Court Rules Operator Falsified Test and Production Reports to Maintain Lease

 There were many old depleted wells that were reporting production to the state that served to hold in force old "all depths” O&G leases with a one eighth royalty.  Some of those old leases became incredibly valuable when the Haynesville Shale land rush commenced.  The operators were able to assign the "deep rights" under their leases for a royalty difference between the one eighth owed to their mineral lessors and the royalty that Haynesville operators were willing to pay - 25 to 30%.  Needless to say, this was a windfall that was worth hundreds of millions of dollars for those operators.

The case in question here is Ganey versus Cupstid and involves a surface owner that sued to have a mineral servitude cancelled due to fraudulent production reporting by the well operator.  Not only did the fraudulent reporting serve to support a claim that the lease had survived until the Haynesville Shale came along but it served to keep a mineral servitude from expiring.  The court ruled that the lease had expired and the servitude was not maintained. 

The ruling in this case is important in that if it survives any appellate challengers and becomes set case law, it will open the door to similar plaintiffs who were denied ownership of the mineral rights underlying their surface ownership in instances where a depleted well was reported productive by way of falsified reports to the state.  The judgement sets out the specific facts and arguments of the case and provides a good test for those who may feel that they have been similarly disadvantaged.

Although Ganey versus Cupstid was an effort to extinguish a mineral servitude, the survival of an O&G lease based on fraudulent test reports or reported monthly production volumes was addressed by the court in determining the status of the servitude.  I suspect that many mineral owners under an O&G lease who did not receive royalty payments in the years leading up to the Haynesville Shale Play may also have cause to question whether their leases should rightfully have expired affording them the opportunity to execute a new lease when the Haynesville Shale created substantial increases in per acre bonuses and royalty fractions.

The ruling is too long to be attached here under the limits imposed by the architecture of the website.  My Friends can contact me at my business email address available on my personal page if they would like a copy of the ruling.

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Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on September 6, 2022 at 6:02

Tom, I believe you are thinking of the expiration of an O&G lease for twelve months plus of non-production.  I don't think that applies to non-payment.  You should get the services of an experienced O&G attorney but you can do some sleuthing on your own and gather the pertinent data to help getting to an answer quickly.

Permalink Reply by Tom Foster on September 7, 2022 at 2:05

I am rather enjoying the sleuthing phase of this project at the moment.  Once I see how the operators respond to my letters, I will decide my course from there.  If they play nice, all is good.  If not, an attorney will be the next step.  My initial response from Novy was from a Ms. Crook, so I hope that will not be an omen of the outcome of all this.  

Permalink Reply by Tom Foster on August 21, 2022 at 6:00

Thank you both for your responses and very helpful information. 

I plan to get right on this and will let everyone know how things turn out in a few weeks.

Permalink Reply by Tom Foster on February 9, 2023 at 3:57

Well, a few weeks has now turned into a few months, as I await a response from BPX owner relations to my initial inquiry of September 11, 2022 as to possible monies due to me regarding HA RA SU 133; Dunn et al 35-26 H #001.  BPX has sent a couple of emails notifying me that they are still researching the matter, so we shall see.

    

  

  

Permalink Reply by Skip Peel - Mineral Consultant on February 9, 2023 at 4:04

Thanks for the update, Tom.  Operators are usually slow in resolving questions like yours.  I would suggest that two weeks is about the right length of rope to give BPX before you follow up. 

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