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
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Permalink Reply by Mister Sunday on -
DANG! It'll just end up as a judgement with no real punishment and no one really getting what they're owed.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I don't think so. The mineral servitude owner is most likely to release their right to the surface owner without having to provide any additional compensation. It wasn't their doing that created this situation. It is a possibility that the well operator then gets sued for denying compensation to the surface owner by fraudulently reporting the well to the state. IMO, there are many, maybe hundreds of instances, where a lease was maintained by fraudulent reporting to the state. This case may not be appealed by the defendant as it would be seen as a lost cause. The judge's ruling is adamant in denying all the defendant's claims and testimony. IMO the ruling would be more likely than not to be upheld if appealed. If this case serves to have mineral owners or surface owners subject to a mineral servitude review the production history of the well or wells that supposedly held the leases in force, it would be a good outcome. Prior to the Haynesville Shale, many old wells were limping along and paying little or nothing that mineral owners tended to forget about. Then when the Haynesville Shale made mineral rights in the play extraordinarily valuable, that perception was proven to be poor management of the mineral right. Those that were paying attention and demanded releases of old leases not paying royalty or brought demands for lease termination based on the production in paying quantities test, reaped the Haynesville windfall. Those that didn't, didin't.
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Permalink Reply by Les on
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Hi Skip,
Thank you for your posting on the Ganey versus Cupstid case and the unsettling prospect of falsified test and production reports in order to maintain leases. I have long been suspicious of that for some mineral rights in Bossier Parish I inherited. The mineral lease covering both S7, T16, R11 and S12, T16, R12 were signed by my father in the late 50s and early 60s. This lease, signed at the prevailing royalty interest at the time of 1/8, sat dormant essentially until the Haynesville Shale play came along. Prior to the Haynesville play, the royalties paid out were few and far between with years sometimes passing between them.
Of course when the Haynesville play started paying, my father was happy with his "good fortune" and being a trusting soul never even considered the prospect that a new lease should have been executed. My question to the forum is how one could go back in time and ascertain if production reports were falsified. There were multiple operators over the years and my records are incomplete. If anyone else is considering opening this can of worms and has any suggestions on how to proceed, I welcome them.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Les, you're welcome. You start by viewing the well production records on SONRIS. Those records only go back to 1972 but in many cases wells drilled in the 50s and 60s have already declined by then to the point they are showing signs of becoming uneconomic. One of the methods I used in the Ganey v. Cupstid case was to break out production totals for a calendar year and then compare that the well tests for that year. In some instances, the yearly production total reported to the state was less than the volume reported on the periodic well tests. I think that was a big red flag for the judge. There were additional considerations in that trial but this would be a good place to start for anyone that thinks that they may have been disadvantaged by unscrupulous reporting to the state in order to hold a lease in force.
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Permalink Reply by Tom Foster on
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Skip,
I have wondered about this issue as well.
Long story short, I own a 4.3 acre tract in a Caddo Parish Greenwood Unit in S26-17N-16W for which I receive anywhere from $12 to $30 annual income.
My grandfather had leased the land back in 1967, and it is still being held under that lease agreement.
I inquired with Novy Oil & Gas back in 2018 as to whether that lease could be terminated for renegotiation. The response was that the section in question is part of a unit which has been in consistent production since Novy has owned the unit, therefore, there was no reason for Novy Oil & Gas to release any of the acreage covered by the unit.
As the surface and mineral owner, I was never offered any of the lease bonuses which were going on back in 2008 or thereafter.
Am I tied to that 1967 lease agreement, or is this an example of the scenario represented by this case?
I will check SONRIS or hire someone to research it for me. Fortunately, I have all the paperwork to back up what I am writing.
Thank you.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Tom, there are a good many old leases Held By Production with old oil wells in that area of the Greenwood-Waskom Field. Novy got the bonus and royalty differential when the company assigned your deep rights (Haynesville) to Blue Dome. I would send a copy of your Novy royalty statement to Blue Dome and ask to be placed in pay and receive back royalty. You will need to supply a tax form to start getting payments. If Blue Dome doesn't agree, I'll refer you to my O&G attorneys.
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Thank you for your valuable input, Skip.
Seems one has to really be on top of all this in order to be treated fairly, a feat that would have been nearly impossible before the days of SONRIS and Go Haynesville Shale. I will definitely follow through on your suggestions.
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Thank you very much for that information, ShaleGeo.
Strange that I have received no notifications for any of this, nor increased payments. It is as though leases held by production, especially older ones without Pugh clauses, give companies free rein to do whatever they please. At least, until they get caught.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I deal with sort of situation regularly, It is often minor errors such as an incorrect mailing address or lack of a tax form. Novy may be able to help, contact them. Send them the plat that ShaleGeo provided. Ask Novy to give you a name and contact info for Blue Dome. Follow up, ask questions provide documentation. This something you can do for yourself.
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Thank you, Skip.
I will further show my appreciation by sending in a donation to GHS for the invaluable resource it has been over the years in guiding everyone through this amazing adventure.
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Permalink Reply by Skip Peel - Mineral Consultant on
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You're welcome, Tom. Thank you for the donation. Each and every one is important to keeping GHS.com online.
A reminder to all members, your operator is not looking out for you. You must be your own advocate. Every member with Louisiana minerals should learn basic SONRIS searches that keep them apprised on development. If you stop getting royalty ask why. Send emails and keep them as evidence. If your royalty payments stop for more than 12 months, depending on circumstances, it may be time to seek help from a professional. If you have a very small interest in a well or unit that has very low production, you may only receive payment once a year.
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If more than a year passes with no payment on a producing well, no matter how small that payment might have been, does that automatically void any contractual agreement in place? Seems I read somewhere that it does.
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