediate cash balancing'. Conn further challenges the Special Master's decision to start the monthly and three-month running average minimum production requirements as of October 1, 1999. Conn asserts that the delivery of make-up gas and the minimum-production requirements should begin the month following entry of a judgment by this Court and, at the earliest, on January 1, 2000.
After reviewing the Special Master's Report, the Court finds that he properly took into account the current lease conditions when he found that the delivery of make-up gas and the minimum production requirements should begin as of October 1999. The Special Master knew that Conn had proposed to plug and abandon all wells located on the "B" platform. ( See Special Master's Report, Concl. Fact ¶ 41, at 16.) Indeed, he found that Conn and Mobil had conceded that the remaining producing wells on WC 171 are aging and bear a substantial risk of material failure. ( See id. Concl. Fact ¶ 48, at 18.) All of these circumstances are reflected in the balancing-in-kind scheme developed by the Special Master in order to rectify the gas imbalance as soon as possible and to avoid prejudicing the Hunts due to low production levels. The Court also notes that Conn and Mobil retained the benefit of the Hunts' underproduction and the revenue therefrom for more than six years. Indeed, the Special Master rejected the Hunts cash balancing' argument on the grounds that the existing gas imbalance could be remedied in approximately 22 to 24 months by starting the delivery of gas with the month of October 1999. ( See id. Concl. Law ¶ 21, at 56.) The equities clearly weigh against Conn on this issue. Finally, Conn has not cited, and this Court has not found, any legal impediment to adopting the timetable outlined in the Special Master's Report. For the foregoing reasons, the Court adopts the Special Master's recommendation to begin delivery of make-up gas and the monthly and three-month, running average production requirements on October 1, 1999.
B. Accounting Counterclaim
1. Interest Award
The Hunts have moved the Court to adopt the Special Master's Report, as amended, in all respects except one. They object to the Special Master's award of interest to Conn on its monetary award from the date of judicial demand.
It is well settled that Louisiana law applies to the question of prejudgment interest in an action brought under OCSLA. See Olsen v. Shell Oil Co., 708 F.2d 976, 984 (5th. Cir. 1983). Under Louisiana law, a court shall award prejudgment interest as prayed for or as provided by law. See LA. CODE CIV. PROC. art. 1921. Louisiana Civil Code article 2000 provides for legal interest on debts from the time they become due, and article 2924 provides for legal interest on all sums that are the object of a judicial demand. See Mini Togs Products, Inc. v. Wallace, 513 So.2d 867, 872 (La.App. 2nd Cir. 1987). Moreover, it is well-established in the Louisiana jurisprudence that "legal interest is due at least from the date of judicial demand on a claim for damages arising out of breach of contract, regardless of whether the precise amount of the claim is unliquidated, disputed, or not ascertainable with certainty at the time suit is filed." Mini Togs, 513 So.2d at 875; accord National Union Fire Ins. Co. v. Circle, Inc., 915 F.2d 986, 992 (5th Cir. 1990). See also Trans-Global Alloy v. First National Bank, 583 So.2d 443, 458-59 (La. 1991) (awarding interest from date of judicial demand even though damages not ascertainable until reduced to judgment); Alexander v. Burroughs Corp., 359 So.2d 607, 613 (La. 1978) ("We have uniformly held that . . . all sums due on contracts bear interest from judicial demand, even where none has been stipulated, and the demand is unliquidated") ( quoting Sullivan v. Williams, 2 La. Ann. 876, 878 (1847)). Interest in a breach of contract case is generally awarded from the date of judicial demand, unless the amount of the debt is ascertainable at the time it became due. See Trans-Global Alloy, 583 So.2d at 459. An interest award does not penalize the defendant because he is "only returning the benefits he has received from the use of the plaintiff's money . . ." Trans-Global, 583 So.2d at 458.
Under the JOA, the lease operator is directed to bill the non-operators for their proportionate share of expenses on a monthly basis, and the non-operator must pay the bills within 15 days of receipt. ( See Special Master's Rep. Concl. Fact ¶ 66, at 22.) The Hunts assert that, based on this provision, Conn is not entitled to interest because the Hunts did not breach the contract to pay expenses in 1997 and 1998 until after Conn made its judicial demand because Conn had not yet billed them for the expenses. However, as Conn points out, the JOA does not give a non-operator the right to unilaterally refuse to pay its share of the lease operating expenses. The JOA also expressly provides for interest on unpaid expenses. ( See id. at 23.) The Special Master found, as a matter of fact, that the Hunts did not pay Conn for their share of the operating expenses relative to the WC 171 Lease from February 1995 through February 1998. ( See id. Concl. Fact ¶ 64, at 22.) For the first year of this non-payment period, Conn continued to send the Hunts monthly bills as directed by the JOA. However, Conn ceased sending the Hunts bills in 1996 after they indicated they would not pay. The Court agrees that for Conn to have sent monthly bills would have been a "vain and useless act." See J-O'B Operating Co. v. Newmont Oil. Co., 560 So.2d 852, 859 (La.App. 3rd Cir. 1990). Moreover, although Conn withheld. $225,356 of the Hunts' gas proceeds to offset the expenses owed during this time, the Special Master's finding that the. Hunts owe a net amount of $114,927 makes clear that Conn was deprived of the use of its money.
The Special Master denied Conn's claim for prejudgment interest in the amount of $39,676 "because of the uncertainty as to the amounts actually owed to Conn under the [Joint Interest Billings] submitted to the Hunts and/or the delays in submitting such. JIBs to the Hunts." (Special Master's Rep., Concl. Law ¶ 34, at 71; Supp. and Amend. Rep. ¶ G, at 6.) That award would have given Conn interest on the unpaid expenses from the date the Hunts first breached their obligation to pay in 1995. In his amended report, the Special Master revised his interest determination to provide that Conn is entitled to prejudgment interest on its awarded damages from the date of judicial demand. (See Supp. and Amend. Rep. ¶ G, at 6.)
After reviewing the pleadings, the record, the Special Master's Report and the applicable law, the Court agrees with the Special Master's decision to award. Conn legal interest on its monetary award from the date of judicial demand. That the damages were not ascertainable and the fact of a breach still in dispute at the time Conn filed its counterclaim does not alter the result. In accordance with Louisiana law, the Special Master correctly awarded legal interest from the date of judicial demand and rejected Conn's initial request for interest from the due date of the debt.
2. Credit for Expenses Requiring Issuance of AFE
Finally, Conn argues that the Special Master erroneously concluded that the Hunts were entitled to a $51,027 credit as their proportionate share of expenses incurred to restore production on the "B" platform and wells. ( See Special Master's Report, Concl. Law ¶ 32I, at 64.) The Special Master concluded that those charges were incurred in an effort to restore production and therefore required the issuance of an Authorization for Expenditure (AFE) by Conn to the non-operators, including the Hunts. Because Conn never issued this AFE before incurring the expenses, the Special Master concluded that the Hunts could not be charged their share of the expenses.
The JOA for the WC Block 171 Lease provides that "[a]ny party hereto having an interest in a well which is not producing or capable of producing in Paying Quantities and desiring to rework, sidetrack or plug back such well . . ., shall notify the other parties hereto having an interest in such well" and that each party receiving, this notice shall have a limited amount of time to elect whether or not it will participate. ( See Special Master's Report, Concl. Fact ¶ 93, at 31.) Conn contends that the Hunts are not entitled to the $51,027 credit because there is no evidence that they would not have consented to these expenses had they received the AFE. The Court does not find that independent proof of Hunts' intent to go "non-consent" is necessary here. Because Conn never received an AFE, it never "elected to participate" and therefore should not be held responsible for its share of the charges to restore production on the B platform.
Additionally, Conn argues that because the Hunts accepted, and refused to repay, the revenue generated by the sale of gas from the B wells, they are now either estopped from claiming a credit for these expenses or have waived their right to seek such a credit. In order to establish a claim of equitable estoppel under Louisiana law, Conn must show that: (1) the Hunts made a representation; (2) Conn justifiably relied on that representation; and (3) Conn changed its position to its detriment because of that reliance. See La. Civ. Code art. 1967; Zimeri v. Citizens Southern Int'l Bank, 664 F.2d 952, 955 (5th Cir. 1981) ( citing Wilkinson v. Wilkinson, 323 So.2d 120, 126 (La. 1975)); Morris v. Friedman, 663 So.2d 19, 25 (La. 1995) ( citing John Bailey Contractor v. State, Dep't of Transp. Dev., 439 So.2d 1055, 1059 (La. 1983)). Waiver is the intentional relinquishment of a known legal right, power or privilege. See Steptore v. Masco Constr. Co., Inc., 643 So.2d 1213, 1216 (La. 1994); accord Abramson v. Florida Gas Transmission Co., 908 F. Supp. 1383, 1387 (E.D.La. 1995); Cassey v. Stewart, 727 So.2d 655, 658 (La.App. 2nd. Cir. 1999). Waiver occurs when there is a knowledge of the existence of the right and either an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished. See Steptore, 643 So.2d at 1216. Both doctrines contravene the assertion of otherwise valid legal rights and are therefore not favored in Louisiana law. See Zimeri, 664 F.2d at 955; Morris, 663 So.2d at 26; Breaux v. Laird, 88 So.2d 33, 38 (La. 1956)
Here, the Court finds that the Hunts' mere acceptance of, and refusal to repay the revenue generated from the sale of gas from the B wells does not invoke either estoppel or waiver. Conn has not established that the Hunts represented that they would not seek a credit for unauthorized expenses by accepting the gas revenue or that Conn relied on any representation justifiably and to its detriment. Moreover, there is nothing in the record to support any intentional relinquishment by the Hunts of their legal right to recover on certain audit exceptions to costs relating to an effort to restore production on the B platform and wells. Neither do the Hunts' actions in accepting and refusing to repay reflect conduct so inconsistent with an intent to enforce their rights that one might reasonably believe the Hunts had relinquished their rights. For the foregoing reasons, the Court rejects Conn's estoppel and waiver claims.
In the alternative, Conn argues that it is entitled to reduce the $51,027 credit by the revenue that the Hunts actually received from the B wells. The Hunts and the Special Master agreed that the credit should be reduced accordingly. At oral argument, the parties stipulated that the Hunts received $23,796.23 in revenue from production on the B wells. Conn's monetary award should therefore be increased by that amount to $138,723.23. Accordingly, the post-hearing audit recommended by the Special Master in his amended report is moot. ( See Supp. and Amend. Rep., Concl. Law ¶ 35.) The Court hereby increases Conn's monetary award for unpaid lease operating expenses, less offsets and credits, from $114,927 to $138,723.23.
C. Judgment Issues
In their Motion for Adoption of the Special Master's Report and Entry of Judgment, the Hunts submitted a proposed judgment to which Conn submitted objections. The Court resolved these objections, with reasons, at the hearing on January 19, 2000 and ordered-the parties to submit a proposed judgment consistent with its rulings. The Court will summarize those rulings here.
1. The parties shall delete the phrase "and to retain the sale proceeds of" in subpart (a) of the second full paragraph of the Hunts' proposed-judgment, pertaining to the Hunts' ability to sell their own 21.19285% entitlement shares of production from the WC 171 lease. However, the parties shall retain the phrase "and to retain the sale proceeds of" in subpart (b) of the same paragraph, pertaining to the Hunts' ability to sell the 243,000 MMBtus of make-up gas out of Conn's entitlement share of production from the WC 171 lease. This result satisfies the goal of reducing the gas imbalance as soon as possible, while at the same time protecting Conn's status as first lienor on proceeds from the Hunts' share of gas for any potential non-payment of lease operating expenses.
2. The judgment shall reflect that the Hunts are liable for royalty payments, regardless of whether the Hunts receive make-up gas or cash payment(s) in lieu of that gas.
3. With respect to Conn's and Mobil's duties to cash. balance if their gas production falls below the monthly and three-month average production requirements, the judgment shall provide that Conn and. Mobil shall pay the Hunts within thirty days of the last day of the underproduced month or the last day of the last consecutive month of the underproduced three-month period.
4. Finally, the judgment shall reflect that the costs of the Special Master are hereby fixed at $43,418.02, of which sum the Hunts are jointly liable for $21,709.01 and Mobil and Conn are jointly liable for $21,709.01.
III. CONCLUSION
The Court hereby ADOPTS the Special Master's Report, as amended, in all respects except as to the amount of damages awarded to Conn in Conclusion of Law 28. The Court hereby increases that award from $114,927 to $138,723.23.
New Orleans, Louisiana, this 27th day of January, 2000.
MINUTE ENTRY JANUARY 13, 2000 SCHWARTZ, J.