SLS 11RS-280 ORIGINAL
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Regular Session, 2011
SENATE BILL NO. 77
BY SENATOR SHAW
Prefiled pursuant to Article III, Section 2(A)(4)(b)(i) of the Constitution of Louisiana.
MINERALS. Provides for the recoupment of unit wells costs and risk charge. (8/15/11)
AN ACT1
To amend and reenact R.S. 30:10(A)(2)(a)(i)(cc) and (dd) and 10(A)(2)(e) and to enact R.S.2
30:10(A)(2)(a)(i)(ee), relative to drilling units; to provide for requirements of notice3
of drilling a unit well; to provide for recoupment of well costs and risk charge; to4
provide for payment of certain royalties from the nonparticipating owner's share of5
production; to limit the liability for certain payments; and to provide for related6
matters.7
Be it enacted by the Legislature of Louisiana:8
Section 1. R.S. 30:10(A)(2)(a)(i)(cc) and (dd) and 10(A)(2)(e) are hereby amended9
and reenacted and R.S. 30:10(A)(2)(a)(i)(ee) is hereby enacted to read as follows:10
ยง10. Agreements for drilling units; pooling interests; terms and conditions; expenses11
A. * * *12
(2) * * *13
(a)(i) Any owner drilling or intending to drill a unit well, including a14
substitute unit well, on any drilling unit heretofore or hereafter created by the15
commissioner, may, by certified mail, return receipt requested, notify all other16
owners in the unit of the drilling or the intent to drill and give each owner an17 SB NO. 77
SLS 11RS-280 ORIGINAL
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words in boldface type and underscored are additions.
opportunity to elect to participate in the risk and expense of such well. Such notice1
shall contain:2
(aa) An estimate of the cost of drilling, testing, completing, and equipping the3
unit well;4
(bb) The proposed location of the unit well;5
(cc) The proposed objective depth of the unit well; and6
(dd) All logs, core analysis, production data, and well test data from the unit7
well which has not been made public. ; and8
(ee) Each owner's estimated unit participation decimal interest.9
* * *10
(e)(i) The provisions of Paragraph 2(b) above Subparagraph (b) of this11
Paragraph with respect to the risk charge shall not apply to any unleased interest not12
subject to an oil, gas, and mineral lease.13
(ii) Notwithstanding the provisions of Paragraph 2(b) Subparagraph (b) of14
this Paragraph the royalty owner and overriding royalty owner shall receive that15
portion of production due to them under the terms of the contract creating the royalty16
and overriding royalty out of the production produced from the unit well by the17
owners drilling, or the unit operator on behalf of the drilling owners, such18
nonparticipating owner's leasehold interests of said unit well during the19
recoupment period set forth in Subparagraph (b) of this Paragraph of the20
actual well costs and applicable risk charge. Such royalty and overriding21
interest shall be paid by the owners drilling, or the unit operator on behalf of22
the drilling owners, the nonparticipating owner's leasehold interests of said unit23
well; however, the amount of such royalty and overriding royalty interest paid24
by the drilling owners of the unit well shall not exceed thirty percent of 8/8ths25
of the nonparticipating owner's interest in the nonparticipating leasehold's26
portion of the tract's allocated share of unit production.27
(iii) In no event shall the royalty and overriding royalty interests paid28
by the owners drilling, or the unit operator on behalf of the drilling owners, a29 SB NO. 77
SLS 11RS-280 ORIGINAL
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words in boldface type and underscored are additions.
nonparticipating owner's leasehold interest in any single oil, gas and mineral1
lease exceed thirty percent of 8/8ths of the nonparticipating owner's interest in2
such nonparticipating leasehold's portion of the tract's allocated share of unit3
production. In the event either the royalty or royalty and overriding royalty4
burdens together of any single oil, gas, and mineral lease exceed thirty percent5
of 8/8ths of the nonparticipating owner's interest in such nonparticipating6
leasehold's portion of the tract's allocated share of unit production, then the7
lessor's leasehold royalty interest shall be paid first and the overriding royalty8
interests, if any, shall be paid second in the order such overriding royalty9
interests were recorded; however, such payments made by the drilling owners10
of any single oil, gas, and mineral lease shall not exceed the maximum payment11
limit as set forth and proportionately reduced as provided in this12
Subparagraph.13
(iv) Any such royalty and overriding interests created by contracts14
recorded subsequent to the date on which the written notice was sent set forth15
in Item(a)(i) of this Paragraph or in excess of thirty percent of 8/8ths of such16
nonparticipating leasehold's portion of the nonparticipating tract's allocated17
share of unit production shall be paid by the nonparticipating owner of the oil,18
gas, and mineral lease or contracts creating same.19
(v) The owners drilling, or the unit operator on behalf of the owners20
drilling, such nonparticipating owner's leasehold interests of said unit well21
during the recoupment period set forth in Subparagraph (b) of this Paragraph22
shall not be liable for and shall be held harmless from any and all claims and23
demands for payments due royalty or overriding interests created by contracts24
recorded subsequent to the date on which the written notice was sent set forth25
in Item (a)(i) of this Paragraph or that exceed thirty percent of 8/8ths of such26
nonparticipating leasehold's portion of the nonparticipating tract's allocated27
share of unit production. Further, the owners drilling, or the unit operator on28
behalf of the owners drilling, such nonparticipating owner's leasehold interests29 SB NO. 77
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of said unit well during the recoupment period set forth in Subparagraph (b) of1
this Paragraph shall not be liable to any nonparticipating owner for erroneous2
or incorrect payments of the royalty or overriding royalty interests attributable3
to such nonparticipating owners' leasehold interest unless such erroneous or4
incorrect payments result from gross negligence or willful misconduct.5
(vi) Actual well costs and the applicable risk charge of the unit well6
attributable to a nonparticipating or nonpaying owner's interest in an oil, gas,7
and mineral lease covering a tract shall be recouped out of the nonparticipating8
owner's "net revenue interest" attributable to the nonparticipating tract on the9
date on which the written notice is sent as set forth in Item(a)(i) of this10
Paragraph. "Net revenue interest" shall mean the leasehold's portion of the11
tract's allocated share of unit production less the leasehold's royalty and12
overriding royalty interests as limited and set forth in this Subparagraph.13
* * *14
The original instrument and the following digest, which constitutes no part
of the legislative instrument, were prepared by J. W. Wiley.
DIGEST
Present law authorizes the commissioner of conservation to establish drilling units to prevent
waste and to avoid drilling unnecessary wells. The cost of development and operation of the
unit is chargeable to the tracts of land within the unit. The commissioner is required to send
notice to the owners and an opportunity to elect to participate in the risk and expense of the
unit. If an owner elects not to participate or elects to participate and fails to pay his share,
the expenses of the unit, including drilling, testing, completing, equipping, and operating,
and a risk charge are recoverable from that tract's share of production. The risk charge is
equal to 200% of the nonparticipating or nonpaying tract's allocated share of the expenses.
Proposed law retains present law.
Proposed law provides that the notice must include each owner's estimated unit participation
decimal interest.
Present law provides that the risk charge is not applicable to unleased oil, gas, and mineral
interest. Proposed law retains present law.
Present law provides that royalty owners and overriding royalty owners receive their portion
of production of the unit well as provided in the contract creating the royalty.
Proposed law provides that while the unit well costs and applicable risk charge are being
recouped from the nonparticipating mineral interest owner, the royalty and overriding
royalty owners of that tract shall be paid by the owners or operator drilling the unit well.
Such payment shall be limited to 30% of the nonparticipating mineral interest owner's share SB NO. 77
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of production.
Proposed law provides that if the royalty or overriding royalty exceeds the 30% limit,
payments from the drilling owners or operator are prioritized as royalty interest shall be paid
first, then overriding royalty interests in the order they were recorded. Such payments shall
not exceed the 30% of the nonparticipating mineral interest owner's share of production.
Proposed law provides the nonparticipating owner shall pay the royalty and overriding
royalty interests recorded after the commissioner's notice to participate is sent and those in
excess of the 30% of the nonparticipating mineral interest owner's share of production.
Proposed law provides the owners drilling or their operator are not liable for payments to
royalty or overriding royalty owners that exceed 30% of the nonparticipating mineral interest
owner's share of production or were recorded after the commissioner's notice was sent.
Likewise, they are not liable for errors in payments unless the error results from gross
negligence or willful misconduct.
Proposed law provides the actual well costs and the applicable risk charge of the unit well
attributable to a nonparticipating or nonpaying owner's interest shall be recouped out of the
nonparticipating owner's "net revenue interest" attributable to the nonparticipating tract on
the date on which commissioner's notice was sent. Proposed law defines "net revenue
interest" as the leasehold's portion of the tract's allocated share of unit production less the
leasehold's royalty and overriding royalty interests as limited by proposed law.
Effective August 15, 2011.
(Amends R.S. 30:10(A)(2)(a)(i)(cc) and (dd) and 10(A)(2)(e); adds R.S.
30:10(A)(2)(a)(i)(ee))