Replies to This Discussion

Permalink Reply by LWC on June 28, 2010 at 3:33

Does anyone know how this decision might effect landowners that have O&G companies attempting to commingle the Hosston, Cotton Valley and Haynesville production?

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Permalink Reply by Skip Peel - Mineral Consultant on June 28, 2010 at 3:36

LWC, I do not think this decision will have any impact on commingling production from multiple formations.

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Permalink Reply by Skip Peel - Mineral Consultant on June 28, 2010 at 6:16

Dion, I think that minerals that are demonstrably productive but not within the development capability of the lessee should not be held past a limited time frame. That small company lessee would have two choices: Provide a lease with fair market bonus and royalty for the depths below their production or release their rights to the depths below their production. I believe the benefits accruing to the mineral owners, the local economy and the state out weight the interest of the lessee. All depths leases should be a thing of the past as they retard development and reward those who maintain leases with less than economic production.

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Permalink Reply by Two Dogs, Pirate on June 28, 2010 at 7:09

Plus it would give me more work.

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Permalink Reply by Mattie on June 28, 2010 at 8:32

In speaking to a couple of business development/land management representatives of the larger operator variety over the past few days, it's their opinion that every case will be different - obviously, they're not pleased with the outcome of the Questar case and cannot understand why there was minimal effort to defend the lease. Further, they informed me that each had dealt with this same issue in DeSoto Parish within the past few months, and had been successful in defending the validity of the lease. They are certainly keeping their "ears to the ground" of any mass rumblings, but it was their interpretation (after consulting with their attorneys) that it will be difficult for the courts to completely overhaul the historic rules of the mineral code, which protect the mineral owner from potential offset drainage, but won't force immediate development of deeper rights while under a valid lease that is HBP - that, plus the opportunity of the lessor to exclude undeveloped formations under a Pugh Clause as part of the original negotiating terms of the lease.

So, we'll see - sounds like the larger companies will defend their rights vigorously. Could be a big battle ahead if this thing takes off.

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Permalink Reply by Skip Peel - Mineral Consultant on June 29, 2010 at 2:27

Missy, IMO it will be years and numerous court cases before the mineral code is fully interpreted in its relation to the shale or other unconventional reservoirs. It is mostly correct to state that "every case will be different". Regardless of the outcome of that future litigation I hope that the attitude of operators toward their lessors will be materially improved by the results of this case. Yes, Questar seems to be particularly egregious in their disregard for the business courtesy and lessor rights due Mr. Ferrara. A more reasoned reaction to his concerns might very well have kept this instance from reaching a court. Unfortunately Questar is not the only energy company to forgo reasonable customer service in the pursuit of profit.

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