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.
I am in agreement with The Baron. The problem could have been avoided by seeking legal advice, good legal advice.The domino hall is not the bestplace to get advice of value--only mostly manure.
IMO, in the Great State of Louisiana, contract law will trump mineral code. What one signs for is what one gets.
DrWAVeSport Cd1 7/1/2011
Here is a link to the full ruling:
Prior to the Haynesville Shale, Demand To Develop suites tended to be a battle of "experts". More specifically geologists and reservoir engineers. The O&G industry has an endless supply, greater financial resources than the vast majority of lessors and a dedication to contesting any and all legal challenges not to mention the ability to ostracize independent "experts" who might choose to testify against the industry. The advantages belonged to the industry and their record in defending their development rights in court was impressive. All those previous Demand cases involved conventional reservoirs and the courts became quite set in their requirements as to proof of the prospective nature of specific locations. Only science and experts could make the determination.
Now comes the Haynesville Shale. The first in a new era of unconventional reservoir development but certainly not the last. For the first time it is possible to make a case that a formation (Haynesville Shale) is prospective based on surrounding development and the fact that the formation is productive over a wide aerial extent. All the companies in the Play have touted the fact in numerous press releases and presentations. The Commissioner of Conservation stated in his August 18, 2008 memorandum that Haynesville Shale zone "has been shown to be both laterally continuous and productive over an extensive area" to the extent that he dispensed with the traditional production test requirement for proposed units in the Haynesville Shale.
The appellate ruling states that the contentions of the plaintiff are accurate and that the district judge was correct in accepting the evidence and using it as a basis for his ruling. Then at the end they basically say that they are overturning the ruling anyway based on the lack of expert testimony concerning the lack of evidence that any reasonably prudent operator could have begun exploration, much less drilled a well to the deep Haynesv8ille Shale within this remarkably short time. Quite curious indeed.
I am expressing my sole impressions and opinions as someone who witnessed the entirety of the proceedings outside those that occurred in judge's chambers at the district and appellate trials. The reason that Questar did not provide any testimony in the district case was that they had failed to discredit the testimony or refute the contentions of the plaintiff. If they were to put on any case for the defense, they would have to do so with "expert" witnesses. And I believe that they had one or more sequestered in a nearby location where they could be consulted and called to testify should the defense choose to do so. After the plaintiff rested his case and the judge adjourned the proceedings for lunch, I believe that the attorneys for Questar met with their experts and asked them how they would testify under oath if asked certain questions. Questions that the defense was now sure the plaintiff's counsel would ask. Upon hearing the answer to those questions, the defense knew that to put their experts on the stand would be detrimental to their case and choose instead to rest without making a defense. They had no case to present and had to rely solely on their prior attempts to refute the contentions of the plaintiff. The same ones that the appellate judges agreed with before ultimately falling back on old precedent that required "experts" to testify whether the Haynesville Shale should be productive on the Ferraras' lands.