Replies to This Discussion

Permalink Reply by pilgrim on February 21, 2013 at 3:21

Thanks Henry, we have suspected this would be the case.

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Permalink Reply by HBP on February 21, 2013 at 5:09

I agree some with Henry and disagree some (respectfully).  I would document what they have failed to do up until this point.  Then decide which correspondence is proper next.  I always suggest legal advice from someone that deals with UMIs and oil/gas issues, but I recognize that your interest is small so it is a personal decision if that is cost-effective.

I wouldn't suggest this if it didn't sound like you already had two cert. /return receipt notices provided to them re: the same issue.  If those notices were clear enough to qualify under the code provisions, then you shouldn't have to call and beg further. 

I never take a hard line with a company because I like them to drill and for owners to make money.  However, IF proper notices are ignored, then what rules are we even playing by?  There are more UMIs in the Haynesville play than I have seen in almost any other prospect (for obvious reasons - size, economics,etc..), and many issues UMI's face have not been litigated (in LA) as much as leasehold issues.  The statutes are there, but we don't have as many examples of how issues play out.  Also, UMIs do not tend to sue as often because they are typically smaller tracts and.... they are not receiving any funds yet. So even if a company does not comply, or they falsify payout, they know their liability exposure is smaller.

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Permalink Reply by Henry on February 21, 2013 at 5:43

I agree with HBP here.  Document, document, document.  There is no guarantee that the company will ultimately send you the quarterly statements.  Nor is there a guarantee that when/if the well reaches payout, that you will begin receiving your share of production.  So keep everything, in the event that this goes sour.

And HBP...  Yes, I agree with you that I "shouldn't have to call and beg further."  But I did.  Like pilgrim, I had copies of all my certified letters and receipts showing the company received the letters.  The company stood firm and said that the law was on their side, based upon case law and how the courts have interpreted 30:103.  And my attorney said the same thing -- he said I'd have virtually no chance of winning in an attempt to have the company forfeit the right to recover drilling expenses.  And in my case, the cost of a trial would far exceed the revenue I would get from this well, so I am now leased and moving on.

But, each person's situation is different.  Maybe pilgrim will have better luck than I did.

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Permalink Reply by HBP on February 21, 2013 at 6:48

Well, we are fairly close in agreement.  I just don't quite get to the same spot your attorney got to on the issue.  I think there is harm in not providing documentation to a UMI - its one of those ipso facto things for me - the statutes wouldn't exist if there wasn't an intention by its language.  I feel it is to protect the UMI from harm/fraud.  And there would not be the penalty of disallowing cost application for non-compliance. 

But since this is a small interest I know that alot of the discussion will just be discussion because it is not cost effective to take the issue to its end.  But there is 0% chance of recovery w/o proper demand....

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Permalink Reply by Henry on February 21, 2013 at 13:36

I think I agree with you.  If the operator won't send the revenue/expense report, then he is, in essence, refusing to acknowledge the UMO's claim.  And if this is the case, the operator won't pay, once the well reaches payout.  So I would agree, the law that makes the operateor forfeit his well costs should kick in.

My only point was that if the UMO eventually gets the company to recognize him (i.e., send the statements), even if the UMO has to go above and beyond the two letters, the UMO will likely not be able to collect anything but his share of production after payout is reached.

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Permalink Reply by pilgrim on February 21, 2013 at 6:52

This discussion has been helpful. Thanks to all who have responded.

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Permalink Reply by Andrew on February 21, 2013 at 7:24

I agree that courts will strictly construe these statutes in favor of the operator. This means that any minor irregularity in the notices will prevent forfeiture of drilling costs. However, assuming the letters comply with the statutes to the letter, the courts won't have any discretion in the matter. The problem is the layman probably won't draft letters that comply with the statutes...

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Permalink Reply by pilgrim on February 21, 2013 at 7:28

Andrew, I think you are right. We were very careful in our wording in the letters.

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Permalink Reply by Andrew on February 21, 2013 at 7:49

Regarding Henry's point on the courts' reluctance to enforce these provisions in favor of the UMI, see this blog post.

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Permalink Reply by HBP on February 21, 2013 at 8:01

The Adams case doesn't help, but it only cut out the interpretation of the statutes to provide double royalty and atty fees, etc... 

Please correct me, but Adams did not rule against the owner on getting their 100% without costs applied due to non-compliance of 30:103.1, right? 

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Permalink Reply by Andrew on February 21, 2013 at 8:06

So far, you're correct. This was a partial summary judgment on the issues of attorneys fees and double damages only.

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