Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on November 28, 2020 at 16:30

Unleased Mineral Interests (UMI) must send a demand letter to the operator of a unit in which they have a mineral interest before the operator is required to provide quarterly reports.  The demand letter must meet certain requirements as outlined in the Mineral Code. There is a class action suit against Chesapeake for unauthorized post production deductions on UMI interests that are not allowed by the Mineral Code.  Right now that class action is being defended in the bankruptcy proceedings.  I expect there will be a resolution in the coming weeks.  I also expect that some portion of the suit will go forward after the bankruptcy is discharged.  You can go ahead and send a demand letter to receive quarterly reports but other than that you will have to wait and see how the courts rule.  If the Chesapeake UMI class is certified, you can join. 

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Permalink Reply by Steve Powers on November 28, 2020 at 17:33

Skip,

Thanks for the reply.  Several years ago, I sent a certified letter with a request for well reports in accordance with the Louisiana Mineral Code, and followed up with phone calls.

No response was ever received.

According to Pacer, the request for class certification has been denied in the Chesapeake bankruptcy, although I suspect it was on a technical issue with the Johnson-Hudson filing (purportedly class certification was delinquent by five months past federal cutoff date), rather than the broader merits.  The details are in transcript form which I have not yet received.

The issue of post-productions costs for UMI is certainly relevant after the Johnson decision, but my claims are additional to those.  In the Johnson-Hudson filing, the UMI was compensated for the production but the claim is that the compensation was inadequate due to the Judge Hicks ruling on the matter of non-allowable deductions. 

My claim is no compensation of any type for the force-pooled/expropriated minerals.  My question is whether this has happened to other people who lack sufficient capability or incentive to challenge it in court, or is this an anomaly?  I can envision a circumstance in which a heavily indebted company chooses to keep any payments that it can conceivably delay or avoid, regardless of the legal defend-ability of their actions.  The difficult part is that if this occurred, many people (such as myself) who did not receive any notices, would not be aware of the issue.  In this case we are asking the fox to notify the farmer that some of his hens might be missing.  In my case, it has recently become quite clear.  The question is, as I said before, has this happened to a number of people?  I have two separate tracts in two different parishes where notice of drilling, annual reports, production reports, etc. were not provided.  The odds of that occurring at random seem quite low.

Thanks for your reply,

Steve

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Permalink Reply by Skip Peel - Mineral Consultant on November 29, 2020 at 3:00

Steve, the class certification is not a consideration in the bankruptcy litigation.  What the judge will have to decide is how to classify the production payments owed to UMIs.  If it is classed a debt, CHK can discharge it.  The deductions are not a debt and if the court agrees, CHK will not be able to discharge what is owed.  Either way the class action resumes in Judge Hicks' court with the only difference being what can and cannot be recovered in class compensation.  To be clear none of the litigants in Johnson-Hudson have received any compensation.  As I understand it they have been credited for their proportional production toward well payout which CHK claims has not occurred.  The question of class certification delinquency is not settled and will continue to be litigated. I had lunch with one of the class attorneys yesterday.  All this may be more clear when you get the transcript.

Steve, I performed the research for the class action.  Although as you say only the fox knows the number of chickens, I can say that the number of chickens fitting the general description of a UMI is in the thousands.  You are far from alone.

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Permalink Reply by Bob Zimmerman on December 12, 2020 at 9:08

Unleased landowners looking for salvation in the La. Mineral Code, Title 31 should  instead be looking in the Conservation Code, specifically at Article 10 of Title 30. The Mineral Code concerns leased property.

Insofar as unleased production revenue is debt or property, that's gonna be a real doozie. 

The operator owns his share of well production costs. The rest belongs to the unleased landowner. So the operator has got your money, but by statute, it's not his. He's just in possession of it. The unleased landowner must jump through some hoops, properly timed, to get his money.

What I said, it's going to be a doozie. 

see:  https://jelr.law.lsu.edu/2013/02/21/remedies-of-unleased-mineral-ow...

         google:  Taylor v. David New

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Permalink Reply by Skip Peel - Mineral Consultant on December 12, 2020 at 9:52

Louisiana Revised Statute 30:10(A)(3).  Post-production costs cannot be recovered by an operator from an unleased mineral owner's share of production proceeds.  Allen Johnson Et Al v Chesapeake Louisiana LP, judgment in favor of Plaintiffs' Cross-Motion for Partial Summary Judgment,United States District Court, Western District of Louisiana, Shreveport Division.

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Permalink Reply by Bob Zimmerman on December 12, 2020 at 16:10

The issue of post production well costs has already been litigated to satisfaction in XXX OIL & GAS v. HILCORP, Louisiana Third Circuit Court of Appeal,  206 So.3d 885 (2016)

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Permalink Reply by Skip Peel - Mineral Consultant on December 12, 2020 at 17:06

Which of the parties was an unleased mineral owner?

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Permalink Reply by Bob Zimmerman on December 13, 2020 at 9:34

It's hard to tell in this case who was unleased and who was leased. 

To add to the confusion, read this:

https://law.justia.com/cases/louisiana/third-circuit-court-of-appea...

However, as I recall this thread was started about the deduction of post-production well costs, the Louisiana appeals court was definitive in it's opinion on the collection of pre production and post production well costs authorized by LRS 30:10. See the last sentence in paragraph nineteen of my previous link.

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Permalink Reply by Skip Peel - Mineral Consultant on December 13, 2020 at 9:43

My point is that neither partiy appears to be an unleased mineral rights owner.  Either could be a lessee/working interest or operator. 

Lessors authorize lessees to make post production deductions in their lease language.

UMI are not burdened by a lease and the ability to deduct post production costs is limited by statute.  The Johnson vs Chesapeake case, which ruled for Johnson,  found that Chesapeake was deducting post production costs the same as the lessors under their wells.  Those deduction go beyond what the statute allows.

Permalink Reply by Bob Zimmerman on December 13, 2020 at 12:06

One of the parties made a specious argument it was not subject to the applicable statutes since they obtained leases from a third party, were not leased to the operator and so were "unleased" and thereby entitled to required reporting of well data as per statute.

Don't put any money on that hedge.

Permalink Reply by Skip Peel - Mineral Consultant on December 13, 2020 at 12:11

Bob, the site architecture limits the number of replies.  When the reply button disappears, go back to the dialogue box at the top of the page and post there.  That will reset the discussion thread with reply buttons until we reach the limit again.

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Permalink Reply by Lester G on December 14, 2020 at 9:54

I have a small interest in section 24.   I am UMO with this interest.  I asked Chesapeake by email to send me the full accounting of the well build, equipping, and finishing costs,  and  separate  production records for all 4 producing well per 30:10.  I made the request 3 months ago.  They replied one month later that they do not send these reports to Royalty Owners.  I replied that I was not a royalty owner, I am UMO.  They replied back via email that they would get back with their division order team. I’m still waiting two months later.

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