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: 839
Replies to This Discussion
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Permalink Reply by kittycatmama on
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The Feds contol the offshore drilling and make lots of money from taxing it
January 16, 2009, 6:21PM
The federal agency that controls offshore drilling is planning for the opening of now-protected regions of the Gulf of Mexico to oil and gas exploration.
With pressure mounting in Congress to increase domestic energy production, the U.S. Minerals Management Service wants to schedule lease sales for areas in the eastern and central Gulf that are now protected by a Congressional drilling ban.
The schedule is laid out in a draft of the MMS' five-year plan for leasing in the Outer Continental Shelf, which the agency released on Friday. The document, which must be approved by President-elect Barack Obama, could govern offshore leasing through 2015.
Under the plan, leases in the Gulf of Mexico would be issued during 14 sales. Three sales scheduled for 2010, 2011 and 2013 would offer tracts in the eastern Gulf that are now off-limits. A small protected area is also included in one of six lease sales planned for the central Gulf.
Before MMS could actually lease protected tracts, Congress would have to lift a ban enacted by the Gulf of Mexico Energy Security Act of 2006. But the MMS has started planning in case Congress lifts the moratorium before it expires in 2022.
>NOTE WHEN MMS STARTED PLANNING ON GULF DRILLING (JAN.2009). NOTE THE BAN: 2006. WHO WAS IN POWER AT THOSE TIMES.
As far as Bobby being in control, Landrieu wields the power in south LA
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Permalink Reply by kittycatmama on
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Gosh Darn, I think when anyone wants to blame one party for any disaster, then explanations need to be made. You and others want to blame one party for the disaster in the Gulf. It is not political to debate ramifications of the actions of one or 2 political parties to explain why a disaster took place. I perceive you wanting to promote your political agenda. If you want to move this discussion to the political post, then let's do it. I doubt that either of us will ever convince the other to change our views.
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Permalink Reply by kittycatmama on
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Amigo, you might want to pull up Senator Landrieu's contributions from BP too. Quite substantial. I checked on the contributions. Obama also received more from Exxon and Chevron than McCain too.
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Permalink Reply by The_Baron on -
This is quite ridiculas. Anyone familiar with LA mineral law knows that this is a long shot at best.
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Permalink Reply by kittycatmama on
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The BIG problem is that the federal group who collects mineral taxes from oil companies OVERSEAS their safety. And before anyone jumps on this and tries to blame a political party for this, both parties approved this . Talk about a conflict. That is what needs to change. THE ONE THING THAT IS ABSOLUTELY CERTAIN IS THAT LOUISIANA WETLANDS WILL BE AFFECTED FOREVER. BP nor any oil and gas co. should have been allowed to drill without demonstrating their ability to control any spills. Also there needs to be an independent safety inspection done on these rigs. Think of the families who lost their loved ones in that explosion. BP should be forced to clear the wetlands for years to come. I am pro drilling, but it needs to be done responsibly.
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Permalink Reply by Les Bamburg on
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"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."
It looks as though Mr Ferrara previously settled this issue. I wonder why he didn't take back the deep rights at that time.
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Permalink Reply by Les Bamburg on
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Jay, I did not mean to imply that would stop the lawyer. I was simply wondering why the plantiff did not simply get his deep rights as part of the mid-90's settlement. He had ample opportunity to re-negotiate his lease at that time.
By the way, lawyers do not always have to smell something to pursue a case. I have been involved in contractual disputes where the language was crystal clear but it did not stop the litigation.
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Permalink Reply by Kat Bloomfield on
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And, Charlie Adams is an extremely bright laywer, now Judge.
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Permalink Reply by Thomas Hall on
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First of all , Judge Adams is honest and fair and I'm sure he will do what is legally correct. My family is tied to a well that was drilled in 1954 and I am very interested in the outcome of this suit. I f this goes well for the property owner we will probably have a suit for failure to produce on our acreage as well
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Permalink Reply by W M Guice, Jr. on
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There is and has been for a long time a function called a Pugh Clause that should be included in every oil & gas lease granted by a mineral owner. The Pugh Clause basically states that at the end of the primary term of a lease, the operator only earns and retains the rights down to 100 ft. below the deepest producing formation ... i.e. if the Baker Lime is at 4,000 ft. and is the deepest producing zone under the lease, then the operator only retains the rights down to 4,100 ft. and all mineral rights below 4,100 ft. revert back to the mineral owner. It's a really simple procedure that's been around for a long time. Oil companies don't like it but every mineral owner should insist on having a "depth limited" Pugh Clause inserted into any lease given. Would solve a lot of these type problems.
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Permalink Reply by Spring Branch,mineral owner on
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Did the Pugh clause exist in the middle 1950's?
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Permalink Reply by Skip Peel - Mineral Consultant on
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SB. If memory serves, Pugh clauses first appeared in OG&M leases in the early '70s.
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