landowner

Watershed Moment in the Haynesville's Development? Ruling In the Questar Case (see attached)

Excerpt...

"Questar has presented no evidence of its intention to develop the subject property as to the Haynesville shale zone. But, is it reasonable to allow an operator to hold acreage without producing from proven zones?"

"In light of the Haynesville shale, a lessee cannot, in good faith, not respond to a demand for further development, hide behind the suspension doctrine, delay the trial, and then present no defense."

"The plaintiffs have sought a cancellation of the lease as to all depths and formations below the Hosston formation where production currently exists. For reasons stated above, judgement in favor of the plaintiffs, cancelling the lease as to those formations below the Hosston zone, is to be granted."

See attachment for full decision.

Tags: (see, Case, Development?, Haynesville's, In, Moment, Questar, Ruling, Watershed, attached), More…in, the

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landownerPermalink Reply by Henry on June 25, 2010 at 23:26
"...the legal obligation to fully develop a lease applied to the Haynesville Shale."

Is one interpretation of this that if an operator stops at one well and doesn't "fully develop" a section in a reasonable time, then the landowner can break the lease?

Oil & Gas ProPermalink Reply by Tommyboy on June 25, 2010 at 14:10
No expert witnesses will be allowed. On appeal they can only argue that the judge goofed up based on the evidence that was presented. They put nothing on the table during the trial they can't put stuff out there now it is too late. The boat already sailed.

Oil & Gas ProPermalink Reply by Skip Peel - Mineral Consultant on June 25, 2010 at 14:17
Tom, Questar had "expert witnesses" waiting in the wings. IMO, they reluctantly decided to forgo their testimony for the simple reason that honest answers under oath would have only served to further undermine Questar's legal position.
Permalink Reply by BirdDawg, plain ole' idiot on June 25, 2010 at 15:31
I wondered when this would start. I think it is a valid arguement.
And I have been wondering why it had not happened sooner.

Oil & Gas ProPermalink Reply by awharris on June 25, 2010 at 16:37
What this judge did is analogous to this:

Someone put their money in a 5-year CD because it was the best looking option at the time. Then, after maturity, they sue the bank for lost income because the S&P500 went up at twice the rate in that 5-years. 
Permalink Reply by BirdDawg, plain ole' idiot on June 25, 2010 at 18:26
aw,
What the hell did you just say? You ever read the mineral code?
Permalink Reply by bullbayou on June 25, 2010 at 18:42
Everyone don't get so excited about this. Basically, this is a redneck judge making a redneck decision for his redneck resident. And this case will go all the way to the state supreme court where it will be ruled in favor of the defendent, Questar. One redneck judge cannot "change" the state mineral code at his wish. Let's be real!!!

Oil & Gas ProPermalink Reply by Skip Peel - Mineral Consultant on June 26, 2010 at 0:55
bullbayou, I beg to differ in regard to Judge Charles Adams. This was a bench trial that both parties expected to go to appeal regardless of who prevailed. Judge Adams was quite thorough and I find his ruling to be reasonable and supported by legal precedent and the law. Good judges do not like to be over ruled on appeal and go to great lengths to hand down a decision that will be upheld. The recent Petrohawk "most favored nation' ruling by the appeals court in favor of the landowner/plaintiff also originated in Judge Adam's court.

landownerPermalink Reply by Sal on June 26, 2010 at 1:22
Bullbayou, Just what is your definition of a "redneck"? Your reply was totally lacking in any kind of class on your part. I suppose in DeSoto Parish a lot of us are referred to as "rednecks" but we work for a living, pay taxes, attend church, donate to charities, and live very decent lives. We wouldn't think of posting such a note on the web.
Permalink Reply by Linda Whatley on June 27, 2010 at 4:46
Well said Shirley.......

landownerPermalink Reply by JHH on June 26, 2010 at 0:58
Thanks for the article! Would someone offer an opinion how this Louisiana decision could affect similar issues faced by Texas landowners. I doubt it will... but it's just a thought. again thanks! jhh

Oil & Gas ProPermalink Reply by Skip Peel - Mineral Consultant on June 26, 2010 at 2:42
UPDATE: DeSoto landowner prevails in demand for release from lease

By Vickie Welborn • vwelborn@gannett.com • June 25, 2010

MANSFIELD – A DeSoto district judge has ruled in favor of a DeSoto Parish landowner who sought release from a land mineral lease because of an oil and gas company’s failure to develop lower producing levels, including the Haynesville Shale.

The judgment filed late this afternoon by Judge Charles B. Adams in favor of the plaintiff, Santo Ferrara, against Questar Exploration and Production Company, could have far-reaching implications for other landowners with old leases in shallow zones. Adams’ judgment cancels Ferrara’s lease with Questar to all depths and formations below the Hosston formation.

“I think this case will have some significant impact in favor of landowners whose land is burdened by an older lease to the extent they are not being included in the Haynesville development,” said Shreveport attorney Randall Davidson, who represents Ferrara.

“It is difficult to assess the impact on any other landowner because the facts of each landowner’s lease may be different. In general, this is one of the first cases to deal with the legal obligation to fully develop a lease applied to the Haynesville Shale. For that reason I feel it is probably going to be significant,” Davidson said.

He anticipates the case will be appealed to the 2nd Circuit Court of Appeal in Shreveport. “But we are confident. We think it will be upheld on appeal. We feel Judge Adams is right down the line.”

In a two-day trial in May, Ferrara argued his minerals lease with Questar should be canceled because of Questar’s failure to develop the Haynesville Shale formation. Questar maintained Ferrara failed to prove his case, because at the time the lawsuit was filed, the shale had not yet been proven and it was unreasonable to expect the company to proceed with development.

Ferrara owns 47 acres in DeSoto Parish. His first lease was in 1988 with a company that was acquired in the mid 1990s by Questar. In 2001, Questar drilled one well that was an alternate well for the already-producing Hosston unit.

He made a demand on Questar in August 2008 to further develop the rights under the prior lease. Ferrara filed suit in October 2008 seeking dissolution of the lease based on Questar’s failure to develop the Haynesville Shale formation, which drew the public’s attention in March 2008.

At trial, Questar maintained any evidence of activity after the lawsuit was filed is irrelevant in determining whether the company was conducting itself as a “reasonably prudent operator,” Adams notes in his judgment. “Additionally, Questar has taken the position that they have the right to suspend their further development because the plaintiffs have filed this suit challenging their lease.”

Adams further notes Questar did nothing when Ferrara’s demand letter was received. It did nothing when the lawsuit was filed, and at trial when the company had a chance to defend itself it also did nothing. “Questar’s inaction is undeserving of equity, and to hold otherwise would prevent a landowner, in an area with a known valuable formation such as the Haynesville Shale, from ever enforcing his claim for lease cancellation for lack of development.”

Conversely, Ferrara presented “significant evidence” regarding the shale and Questar’s knowledge of its “economic viability,” Adams said.

Questar cited the shale as part of their “large inventory of unbooked reserves and resource potential.” And in a 2009 report, it listed the potential volumes of gas in the shale verified by independent examiners. “Obviously in June of 2008, Questar understood the value of the Haynesville Shale,” Adams court ruling states.

Questar has drilled 70 Haynesville wells since October 2008, and in news releases proclaimed the Haynesville Shale as a “world class asset.”

Troubling to Adams was the lack of response by Questar to Ferrara’s initial demand, denial of the company’s obligation to further develop, hiding behind the “suspension doctrine,” failure to acknowledge what was boasted to shareholders and failure to provide any defense to the lawsuit other than to object to Ferrara’s evidence.

“All of this, it is clear to this court, was in an effort to stall or buy time to allow as many wells to be drilled before this suit could be heard. … Clearly, Questar has been attempting to hold plaintiffs’ lease for its own benefit until someone else came forward to unitize and drill. This is not developing the property for the mutual benefit of Questar and the Ferraras, it is delaying for the benefit of Questar.”

“It is clear to this court that Questar has never had any intention to develop the plaintiffs’ deep rights. Much of Questar’s drilling in the Haynesville Shale appears to be in Bienville Parish some 60 miles away. Questar offered no evidence of any intention to develop. Now they hope to maintain their leasehold upon the coattails of another operator after having denied the plaintiffs’ demands for a year and a half,” Adams concludes.

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