Oil rights latest snag for Canyons
| Wednesday, Sep 08 2010 06:42 PM
Last Updated Wednesday, Sep 08 2010 06:42 PM
There's a new wrinkle for the would-be developer of the troubled Canyons project: Oil.
A lawsuit has been filed over mineral rights at the northeast Bakersfield site, which was the subject of a huge battle over local hillside development.
How the latest suit will impact the 889-acre project yet to be constructed -- a future already complicated by legal and financial issues -- wasn't immediately clear Wednesday.
The suit itself is an offshoot of a liquidation bankruptcy now playing out for the company that loaned money to the Canyons development -- including a $25 million loan that defaulted in April and puts future ownership of the land in question.
The oil suit was filed late last month as an "adversary proceeding" related to the bankruptcy case.
The suit claims Sacramento developer Don Hancock shifted oil rights to another entity he controls without the lender realizing what had happened.
Property value is "far less" without the oil rights, the suit says, although no dollar amount for the oil's value is given. The suit seeks to update loan agreements so they again include mineral rights as collateral.
The lender, Cascade Acceptance Corp., made a series of loans to Hancock for the Canyons project starting in 2000, county records show.
Those loans included oil rights until 2006, when the lender apparently didn't notice mineral rights were excluded.
Hancock made the move to increase his own liquidity after losing an estimated $60 million -- loss that included funds borrowed from Cascade Acceptance -- in what may have been a "sophisticated Ponzi scheme" that collapsed in 2005, the suit alleges.
Hancock could not immediately be reached late Wednesday afternoon for comment.
Dennis D. Davis, the San Francisco lawyer representing the plaintiff (who is the court-appointed bankruptcy trustee), said discussions with Hancock yielded no results.
"Mr. Hancock was very talkative, but at the end of the day he talked more than acted," Davis said. That motivated the trustee to file the lawsuit "to get things done," he said.
In August, Hancock told The Californian he had a new venture capital partner and planned to buy the Canyons project out of bankruptcy.
Davis said the oil issue needs to be cleared up first, but the property remains up for grabs.
"If somebody comes forward with a pile of money and makes an offer, then we'll know," Davis said.
Bankruptcy filings from the lender, who has more than $37 million loaned against the Canyons, hinted at the oil's lure.
"At the present time, there is probably no ready market for this property as a residential subdivision, however there has been recent interest in the property for its underlying oil," the filing says. "Recent geological work has estimated there are 4.5 million barrels of recoverable oil beneath the property."
