--> Abstract: Successful Environmental Lawsuits Can Recover Corporate Profits, by P. R. Rose; #90987 (1993).

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ROSE, PETER R., Telegraph Exploration, Inc., Austin TX

ABSTRACT: Successful Environmental Lawsuits Can Recover Corporate Profits

Two recent key legal decisions offer strong new encouragement to private businesses who have suffered losses through environmental conflicts. In Lucas vs. South Carolina (1992), the U.S. Supreme Court ruled that private parties are entitled to full compensation if all economically viable use of their property is prohibited by the State for environmental purposes. In September 1991, the Michigan State Court of Claims ruled that the State of Michigan owed Miller Brothers (an independent Kalamazoo operator) $50 million, and the owners/lessors of subsurface mineral rights $25 million, plus legal costs and accrued interest. The award was compensation for the taking of their property in 1987 by the Michigan Department of Natural Resources, through regulatory denial of drilling permits. As o September 1992, the total award is about $120 million.

The key to valuation of undeveloped or partly developed oil and gas properties lies in constructing an objective, documented, and convincing analysis that integrates: (1) geology and methodology of exploration and development; (2) a production database leading to projected ultimate recoveries from analog producing fields; (3) detailed cash-flow models establishing present monetary value of reasonable production cases; (4) exploration risk-analysis that forecasts numbers and sizes of expected new field discoveries, plus probability of project success; and (5) determination of prudent monetary bids for acquisition of such properties, as a basis for fair market value.

The writer believes that very substantial monetary awards can be earned by companies who have been prevented from developing their properties through similar environmental takings. However, to undertake and prosecute such a lawsuit successfully, management must be determined to stand on principle, and committed to fully utilize technical expertise.

AAPG Search and Discovery Article #90987©1993 AAPG Annual Convention, New Orleans, Louisiana, April 25-28, 1993.