Securities and Exchange Commission v. Nadel et al

Filing 1261

Emergency MOTION to stay /enjoin Texas Railroad Commission Administrative Proceeding filed against Receivership Entity Quest Energy Management Group, Inc. and, MOTION for order to show cause why sanctions should not be imposed against Hatchett Leaseholders and their Representatives for failure to comply with the Court's Order Appointing Receiver by Burton W. Wiand. (Attachments: # 1 Exhibit 1 - Letter to Hatchett Ranch enclosing Receivership Orders, # 2 Exhibit 2 - Letter to Bill Hatchett, # 3 Exhibit 3 - Quest EMG 8-20-13, # 4 Exhibit 4 - QUEST - Letter to Hatchett and Gilmore 8-27-13, # 5 Exhibit 5 - Letter to Receiver's attorneys, # 6 Exhibit 6 - Letter to J. Carney re. Hatchett Ranch, # 7 Exhibit 7 - Quest-Hatchett Ranch. Railroad Commission of Texas Letter 11.29.16, # 8 Exhibit 8 - Letter 12-28-16, # 9 Exhibit 9 - Notice of Filing Correspondence and Receivership Orders, # 10 Exhibit 10 - Letter from RRC 1.19.17)(Morello, Gianluca)

EXHIBIT 5 

Hatchett Land & Development Co. LLC
5005 Greenville Avenue Suite 200
Dallas Texas 75206
John H. Carney
Manager

214.549.0555
[e-mail]
October 14, 2016

Email: [e-mail]
Email: [e-mail]
Mr. George Guerra,
Mr. Gianluca Morello
Wiand Guerra King, PL
5505 W Gray St
Tampa, FL 33609-1007
813-347-5100
Fax: [phone]
Mr. Burton W. Wiand

Re:

Securities and Exchange Commission v. Nadel et al
CIVIL DOCKET FOR CASE #: 8:09-cv-00087-RAL-TBM.
Middle District of Florida (Tampa) Federal District Court
Quest Energy Management Group, Inc. - Hatchett Ranch Lease

Dear Mr. Guerra, Mr. Morello and Mr. Wiand:
We have previously communicated regarding the disposition of oil sale proceeds from
the Hatchett Ranch and were successful in reaching an agreement as to the disposition of the
oil revenues, which were held by a third party. We hope that cooperation can be had to resolve
the remaining issues that must be addressed. These issues are much more serious than the
issues we’ve dealt with to date. Your obligations arise as receiver for Quest Energy
Management Group, both under the contract as operator for the Hatchett properties and under
Texas law. Unfortunately, there are significant deficiencies in the performance of Quest and/or
the receivership that require your immediate attention. First, please provide us with your
insurance carrier’s and bonding company’s contact information immediately.
You have significant liabilities arising under the lease with the Hatchett family interests
as under Texas law as an operator, you have failed to account for gas sales revenues, and you
have failed to comply with your lease obligations. As of 8/15/2-16, your 120 day window to
remove any equipment from the Hatchett Ranch has expired, the paid up primary term of the
Hatchett lease has run, you have no production to hold the lease, so that you have no right to
enter or be on the property for any reason. YOU ARE ADVISED THAT ANY ENTRY BY YOU
OR ANY ONE PURPORTING TO BE ACTING ON YOUR BEHALF ONTO THE HATCHETT
RANCH IS TRESPASSING. YOU HAVE FORFEITED ANY AND ALL RIGHTS TO SALVAGE
ANY EQUIPMENT OR PIPELINE.

You are liable for damages for both what you did, and didn’t do. Your negligent
construction of a holding tank has resulted in an oil spill and soil contamination of ranch
property. We tried to alert you of the deficient waste pit and negligent storage of waste water
and damages to our land. The extensive rains of this Spring caused your negligently prepared
disposal pit to over flow and all of the waste oil flushed down to the creek, and we can only
assume flowed to the ultimate destination, Possum Kingdom Lake.
What was once a
contaminated pit is now hosting life and fresh water fauna. All of the oil has been washed away
because of the failure to comply with the requirements of the Texas Railroad Commission’s
standards for waste pit construction.
The primary term of the lease has expired, and there has been no production which
would extend the term of the lease, so the lease(s) have expired by their own terms. The
expiration of the primary term does not exhaust your obligations, it triggers a whole new set of
obligations you owe to us. I remind you of the proprietary position you have taken over the last
3 years over Quest’s assets, as evidenced by your letter to Bill Hatchett dated May 12, 2013.
What you claimed to be under your control is now your liability responsibility, and those
obligations include plugging and closure of the 11 or so wells.
You are obligated to account to us for gas sales proceeds received and not disbursed.
Unlike oil sales, gas sale payments in Texas are made to the operator, in this case Quest, which
became a receivership asset operated by the Receiver, pursuant to the order entered on
Receiver’s Motion To Expand The Scope Of Receivership To Include Quest Energy
Management Group, Inc. docket no. 993 Granting Motion to Expand Scope of Receivership
regarding Quest. Signed by Judge Richard A. Lazzara on 5/24/2013.
We have previously requested that you account for the natural gas sales proceeds
received by Quest and/or the Receiver and to pay over that portion due and owning to the
Hatchett Ranch royalty owners. Demand is hereby made for the accounting of the monies
received.
You are also obligated to plug and close the wells. Effective September 13, 2010, the
Texas Railroad Commission ("Railroad Commission") adopted a new rule on the plugging of
inactive oil and gas wells. The new rule, codified  with existing Statewide Rule 15, applies to
onshore wells and was instituted in part to address plugging inactive wells.  In order to comply,
operators are required to plug inactive wells. The rule mandates a variety of actions depending
on how long particular wells have been idle. One immediate liability for operators created by
Rule 15 is the cost to plug many inactive wells, which is estimated by the Railroad Commission
to cost anywhere from $4,500 to $15,000 per well.
The Receiver is responsible for plugging, closure, remediation of the environmental
liabilities and satisfaction of the landowners rights, both contractually and that arise under state
law. As evidenced by the attached photographs, you have left contaminated, open pits, without
proper fencing that must be remediated.
Perhaps as important as the direct requirements of the rule, however, are other potential
liabilities that may be revealed as you attempt to comply with Rule 15 including the discovery of
needed environmental remediation and/or issues involving the landowner's rights.  Operators of
wells that have been inactive and, thus, unsupervised may find existing contamination issues at
well sites that will require remediation, in addition to the plugging and abandonment obligations. 
Indeed, the purging and removal of equipment would seem to make it more likely that
contamination or other remediation issues will become apparent, or even occur in the first

instance, as a result of the equipment removal process.  Remediation can be costly and
potentially exposes operators to additional Railroad Commission requirements. 
In addition, such contamination issues can expose operators to liability from landowners
where, for example, discoveries of contamination are required (by law or contract) to be
reported or where a sudden increase in physical activity associated with plugging or equipment
removal attracts the landowner's attention.  In such circumstances, landowners may demand
confirmation that their land and water are not impacted; they may seek to have the surface
restored and have any contamination remediated; and they may demand damages for any
claimed injuries to their property, persons, or resources.  
Overall, Statewide Rule 15 has the potential to be costly for the Receiver, both in its own
right and as a result of environmental conditions the required site work may uncover.  You
should be prepared with a thoughtful compliance strategy that will appropriately utilize Rule 15's
authorized approaches to plugging inactive wells and also ensure they are prepared to address
the consequences of environmental conditions you have created in a manner that is
responsible, efficient, or suffer the liability risks. 
Also please note that pursuant to the terms of the lease, the surface equipment has
become the property of the Lessors, but that does not relieve you of the obligation to comply
with Statewide Rule 15 as it related to contamination associated with the surface equipment.
We would like to resolve this amiably, without further litigation, but we do insist upon your
immediate attention to these matters and we look forward to your 1) accounting of proceeds
received, 2) proposal for well plugging, closure and surface remediation, and 3) compliance with
State law and Texas Rail Road commission regulations.
Should you have any questions or need additional information, please do not hesitate to
contact me.
Very Truly yours,

John H Carney
JHC/mw
Enclosures
With copy to:
Jim R. Hatchett
Byron Hatchett
Peter Gryska
Shannon Campbell
Sara Hatfield
Janece Tucker