• Recent Changes to the Louisiana Conservation Act
  • May 21, 2013 | Author: Robert W. Scheffy
  • Law Firm: Jones Walker LLP - Baton Rouge Office
  • Acts of the 2012 Legislature, through amendments to the Conservation Act, have increased the burden on operators (sometimes referred to as the "drilling party") when drilling oil and/or gas wells. Before drilling any well, the drilling party must provide a Pre-Entry Notice to the landowner on which a well is to be drilled. Further, under the Risk Fee Statute, a drilling party must provide much more detailed information to any lessee in proposed units and such information must be provided before actual spudding of a well. In addition, the drilling party may incur the obligation for the payment of the royalty payments of a non-participating owner, notwithstanding the assessment of the risk fee penalty. The specific provisions outlining the recent changes to the Conservation Act are provided below.

    A. Requirement of Pre-Entry Notice by Operator

    The Louisiana Legislature, by Act 795 of the 2012 Regular Session, amended La. R.S. 30:28 adding Subsection I which mandates that the Louisiana Commissioner of Conservation ("the Commissioner") promulgate rules requiring an operator (sometimes referred to as the "drilling party") to provide "pre-entry notice" to the landowner on which a well is to be drilled. La. R.S. 30:28.I.(1). The effective date of the new provision is August 1, 2012. The pre-entry notice shall include (a) the operator's name and contact information; (b) the proposed well name and pad location, including section, township and range, and a plat, if available; and (c) a statement that operations will commence sometime later than 30 days after notice. La. R.S. 30:28.I.(1)(b) (i), (ii) and (iii). The new statute includes seven (7) subparagraphs that set minimum requirements for the rules, regulations, and/or orders to be promulgated by the Commissioner with regard to pre-entry notice. La. R.S. 30:28.I.(1)(a) through (g). Notice to numerous co-owners is not required, unless each is identified in the assessor's rolls as owner of the land. A pre-entry notice is not needed if there is a contractual relationship between operator and surface owner, such as a mineral lease, a surface-use agreement, or other type agreement. La. R.S. 30:28.I.(1)(c).

    B. Ultra Deep Pooling Units

    Additionally, the Louisiana legislature amended La. R.S. 30:5.1 by adding Subsection B of the statute, authorizing the Commissioner to create a unit for an "ultra deep" structure, defined as being a unique geologic feature that potentially traps hydrocarbons in one or more pools or zones and which is located at a depth below 22,000 feet below the surface of the earth. These "ultra deep" units will promote exploration for hydrocarbons below 22,000 feet. Subsection B provides several prerequisites before an order for the ultra deep unit shall be granted.

    C. Risk Fee Statute Amendments

    Finally, the Louisiana Legislature, by Act 743 of the 2012 regular session, significantly amended the Louisiana Risk-Fee Statute. The risk-fee provisions of La. R.S. 30:10 were originally enacted to limit "free-riding" by lessees in a commissioner's unit. In response to the substantial activity in the Haynesville Shale, the 2012 revisions to La. R.S. 30:10 attempts to balance imbalances among: (i) the land (fee) and mineral owners; (ii) the operators who operated wells drilled to formations other (shallower) than the Haynesville and/or non-participating lessees; and (iii) the operators in the Haynesville Shale. La. R.S. 30:10(A)(2) applies to the Commissioner's units only in the absence of a joint operating agreement, unit operating agreement, or some other contract among the various owners in the unit. La. R.S. 30:10(A)(1) and 30:10(A)(2).

    (i) Notice Before Spudding; Additional Data to be Provided

    La. R.S. 30:10(A)(2) now provides that the notice, as well as the election to participate, must be sent prior to the actual spudding of any such well, and by "registered, mail return receipt requested, or other form of guaranteed delivery and notification method, not including electronic communication or mail." La. R.S. 30:10(A)(2)(a)(i) and (ii). Along with the proposed location and proposed objective depth of the well, the revision to the statute requires the notice to include "an estimate of ownership as a percentage of expected unit size or approximate percentage of well participation." La. R.S. 30:10(A)(2)(a)(i)(dd). If a notified owner elects not to participate in the risk and expense of the well or if the electing owner fails to pay his share of such expenses, the drilling owner shall be entitled to own and recover out of production from the well and allocable to the tract belonging to the non-participating owner, such tract's allocated share of the actual reasonable expenditures incurred in drilling, testing, completing, equipping, and operating the unit well, including a charge for supervision, together with a risk charge. La. R.S. 30:10(A)(2)(b)(i).

    (ii) Obligation to Pay Royalty Burden of Non-Producing Owners

    La. R.S. 30:10 contains additional major changes, including a provision requiring the drilling party to pay the non-participating owner that portion of production due to the lessor royalty owner pursuant to the terms of the contract, creating the royalty between the royalty owner and the non-participating owner of record at the time of the well proposal. La. R.S. 30:10(A)(2)(b)(ii)(aa). The recent revisions to La. R.S. 30:10 also require the drilling owner to report to the non-participating owner certain production volumes and related information to the royalty interest owner and/or overriding royalty interest owner. La. R.S. 30:10(A)(2)(b)(ii)(cc).