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Energy & the Law

Assigning By “Stratigraphic Equivalent”? Be Careful

Posted in Contract Disputes, Land Titles, Purchase and Sale Agreements

stratigraphic formation

Co-author Brooke Sizer

How many of your mineral conveyances are described like this:

… all of Sellers’ right, title and interest in and to (a) the oil, gas and other minerals in, to and under the lands … ONLY INSOFAR as such oil, gas and other minerals are located below that depth which is the stratigraphic equivalent of the base of the Cotton Valley formation and the top of the Louark Group defined as correlative to a depth of 10,765′ in the Winchester Samuels 23 # 1 well … and correlative to a depth of 9,298′ in the Tenneco Baker # 1 well …

The dispute

BRP’s predecessor, IP, sold mineral rights in 13,000 acres in DeSoto and Bienville Parishes to Chesapeake with just that description.  When BRP later went to sell more, Chesapeake claimed that the agreement conveyed rights to the Bossier Shale (lying above the Louark Group), as well as the Haynesville. BRP countered that only rights in the Haynesville Shale and lower depths were sold, thus BRP retained all interests above the top of the Louark Group. BRP LLC (Delaware) v. MC Louisiana Minerals LLC, et al. ensued.

The negotiations

The trial court could not ascertain the common intention of the parties in the IP assignment from the words of the assignment itself. So the court considered parol evidence. On one hand, the parties only talked about rights to the Haynesville Shale, and BRP believed that only the Haynesville was below the Cotton Valley formation. On the other, email from Chesapeake referenced its intent to buy all rights below the Cotton Valley.

Big fact:  No geologist was consulted about the description.

A formation is not a monument 

BRP argued that the rules governing surface limitations on servitudes apply to dividing mineral servitudes by depth. In determining the location of a boundary on the land the most important factor is natural monuments.  BRP urged that the “base of the Cotton Valley Formation” and the “top of the Louark Group” are natural monuments. That argument was unsuccessful.

Experts testified that subsurface formations do not have the permanence of natural monuments on the surface: “The location of formations and groups are subject to disagreement among geologists, and the general thought about their location can vary over time…., for this reason, stratigraphic markers, such as the well depths used in this case, are the more commonly used in the oil and gas industry.”

BRP’s problem was that the base of the Cotton Valley and the top of the Louark Group are two different boundaries and are separated by the 500 to 600 foot thick Bossier Shale.

The result

The trial court judgment in favor of Chesapeake was affirmed.

  • The stratigraphic markers represented by well depths were sufficient for designating the minerals conveyed. The depth limitation language was self-defining.
  • IP had been in a position to complete the due diligence necessary to protect its interests.

What does this case mean to you? 

  • If you talk geology, make sure your geologist is on the team.
  • IP’s dealmakers didn’t understand the geology of the formations.
  • Good try BRP, but as successor you were stuck with IP’s description, and their lack of knowledge.

The (almost) perfect musical interlude

Les was overheard last week crooning this mournful tune to his Tiger fanbase. Was it too soon?