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Permalink Reply by Andrew on April 23, 2012 at 12:05

An excellent synopsis of the issues that are created when large, old servitudes such as these exist. Thank you.

Not being an attorney, I can't say for sure what would enable a landowner to defeat a company like Exxon in such a situation. However, I would guess that (as Dion said) a trial would come down to the issue of good faith.

Exxon, being one of the most sophisticated E&P companies in the world, would be in an interesting position. One the one hand, if they are holding the servitude with dry holes and not continuous production, I could see a court being very skeptical that they were drilling in good faith if they only went to a zone that they "would have known" was not going to produce. On the other hand, they would have the best experts in the world on their staff, so they could probably show enough geology and geophysics to demonstrate good faith expectation of production out of a ham sandwich.

Ultimately, the burden will fall on the plaintiff to prove they were not in good faith, which could be very difficult but not impossible. 

I can say that from a title/leasing perspective, these kinds of servitudes are a nightmare. Most landmen won't run title back to the 1930s during a lease takeoff unless there are wells very close to the property that justify doing so. Wells within a huge servitude like this one could be several miles away, and you wouldn't be able to catch it unless you ran everything forward from patent. 

I would be interested to read the Plum Creek case if anyone has a copy.

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Permalink Reply by Steve P on April 23, 2012 at 17:05

Good faith is not exactly the issue, but if the mineral owner drills a well that is not just 100 feet deep (maybe that's your "good faith" point) but is a realistic attempt to find oil or gas, that is sufficient, and it works for the entire "contiguous" servitude. 

 

There is a reason most O&G attorneys represent O&G companies - that's where the steady supply of hourly work is, and those companies expect to pay the going rate for a qualified attorney.  Lots (most?) landowners don't like those going rates!

 

And I disagree with the comment about landmen.  Many experienced, competent landmen as just as capable of doing the title work on something like this as the average attorney.  You just have to go back far enough to be sure you know the entire boundaries of the servitude, bring the title forward and do diligent work on the drilling/production history.  There can be tricky issues that an experienced O&G attorney would be better qualified to opine on, but a capable landman (who is good at title work) can do the job as well.

 

Many of the large servitudes result from timber companies that own large tracks, and sell off their minerals.  A cautionary tale for the O&G attorney doing title work on those - make sure you know your client, and be sure your premiums on you malpractice insurance are current.

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Permalink Reply by Andrew on April 23, 2012 at 18:01

My point about good faith was referring to that exact situation. If Exxon were drill into some shallow formation like the Natchitoches, especially if it is a formation that hasn't been economically productive in decades, I could see someone trying to make a case that Exxon was in bad faith if they weren't able to give a reasonable explanation as to why they thought that formation held promise. I don't know if that would necessarily work, but you don't have to be right to file a lawsuit, you just have to have the money and the time. 

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Permalink Reply by The_Baron on April 25, 2012 at 5:13

I wouldn't say the Nacatoch (yes, this is the correct spelling) in not economical, there are still wells being drilled into the Nacatoch, and many still produce... maybe not on the Exxon servitude in question, but there are.

 

In general, the best argument that it was a good faith attempt wil lcome from a geologist who maps out the formation, coupled with a legally permitted well drilled to its permitted depth and electrically logged.

 

Keep in mind, outside of HA wells, it is still very common, maybe even more so to drill a dry hole. Get outside of an established field, and the odds are even tougher to make a well.

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Permalink Reply by Andrew on April 25, 2012 at 7:12

"Keep in mind, outside of HA wells, it is still very common, maybe even more so to drill a dry hole."

Good point. I didn't know there was still Nacatoch exploration going on. I guess this goes to show how fortunate we are that in the HS a dry hole is a major event and gushers are not. 

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Permalink Reply by The_Baron on April 25, 2012 at 8:01

Gushers or not. With the HA is far from a sure thing. There are manyt marginal wells, and with gas prices in the ditch, I think the economics are quite scary. I know that some say that hedging has allowed the operators to continue to be profitable, but this will end soon.

 

I just heard CHK is dropping down to three rigs in the HA.

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Permalink Reply by Big McInnes on April 24, 2012 at 8:58

Maybe this will help, without giving you too much of a long drawn out answer. I worked with some high caliber landman attempting to disprove an Exxon/XTO servitude created by Humble and a subsidiary back in the 50's in Morehouse Parish. This particular servitude happens to encompass 40,000 acres of land more or less. We spent over a month trying to disprove the servitude with our research and through our Oil and Gas Attoneys (believe me, we wanted it to be null and void so we could acquire a position in the area), the client we happened to be working for liked the acreage alot. To make a long story short, there is a substantially wealthy landowner who owns a large portion of land in the servitude, he has vowed to try and disprove the servitude and sue Exxon for his mineral rights. I, the fellows I worked with on the prospect and the attorney who reviewed our research believe this one is a no brainer and this particular land owner is going to waste his time & money. the only way to break this particluar servitude is to try and disprove their drilling efforts as not being "Good Faith" atempts to produce minerals. I know another landman who has been in the business a very long time. He tried to disprove a servitude owned by Exxon and they drew him out in years of litigation, his client ended up dropping the case and taking a loss. If I were you, I would higher someone who really knows what he is doing and is willing to give you a title opinion on your minerals or I would wait and see what happens in Morehouse Parish. If they break it there you may have a chance, but the odds are slim. Companies like Exxon rarely loose, when there is a lot to profit. Hopefully this helps.

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