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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DANG!  It'll just end up as a judgement with no real punishment and no one really getting what they're owed.

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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