APPELLATE COURT REVERSES RULING IN HAYNESVILLE SHALE LAWSUIT - shreveporttimes.com

The 2nd Circuit Court of Appeal has reversed a DeSoto district judge's ruling that partially canceled the mineral lease of a DeSoto Parish landowner who sued Questar Exploration and Production Co., for failing to develop lower producing levels, including the Haynesville Shale.

In the 19-page ruling released Wednesday, the appellate court rejected District Judge Charles B. Adams' finding that Questar never intended to develop the Annie and Santo Ferraras' deep rights.

"The record does not support a finding that Questar failed to act as a reasonably prudent operator for the mutual benefit of itself and its lessor" as required by state law, the court states.

It further notes: "We certainly understand the district court's sense of awe at the potential of the Haynesville Shale, but there is inadequate support for a blanket finding of 'plans to drill wells in every section or every square mile.' More importantly, there was no evidence that a prudent operator utilizing geological data would have drilled on the Ferraras' property to the Haynesville Shale depth by the date of trial."

It's unknown if the Ferraras will appeal. Their attorney, Randall Davidson, did not return a phone call seeking comment Wednesday.

The Ferraras own 47 acres in DeSoto Parish. The land was first leased in 1988. In 2001, Questar drilled a well in the Hosston unit. Santo Ferrara made a demand on Questar in August 2008 to further develop the deep rights.

He filed suit in 2008 seeking dissolution of the lease based on Questar's failure to develop the Haynesville Shale, which gained the public's attention in March 2008.

Questar did not respond to the demand letter or lawsuit. And during a two-day trial in May 2010, the company did not present any evidence on its behalf.

Adams cited the company's lack of communication in his June 2010 judgment. Adams said it was clear Questar did not intend to develop Ferrara's deep rights.

The panel of 2nd Circuit judges said it completely understood the Ferraras' and district court's "impatience and indignation at Questar's inexplicable failure even to acknowledge the demand letter, its dilatory conduct after suit was filed and its unhelpful strategy of putting on no evidence. However, the Ferraras received royalties from shallow strata continuously since 1988 and made no demand for further exploration or development since 1994. The instant demand came a mere one week after the commissioner recognized the potential of the Haynesville Shale by dispensing with test wells; suit was filed only 46 days after the unanswered demand letter. The record is utterly devoid of evidence that any reasonably prudent operator could have begun exploration, much less drilled a well to the deep Haynesville Shale stratum, within this remarkably short time."

Questar also objected to Adams' use of an expert witness and his reliance of evidence of post-suit activity in the Haynesville Shale play to determine of the company breached its obligation. The appellate court, however, rejected those arguments and found no error in Adams' actions.

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Permalink Reply by robert minton on July 1, 2011 at 9:19

I am in agreement with The Baron. The problem could have  been avoided by seeking  legal advice, good legal advice.The domino hall is not the bestplace to get advice of value--only mostly manure.

Permalink Reply by adubu on June 30, 2011 at 15:21
Skip--Did Defenden Questar's  attorney even attend the first trial hearing?
Permalink Reply by DrWAVeSport Cd1 on July 1, 2011 at 3:41

IMO,  in the Great State of Louisiana, contract law will trump mineral code.   What one signs for is what one gets.

 

DrWAVeSport  Cd1  7/1/2011

Permalink Reply by Henry on July 1, 2011 at 15:06
Permalink Reply by Bud on July 4, 2011 at 15:56
I read the ruling.  I do not understand why the court ruled there was a need for more expert opinion from a geologist.  If all the wells drilled in that area, and all the production data available on SONRIS have not established the viability of the Haynesville Shale in Desoto Parish, I guess nothing will satisfy the court.  The so called expert geologists I had experience with at a hearing in Shreveport about a year ago were obviously shills for the oil and gas industry.  Their "scientific" contention that the with the geology of the Haynesville Shale, one well should be sufficient to hold an entire 640-900 acre drilling unit is laughable.  If these are the kind of experts the courts desires, this reeks of a corrupt system.
Permalink Reply by Skip Peel - Mineral Consultant on July 5, 2011 at 2:30

Prior to the Haynesville Shale, Demand To Develop suites tended to be a battle of "experts".  More specifically geologists and reservoir engineers.  The O&G industry has an endless supply, greater financial resources than the vast majority of lessors and a dedication to contesting any and all legal challenges not to mention the ability to ostracize independent "experts" who might choose to testify against the industry.  The advantages belonged to the industry and their record in defending their development rights in court was impressive.  All those previous Demand cases involved conventional reservoirs and the courts became quite set in their requirements as to proof of the prospective nature of specific locations.  Only science and experts could make the determination.

 

Now comes the Haynesville Shale.  The first in a new era of unconventional reservoir development but certainly not the last.  For the first time it is possible to make a case that a formation (Haynesville Shale) is prospective based on surrounding development and the fact that the formation is productive over a wide aerial extent.  All the companies in the Play have touted the fact in numerous press releases and presentations.  The Commissioner of Conservation stated in his August 18, 2008 memorandum that Haynesville Shale zone "has been shown to be both laterally continuous and productive over an extensive area" to the extent that he dispensed with the traditional production test requirement for proposed units in the Haynesville Shale.

 

The appellate ruling states that the contentions of the plaintiff are accurate and that the district judge was correct in accepting the evidence and using it as a basis for his ruling.  Then at the end they basically say that they are overturning the ruling anyway based on the lack of expert testimony concerning the lack of evidence that any reasonably prudent operator could have begun exploration, much less drilled a well to the deep Haynesv8ille Shale within this remarkably short time.  Quite curious indeed.

 

I am expressing my sole impressions and opinions as someone who witnessed the entirety of the proceedings outside those that occurred in judge's chambers at the district and appellate trials.  The reason that Questar did not provide any testimony in the district case was that they had failed to discredit the testimony or refute the contentions of the plaintiff.  If they were to put on any case for the defense, they would have to do so with "expert" witnesses.  And I believe that they had one or more sequestered in a nearby location where they could be consulted and called to testify should the defense choose to do so.  After the plaintiff rested his case and the judge adjourned the proceedings for lunch, I believe that the attorneys for Questar met with their experts and asked them how they would testify under oath if asked certain questions.  Questions that the defense was now sure the plaintiff's counsel would ask.  Upon hearing the answer to those questions, the defense knew that to put their experts on the stand would be detrimental to their case and choose instead to rest without making a defense.  They had no case to present and had to rely solely on their prior attempts to refute the contentions of the plaintiff.  The same ones that the appellate judges agreed with before ultimately falling back on old precedent that required "experts" to testify whether the Haynesville Shale should be productive on the Ferraras' lands.

 

 

Permalink Reply by adubu on July 5, 2011 at 2:44
Skip---is this another case of "Justice for sale" ??????
Permalink Reply by Skip Peel - Mineral Consultant on July 5, 2011 at 3:07
I don't consider it such.  As I attempted to describe, numerous LA. courts have handed down decisions over the years that have covered all facets of Demand to Develop litigation and set precedents that have been relied on for decades.  The judicial system is unlikely to throw out those precedents even though privately I suspect many judges would agree that the Haynesville Shale is a materially different situation.  Baring a legislative change in the state Mineral Code, I expect that we are in for many years of court challenges that rely on the fact current codes are unsuited to the development of unconventional reservoirs (Haynesville, Bossier, TMS, etc.).  That's not the best way to address the situation but the O&G Industry has much at stake and will contest any and all efforts whether in a court trial or in the state legislature.
Permalink Reply by cocodrie man on July 5, 2011 at 9:02
Specifically, what changes, or at least, what sort of changes are needed to the state mineral code?  How might the code be amended so that "contract law does not trump the mineral code" (see comment above)?
Permalink Reply by Skip Peel - Mineral Consultant on July 5, 2011 at 9:45
The Mineral Code was formulated over decades always based on its applicability to  vertical, and in some cases directional, drilling and development.  The instances where the code is lacking in the case of horizontal development are many and varied.  I don't have time to imagine a comprehensive list but I think the interpretation of the Demand To Develop statute is a very good place to start as it not only inappropriately interferes with the rights of the mineral owners for their share of the mutual benefit derived from development but does not follow the spirit of the law which recognizes the considerable benefits to the state to have all reasonably prospective formations and zones produced that are deemed economic.  A lessee holding on to Haynesville Shale rights with no specific intent to produce other than waiting for someone to come make them an advantageous financial offer to gain their rights is not developing for the mutual benefit of both parties.  They are delaying development for their own benefit.
Permalink Reply by cocodrie man on July 5, 2011 at 22:51
Thank you for a thoughtful, albeit brief, reply.  Let us see what might be done about this.
Permalink Reply by P.G. on July 6, 2011 at 2:19
Should there be a new law to prevent this or should Lessors stop agreeing to sign leases that allow such behavior..?

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