In a ruling significant for its split-estate implications, Pinnacle Gas Resources Inc. last week began exploring for natural gas beneath a Montana ranch after a state judge ruled against the ranch owner.

Forrest Mars Jr., whose family privately owns the candy and snack empire Mars Inc., had claimed in court documents that the water supplies on his Diamond Cross Ranch, which is 120 miles southeast of Billings, MT, feed livestock and crops, and those supplies could be diminished if underground aquifers are pumped to access possible coalbed methane (CBM) reserves. The 82,000-acre ranch sits along the Tongue River, and Pinnacle holds the mineral rights to about 10,300 acres there.

Ranch employees claimed Pinnacle was attempting to trespass on the ranch and had prevented the producer from accessing the leasehold. So Pinnacle, which had until the end of last week to begin exploration there or forfeit its leasehold, filed a lawsuit against Diamond Cross in December.

Mars claimed in court documents that Pinnacle failed to meet a requirement that it notify him 20 days before drilling began. However, in his court ruling, District Judge Blair Jones said Pinnacle should not lose its lease; Pinnacle notified a relative of Mars who was at the ranch, but it did not specifically notify Mars, who is the ranch owner. Jones also required Pinnacle to post a $10,000 bond for possible damages on the ranch.

According to Pinnacle, gas production is not expected to begin until "at least" 2009, and that is only if enough CBM is discovered on the leasehold. If there are sufficient amounts of CBM to develop, the ranch could expect to have up to 50 wells on the property, along with associated pipes, roads and power lines, Pinnacle said.

Fidelity Exploration and Production Co., a subsidiary of MDU Resources Group Inc., also holds leases on Diamond Cross, but no work has been initiated.

The federal government estimates that there are about 60 million acres of split-estate land in the West, and more court battles are expected as landowners challenge the split-estate laws not only in the West but across the country (see NGI, June 11, 2007; Jan. 9, 2006). At the state level, Colorado Gov. Bill Ritter last year signed into law the Surface Rights Act, which requires oil and gas companies to reduce disturbance and damage to the land or face the wrath of surface owners (see NGI, June 4, 2007).

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