In August 2018, dry natural gas production from the Haynesville shale averaged 6.774 billion cubic feet per day, which is the highest daily Haynesville production average since September 2012 when production averaged 6.962 billion cubic feet per day. August 2018 was not an anomaly. Instead, this year, the Haynesville has seen steady increases in production since January when production averaged 5.293 billion cubic feet per day. Although the recent Haynesville production increases are a positive sign for the Louisiana energy industry, the August 2018 daily production average is still below the previous Haynesville peak production average, which was 7.403 billion cubic feet per day in January 2012. However, if the current trend continues, the Haynesville could approach its prior peak production average in early 2019.
The chart below depicts Haynesville shale dry natural gas production averages from January 2009 to August 2018 in billion cubic feet per day. As you can see, there have been two major increases in Haynesville production over the last ten years. The first began in early 2009 with average daily Haynesville production surpassing 1 billion cubic feet per day for the first time in June of that year. The second major increase began in early 2017 and continues through today.
With the first major Haynesville production increase, the Louisiana energy industry also experienced an increase in Haynesville-related litigation. For example, in Alyce Gaines Johnson Special Trust v. El Paso E & P Co., the plaintiff-lessor brought a declaratory judgment action against the defendant-lessee seeking a determination that a 60-year-old, all-depths lease did not include rights to explore the Haynesville shale. Alyce Gaines Johnson Special Trust v. El Paso E & P Co., 773 F. Supp. 2d 640, 641-43 (W.D. La. Feb. 24, 2011). Seeming to suggest Plaintiff’s motivation, the Court noted that Plaintiff filed its action after receiving “offers from numerous third parties to lease the mineral formation known as the Haynesville Shale . . . for a one-fourth (1/4) mineral royalty and as much as ten thousand ($10,000) dollars per acre bonus royalty.” Id. at 642. In support of its position, Plaintiff argued that its predecessor did not intend to lease the depths at which the Haynesville shale is found. Id. at 646. However, finding the lease “broad and unambiguous,” the Court refused to look to the intent of the parties, and instead, held that the lease included rights to the Haynesville shale. Id.
Cascio v. Twin Cities Development, where the plaintiff-lessors filed suit seeking to rescind a mineral lease because they did not know at the time they granted the lease that the Haynesville shale extended beneath their property, provides another example. Cascio v. Twin Cities Dev., 45,634 (La. App. 2 Cir. 9/22/10); 48 So. 3d 341, 342-43. In that case, the plaintiff-lessors argued, the lease should be rescinded based on their error. Id. However, the Second Circuit rejected their argument noting the “particularly speculative nature of mineral exploration and production.” Id.
The timing of these cases and the historical production trend shown above demonstrate that Haynesville shale gas production increases can lead to an increase in Haynesville-related litigation. Therefore, if the current Haynesville shale gas production increase continues, the industry should beware of an increase in Haynesville-related litigation, too.
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