In the 19-page ruling released Wednesday, the appellate court rejected District Judge Charles B. Adams' finding that Questar never intended to develop the Annie and Santo Ferraras' deep rights.
"The record does not support a finding that Questar failed to act as a reasonably prudent operator for the mutual benefit of itself and its lessor" as required by state law, the court states.
It further notes: "We certainly understand the district court's sense of awe at the potential of the Haynesville Shale, but there is inadequate support for a blanket finding of 'plans to drill wells in every section or every square mile.' More importantly, there was no evidence that a prudent operator utilizing geological data would have drilled on the Ferraras' property to the Haynesville Shale depth by the date of trial."
It's unknown if the Ferraras will appeal. Their attorney, Randall Davidson, did not return a phone call seeking comment Wednesday.
The Ferraras own 47 acres in DeSoto Parish. The land was first leased in 1988. In 2001, Questar drilled a well in the Hosston unit. Santo Ferrara made a demand on Questar in August 2008 to further develop the deep rights.
He filed suit in 2008 seeking dissolution of the lease based on Questar's failure to develop the Haynesville Shale, which gained the public's attention in March 2008.
Questar did not respond to the demand letter or lawsuit. And during a two-day trial in May 2010, the company did not present any evidence on its behalf.
Adams cited the company's lack of communication in his June 2010 judgment. Adams said it was clear Questar did not intend to develop Ferrara's deep rights.
The panel of 2nd Circuit judges said it completely understood the Ferraras' and district court's "impatience and indignation at Questar's inexplicable failure even to acknowledge the demand letter, its dilatory conduct after suit was filed and its unhelpful strategy of putting on no evidence. However, the Ferraras received royalties from shallow strata continuously since 1988 and made no demand for further exploration or development since 1994. The instant demand came a mere one week after the commissioner recognized the potential of the Haynesville Shale by dispensing with test wells; suit was filed only 46 days after the unanswered demand letter. The record is utterly devoid of evidence that any reasonably prudent operator could have begun exploration, much less drilled a well to the deep Haynesville Shale stratum, within this remarkably short time."Questar also objected to Adams' use of an expert witness and his reliance of evidence of post-suit activity in the Haynesville Shale play to determine of the company breached its obligation. The appellate court, however, rejected those arguments and found no error in Adams' actions.
PG, I would think that some sort of spacing clause would be what you would be talking about
No, I'm thinking more of a minimum performance clause if such a thing would be possible...maybe some kind of develop it or release it wording. What ever wells they drilled the lease would be binding but if they don't drill more wells if legally allowed in a reasonable amount of time the lease would expire for future wells..
Right now lessees enjoy holding by production and wouldn't likely want to give something like that up but it's not in the best interest of the MO..
Seems a lot of complaints are over being stuck in leases that lesees are sitting on....there has to be a way to remedy this..
Eliza, Art. 124. of the Louisiana Mineral Code defines paying quantities as:
When a mineral lease is being maintained by production of oil or gas, the production must be in paying quantities. It is considered to be in paying quantities when production allocable to the total original right of the lessee to share in production under the lease is sufficient to induce a reasonably prudent operator to continue producing in an effort to secure a return on his investment or to minimize any loss.
If you are getting $5.00 per acre per month, then I assume the operator is getting around $15.00 per acre per month. For a 640 acre unit that would be $9,600.00 per month. I think you can define that as paying quantities.
I have been involved in getting lease release because one well was holding about 2,000 acres (Horsehead Field in Arkansas). For several years landowners were only getting about $5/acre/year. Until Me and some other landowners complained the operator continued to produce what he could. After we complained he released the land back to owners and abandoned well in lieu of facing litigation. I am aware of a number of cases in which landowners were able to get leases voided due to production failing to meet "paying quantities" criteria. I should think that a prudent operator could prove that the well you referenced is producing in paying quantities. Without knowing more about his operating costs I can not say that with certainty. But, I would take the chance on operating this well if given the opportunity.
One Louisiana attorney recently told me that he thought it would not be legal to hold Haynesville acreage with vertical wells. The legal argument is based on what the "prudent operator" should do -- he thought there is enough evidence to show that vertical wells are not the way to develop the Haynesville Shale. However, the problem is ( as it often is) this: are you willing to litigate to get a ruling? Probably not, if you only own a few acres. So you may be stuck.