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Permalink Reply by The_Baron on June 4, 2010 at 7:43

Most leases do not have a favored nations clause. This issue is specific to this situation, as it is just a contract dispute between two parties, not a referendum on OGM leases.

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Permalink Reply by The_Baron on June 4, 2010 at 7:44

The 2nd Circuit Court of Appeal has affirmed a DeSoto district court's summary judgment ordering Petrohawk Properties LP to pay DeSoto Parish landowners an additional $1.9 million plus interest in lease bonus payments.



Petrohawk appealed the judgment handed down Aug. 27 by District Judge Charles B. Adams in favor of William Lane Stephenson III and Sally B. Stephenson, individually and as trustee for the Corrie Marie McGovern Trust and the Michael Bradley McGovern Trust; Karon Stephenson Miller and Michael Y. McGovern as trustee for the Lisa Lallier Trust and the William Lane Stephenson IV Trust.
The appellate judges stated in a 19-page opinion released Wednesday that Petrohawk is obligated to pay the Stephensons the additional money because of the most favored nation clause (MFNC) included in their contract.
The Stephensons in April 2008 entered six separate oil and gas leases totaling 160 acres to Petrohawk at $4,250 an acre, for a total of $680,000. Each lease included the MFNC in which Petrohawk agreed to pay the Stephensons the difference in any signing bonuses paid to a third party lease for property within the same geographic boundary and within two miles of the Stephensons' property.
The Stephensons did receive an extra signing bonus of $2,250 an acre, bringing the total lease bonus to $6,500 an acre or over $1 million, when Petrohawk subsequently acquired another lease in the same geographic area.
But in July 2008, Petrohawk entered a lease with the Friersons — George Archer Frierson II, John Bolinger Frierson, Clarence Nicholson Frierson Jr., Christian Basinger Frierson, Betty Basinger Frierson and Frierson LLC — for various noncontiguous tracts totaling over 4,000 acres in Caddo, Bossier and DeSoto parishes. Petrohawk paid the Friersons $18,500 per acre.
The lease included a 7.36-acre tract in DeSoto Parish, which falls within the geographic area described in the MFNC of the Stephensons lease. So in January 2009 the Stephensons demanded the additional lease bonus of $12,000 an acre from Petrohawk to equalize what was paid to the Friersons. Petrohawk refused, prompting the Stephensons in March 2009 to file suit for breach of contract.

Petrohawk asserted that the Frierson lease did not trigger the most favored nation clause in the Stephenson leases. Petrohawk reasoned that the clause specifically exempts "a lease covering a tract of land of less than 20 acres" and that the 7.36-acre tract in the Frierson lease is less than 20 acres, the appeal states.



The Stephensons disagreed and on April 15, 2009 filed a motion for summary judgment in DeSoto District Court. In addition to offering the leases in support of the motion, the Stephensons included an affidavit by Enoch J. French, an engineer and land surveyor, who provided a map of the Holly Quadrangle, which is the location of the Stephenson lease and the Frierson lease. It shows "the closest points of the two tracts to be 9990 feet (1.89 miles) apart," the document states.
"The last provision of the MFNC in the Stephenson leases is clear. This multiple lease exception prevents Petrohawk from obtaining multiple small leases from the same owner to avoid the implementation of a MFNC in a neighboring lease. In this case, Petrohawk obtained multiple tracts (leases) from the same owner (Frierson) that in the aggregate covered more than 20 acres. As a result, the MFNC in the Stephenson leases was activated," stated Chief Judge Henry N. Brown Jr., who concurred with the three-judge review panel.

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Permalink Reply by S.H.M. on June 4, 2010 at 8:59

I need to contact the Stephensons and see if they want to adopt me. Good for them!

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Permalink Reply by Inquirer on June 4, 2010 at 9:11

Are those the same Friersons as in Frierson, LA? Let's see -- 4,000 x $18,500 = uh, a nest egg & a half!!

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Permalink Reply by The_Baron on June 4, 2010 at 9:17

its really an interesting case, since the clause would not be triggered by a small tract, but since the friersons owned so many acres... I don't think HK contemplated the implications of the wording in that clause when they leased, as they probally assumed (in this case not in the opinion of the judges) that the muiltiple lease exeption would protect them in the case of non-contigous tracts...

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Permalink Reply by DJG on June 5, 2010 at 1:25

Somebody in HK's legal dept is gonna lose a job over this one...

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Permalink Reply by Kat Bloomfield on June 5, 2010 at 1:34

the opinion is attached.

Attachments:

• stephenson v petrohawk favored nations.pdf, 4 MB

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Permalink Reply by Les Bamburg on June 5, 2010 at 2:50

Ann, I believe most leases do not contain a Most Favored Nations Clause so the decision may have limited impact beyond this case.

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