Demand to drill: DeSoto Parish suit sets up legal battle
KSLA Story
By Carolyn Roy
MANSFIELD, LA (KSLA) – Testimony will continue Tuesday in a mineral rights trial in DeSoto Parish that could have major implications for more than just the parties involved. If the plaintiff prevails, it could set a legal precedent that will thrill mineral owners trapped in old leases and send chills down the collective spine of the oil and gas industry.
DeSoto Parish mineral owner Santo Ferrara, Jr., is demanding Questar Exploration and Production Company develop his minerals or give up their rights to do so. "I want my lease back. I want to get somebody to explore it like it's supposed to be explored," Ferrara said on the witness stand Monday.
"He's got a 47 acre tract in the middle of the Haynesville Shale development, literally," according to his attorney Randall Davidson, who says the minerals that lie a mile beneath the land could be worth to a lot of money his client. "He's in his seventies. How long does he have to wait? That's his position."
Ferrara's mineral rights are held by Questar under a 22 year old lease acquired from Tide West Oil Company in 1996, long before "Haynesville" became a household name. Five wells have been drilled on his section of land in Grand Cane since the lease was first signed with Long Oil & Gas back in 1988. Only three of them produced oil or natural gas, and none were deeper than 4,000 feet. Between them, Ferrara was paid about $88,000 in royalties. "That's not a whole lot of money," Ferrara pointed out from the stand, when you consider it came from 20% royalties stretched out over a span of more than 20 years. For Ferrara, it wasn't enough.
Two years after Tide West Oil Company took over the lease in 1993, he demanded they either drill more wells into the oil-producing Baker Lime zone or relinquish their rights to do so. In a settlement agreement, Tide West gave up the rights to explore the Baker Lime, but kept the rights to everything else below the surface of Ferrari's land. That includes the prolific Haynesville shale formation that lies more than twice as deep below the surface and is far more expensive to explore and develop. Questar now holds those rights, and they say that under current economic conditions, it's just not feasible to drill to that depth.
It may also be a matter of strategy. Many of the leases snatched up in the initial mineral rights rush in the second half of 2008 will begin to expire in 2011. Oil and gas companies are now focused on drilling up hundreds of thousands of acres in order to hold on to those leases with at least one producing well per unit. Ferrara's attorney suggests that might be why Questar is willing to fight for the older lease, rather than give it up or negotiate a new one. "I think there's some desire to speculate in a lease that you don't think you have to drill or you spend your money on leases that you think you better go ahead and drill or you might lose. And we don't think that's reasonable from Mr. Ferrari's point of view."
The civil suit centers around whether Questar has fulfilled their obligation under the Louisiana Mineral Code Title RS :31 (Article 122) "to develop known mineral formations in the manner of a reasonable, prudent operator" in a reasonable amount of time, and "to the mutual benefit of themselves and the lessor." "This is one of the first cases that I'm aware of a modern bench who will actually decide what that means," says Davidson. "What's a reasonable period of time to develop and what rights to landowners have, what rights do oil companies who have old leases have? It's a significant case, and I think it will have some far-reaching consequences, no matter how it comes out."
There will be no jury. Davidson says they opted for the bench trial because of the legal and interpretive nature of the issue. They expect to finish testimony Tuesday from local mineral broker and landman Homer Peel, before Questar calls an expert of their own and a company representative to testify. Then it will be up to DeSoto Parish District Court Judge Charles Adams.
The economic impact of a finding in Ferrara's favor would be significant. Peel estimates some 12% of Haynesville acreage could be tied up in old leases, which could add up to as much as half a million acres held by production from wells at shallower depths. Operators would have to drill wells to the deeper formation, or face being forced to either relinquish or renegotiate old mineral leases at current market prices and considerations. "I think there are a lot of landowners who are similarly situated, that if they thought they could force further development under an old oil and gas lease, they would do so," Davidson says. "There's not very much precedent out there and this case may provide some."
New signing bonuses and royalties, increased drilling and the resulting local tax collections could inject millions of dollars into the local economy. The State of Louisiana would also see a big bump in severance tax revenue from the increased development.
Whichever side prevails, the stakes are high and appeals are expected. Davidson says he's prepared to take it all the way to the Louisiana Supreme Court. ‘"Unfortunately, it is going to be decided by the courts of appeal, but Judge Adams has to start somewhere, he's gonna start the ball rolling and it'll be his decision."
Questar's attorneys declined comment Monday, deferring statements until after the trial is over.
By Carolyn Roy
MANSFIELD, LA (KSLA) – Testimony will continue Tuesday in a mineral rights trial in DeSoto Parish that could have major implications for more than just the parties involved. If the plaintiff prevails, it could set a legal precedent that will thrill mineral owners trapped in old leases and send chills down the collective spine of the oil and gas industry.
DeSoto Parish mineral owner Santo Ferrara, Jr., is demanding Questar Exploration and Production Company develop his minerals or give up their rights to do so. "I want my lease back. I want to get somebody to explore it like it's supposed to be explored," Ferrara said on the witness stand Monday.
"He's got a 47 acre tract in the middle of the Haynesville Shale development, literally," according to his attorney Randall Davidson, who says the minerals that lie a mile beneath the land could be worth to a lot of money his client. "He's in his seventies. How long does he have to wait? That's his position."
Ferrara's mineral rights are held by Questar under a 22 year old lease acquired from Tide West Oil Company in 1996, long before "Haynesville" became a household name. Five wells have been drilled on his section of land in Grand Cane since the lease was first signed with Long Oil & Gas back in 1988. Only three of them produced oil or natural gas, and none were deeper than 4,000 feet. Between them, Ferrara was paid about $88,000 in royalties. "That's not a whole lot of money," Ferrara pointed out from the stand, when you consider it came from 20% royalties stretched out over a span of more than 20 years. For Ferrara, it wasn't enough.
Two years after Tide West Oil Company took over the lease in 1993, he demanded they either drill more wells into the oil-producing Baker Lime zone or relinquish their rights to do so. In a settlement agreement, Tide West gave up the rights to explore the Baker Lime, but kept the rights to everything else below the surface of Ferrari's land. That includes the prolific Haynesville shale formation that lies more than twice as deep below the surface and is far more expensive to explore and develop. Questar now holds those rights, and they say that under current economic conditions, it's just not feasible to drill to that depth.
It may also be a matter of strategy. Many of the leases snatched up in the initial mineral rights rush in the second half of 2008 will begin to expire in 2011. Oil and gas companies are now focused on drilling up hundreds of thousands of acres in order to hold on to those leases with at least one producing well per unit. Ferrara's attorney suggests that might be why Questar is willing to fight for the older lease, rather than give it up or negotiate a new one. "I think there's some desire to speculate in a lease that you don't think you have to drill or you spend your money on leases that you think you better go ahead and drill or you might lose. And we don't think that's reasonable from Mr. Ferrari's point of view."
The civil suit centers around whether Questar has fulfilled their obligation under the Louisiana Mineral Code Title RS :31 (Article 122) "to develop known mineral formations in the manner of a reasonable, prudent operator" in a reasonable amount of time, and "to the mutual benefit of themselves and the lessor." "This is one of the first cases that I'm aware of a modern bench who will actually decide what that means," says Davidson. "What's a reasonable period of time to develop and what rights to landowners have, what rights do oil companies who have old leases have? It's a significant case, and I think it will have some far-reaching consequences, no matter how it comes out."
There will be no jury. Davidson says they opted for the bench trial because of the legal and interpretive nature of the issue. They expect to finish testimony Tuesday from local mineral broker and landman Homer Peel, before Questar calls an expert of their own and a company representative to testify. Then it will be up to DeSoto Parish District Court Judge Charles Adams.
The economic impact of a finding in Ferrara's favor would be significant. Peel estimates some 12% of Haynesville acreage could be tied up in old leases, which could add up to as much as half a million acres held by production from wells at shallower depths. Operators would have to drill wells to the deeper formation, or face being forced to either relinquish or renegotiate old mineral leases at current market prices and considerations. "I think there are a lot of landowners who are similarly situated, that if they thought they could force further development under an old oil and gas lease, they would do so," Davidson says. "There's not very much precedent out there and this case may provide some."
New signing bonuses and royalties, increased drilling and the resulting local tax collections could inject millions of dollars into the local economy. The State of Louisiana would also see a big bump in severance tax revenue from the increased development.
Whichever side prevails, the stakes are high and appeals are expected. Davidson says he's prepared to take it all the way to the Louisiana Supreme Court. ‘"Unfortunately, it is going to be decided by the courts of appeal, but Judge Adams has to start somewhere, he's gonna start the ball rolling and it'll be his decision."
Questar's attorneys declined comment Monday, deferring statements until after the trial is over.
Tags: DeSoto, Demand, Parish, battle, drill:, legal, sets, suit, to, up
Views: 865
Replies to This Discussion
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Permalink Reply by Spring Branch,mineral owner on
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I would guess that that was the approximate time frame. I don't think anyone had ever heard of the Pugh Clause when the Carthage Field, Bethany-Longstreet, and many others were found.
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Permalink Reply by Skip Peel - Mineral Consultant on -
SB. I'd like to know some background on Mr. Pugh and his clients who first employed the lease clauses which bear his name. I will ask around when I return from the 22nd. Annual Wild Game Cookoff in Dallas. Got to go over tomorrow and start slow roasting my ground hog entry. Don't tell anyone that it's actually Nutria, okay? I think I can get by with it in Big D. LOL!
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Permalink Reply by H1 on
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Rat. We are talking rat meat.
"Louisiana has tried many things to get rid of the rodents. Nutria cuisine didn't catch on, and nutria fur coats fell out of favor. Sheriff's deputies shoot them for target practice, and recreational nutria hunting debuted last year."
http://www.thefreelibrary.com/Bounty+hunters+out+to+rid+Louisiana+o...
Properly ground, I bet you could put it in chili.
To tie this into the thread again, you can get 4$ for the tail, so that makes it worth 1MCF of gas.
Well, I guess I officially degenerated the thread.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yeah, you did. But it was worth it. LOL!! I hope the market price of nutria tails and nat gas goes up soon!
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Permalink Reply by jffree1 on
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"Yeah, you did."
Hmmmm, that would be the pot calling the kettle black(er), LOL!!
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Permalink Reply by Skip Peel - Mineral Consultant on
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Hey, I resemble that remark, jffree1!!!!!
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Permalink Reply by sesport on
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Speaking of resembling .... saw a resemblance of a shaler on the news this evening. LOL!
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Permalink Reply by Spring Branch,mineral owner on
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And I suspect that for at least a dozen or so years after 1947, the clients of Lawrence G Pugh and possibly Mr. Pugh's law partners, if any, were essentially the only ones who used the Pugh Clause, and I suspect the "Vertical" Pugh Clause originated sometime after that. I further suspect that the clause(s) became more widely used with the advent of the development of the Cotton Valley formation. I am assuming that Mr Pugh's original Pugh Clause was a "horizontal" rather than a "vertical" Pugh clause.
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Permalink Reply by kittycatmama on
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The problem I have with the old leases (and we have one affecting some land we bought that was hbp) is that in a lot of areas of Desoto Parish, people in 1940s,50s had lots of land (covering several sections) because it was was cheap. They leased one section BUT the leases said any land owed by this party (covering several sections) is covered by this lease & any drilling in any of the land owned holds production in ALL lands he owns. Guess what, lots of people are being hbp from a well miles away (producing minute amounts of gas or oil) and only the people in the section where well is located are being paid.
I just got a lease offer and it had this wording. First time any co. has tried to slip a lease like that to us. I said WHOA! because we might buy more land in the section we were leasing.
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Permalink Reply by Bunky Evans on
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kittycatmama,
I am not surprised to see that some leases are now being presented covering "this certain tract of land and any other land(s) I might own". I put that in quotes for reference to Mississippi law which calls this a "Mother Hubbard Clause". In Miss. if I or a member of my family signed an O&G lease 20 years ago and I bought property today on the other side fo the state it would also be considered under the 20 year old lease if the Mother Hubbard Clause was not, in writing, deleted from the terms of the lease. The problem here, in my opinion, is that the O&G companies and their land men can even insert this type of language in their leases. This should have been addressed many years ago in Jackson or Baton Rouge with legislation that protects the citizens from such back door policies.
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Permalink Reply by sesport on
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Interestingly, last night the last I heard on this was that the defense rested without calling any witnesses. Can't find any updates on it now, bummer.
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