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Regular Session, 2012
HOUSE BILL NO. 504
BY REPRESENTATIVE DOVE
AN ACT1
To amend and reenact R.S. 30:5.1 and 10(A)(introductory paragraph), (1), and (2), relative2
to pooling of oil and gas wells; to provide for authority of the commissioner of3
conservation to create such pools; to provide for applications, allocation of costs, and4
rules and regulations; to provide for the agreements for drilling units; to provide for5
pooling interests; to provide for the election not to participate in a unit well; to6
provide for payment to certain royalty owners; to provide terms and conditions; and7
to provide for related matters.8
Be it enacted by the Legislature of Louisiana:9
Section 1. R.S. 30:5.1 and 10(A)(introductory paragraph), (1), and (2) are hereby10
amended and reenacted to read as follows:11
§5.1. Deep pool order; ultra deep structure units; application; procedure; allocation12
of costs; rules and regulations13
A. The following shall be applicable to deep pool units:14
(1) In order to prevent waste and to avoid the drilling of unnecessary wells,15
and to encourage the development of deep oil and gas pools in Louisiana, the16
commissioner of conservation is authorized, as provided in this Section Subsection,17
to establish a single unit to be served by one or more wells for a deep pool and to18
adopt a development plan for such deep unit.19
B. (2) Without in any way modifying the authority granted to the20
commissioner in R.S. 30:9(B) to establish a drilling unit or units for a pool and in21
addition to the authority conferred in R.S. 30:5, the commissioner upon the22 ENROLLEDHB NO. 504
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application of any interested party may enter an order requiring the unit operation of1
any deep pool when such unit operation will promote the development of such deep2
pools, prevent waste, and avoid the drilling of unnecessary wells.3
C. (3) In connection with such order, the commissioner shall have the right4
to establish a unit for a deep pool and to unitize, force pool, and consolidate all5
separately owned tracts and other property ownerships within such unit. Any order6
creating a unit for a deep pool shall be issued only after notice and public hearing7
and shall be based on findings that:8
(1) (a) The order is reasonably necessary to promote the development of a9
deep pool and for the prevention of waste and the drilling of unnecessary wells.10
(2) (b) The proposed unit operation is economically feasible.11
(3) (c) The geologic top of the deep pool was encountered in the initial well12
for the pool at a depth in excess of fifteen thousand feet true vertical depth.13
(4) (d) Sufficient evidence exists to reasonably establish the limits of the14
deep pool.15
(5) (e) The plan of development for the unit is reasonable. The plan shall be16
revised only if approved by the commissioner after notice and public hearing.17
D. (4) The order shall provide for the initial allocation of unit production on18
a surface acreage basis to each separately owned tract within the unit.19
E. (5) No order shall be issued by the commissioner unless interested20
parties have been provided a reasonable opportunity to review and evaluate all21
data submitted by the applicant to the commissioner to establish the limits of the22
deep pool, including seismic data.23
F. (6) The order creating the unit shall designate a unit operator and shall24
also make provision for the proportionate allocation to the owners (lessees or25
owners of unleased interests) of the costs and expenses of the unit operation,26
which allocation shall be in the same proportion that the separately owned tracts27
share in unit production. The cost of capital investment in wells and physical28 ENROLLEDHB NO. 504
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equipment and intangible drilling costs, in the absence of voluntary agreement1
among the owners to the contrary, shall be shared in like proportion. However,2
no such owner who has not consented to the unitization shall be required to3
contribute to the costs or expenses of the unit operation or to the cost of capital4
investment in wells and physical equipment and intangible drilling costs except5
out of the proceeds of production accruing to the interest of such owner out of6
production from such unit operation. In the event of a dispute relative to the7
calculation of unit well costs or depreciated unit well costs, the commissioner8
shall determine the proper costs after notice to all interested owners and public9
hearing thereon.10
G. (7) Upon application and after notice and public hearing and11
consideration of all new available geological and engineering evidence, the12
commissioner, to the extent required by such evidence, may create, revise, or13
dissolve any unit provided for under this Section Subsection or modify any14
provision of any order issued hereunder. Any such order shall provide for the15
allocation of unit production on a just and equitable basis to each separately16
owned tract within the unit.17
H. (8) The commissioner shall prescribe, issue, amend, and rescind such18
orders, rules, and regulations as he may find necessary or appropriate to carry out19
the provisions of this Section Subsection.20
I. (9) While this Section Subsection authorizes the initial creation of a21
single unit to be served by one or more wells, nothing herein shall be construed22
as limiting the authority of the commissioner to approve the drilling of alternate23
unit wells on drilling units established pursuant to R.S. 30:9(B).24
B. The following shall be applicable to ultra deep structure units:25
(1) In order to prevent waste and to avoid the drilling of unnecessary26
wells, and to encourage the development of ultra deep oil and gas structures in27
Louisiana, the commissioner of conservation is authorized, as provided in this28
Subsection, to establish a single unit to be served by one or more wells for an ultra29 ENROLLEDHB NO. 504
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deep structure and to adopt a plan of development for such ultra deep structure1
unit. For purposes of this statute, a "structure" is defined as a unique geologic2
feature that potentially traps hydrocarbons in one or more pools or zones.3
(2) Without in any way modifying the authority granted to the4
commissioner by R.S. 30:9(B) to establish a drilling unit or units for a pool and5
in addition to the authority conferred by R.S. 30:5 and 5.2, the commissioner,6
upon the application of any interested party, may enter an order requiring the unit7
operation of any ultra deep structure when such unit operation will promote the8
development of such ultra deep structure, prevent waste, and avoid the drilling of9
unnecessary wells.10
(3) In connection with such order, the commissioner shall have the right11
to establish a unit no greater than nine thousand acres for an ultra deep structure12
and to unitize, force pool, and consolidate all separately owned tracts and other13
property ownerships within such unit. Any order creating a unit for an ultra deep14
structure shall be issued only after notice and public hearing and shall be based15
on findings that:16
(a) The order is reasonably necessary to promote the development of an17
ultra deep structure and to prevent waste and the drilling of unnecessary wells.18
(b) The proposed unit operation appears economically feasible.19
(c) The stratigraphic top of the ultra deep structure unit is encountered or20
anticipated to be encountered in the initial well for the structure at a depth in21
excess of twenty-two thousand feet true vertical depth.22
(d) Sufficient evidence exists to reasonably establish the limits of the ultra23
deep structure.24
(e) The applicant has submitted a plan of development for the unit that is25
reasonable and contains the information listed under Paragraph (B)(4) of this26
Section. It is presumed that a reasonable plan of development will include at least27
one well for each three thousand acres contained in the unit.28 ENROLLEDHB NO. 504
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(4) The plan of development shall include, at a minimum, the following:1
(a) The applicant's estimate of the number of wells it intends to drill in the2
unit.3
(b) The applicant's estimated time table for drilling and completing each4
unit well.5
(c) The applicant's anticipated target depth for each such well.6
(5) Upon application of any landowner or other interested party, or at the7
commissioner's discretion, the plan of development may be revised by the8
commissioner after notice and public hearing for good cause.9
(6) The order creating a unit for an ultra deep structure shall provide for10
the initial allocation of unit production on a surface acreage basis to each11
separately owned tract within the unit and shall also specify the stratigraphic12
intervals to which the unit shall be limited.13
(7) No order creating a unit for an ultra deep structure shall be issued by14
the commissioner unless interested parties have been provided a reasonable15
opportunity to review and evaluate all data, including seismic data, submitted by16
the applicant to the commissioner to establish the limits of the deep structure.17
(8) An order creating the unit for an ultra deep structure shall designate18
a unit operator.19
(9) The initial well and each subsequent well proposed or drilled pursuant20
to the plan of development shall be deemed a unit well. The provisions of R.S.21
30:10(A)(2) shall be applicable to ultra deep structure units, including the22
applicable risk charge. In the event of a dispute relative to the calculation of unit23
well costs or depreciated unit well costs, the commissioner shall determine the24
proper costs after notice to all interested owners and public hearing thereon.25
(10) Upon application by any landowner or other interested party, or at26
the commissioner's discretion, and after notice and public hearing and27
consideration of available geological, engineering, and other relevant evidence,28 ENROLLEDHB NO. 504
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the commissioner, to the extent required by such evidence, may by order create,1
revise, confirm, or dissolve any unit provided for under this Subsection or modify2
any provision of any order issued hereunder. Any such order shall provide for the3
allocation of unit production on a just and equitable basis to each separately4
owned tract within the unit. The applicant shall, in all cases, have the burden of5
proof that the existing unit or order should be revised, confirmed, dissolved, or6
amended in the manner proposed in the application. If the commissioner7
determines that the unit operator has not substantially complied with the plan of8
development, the unit operator shall be required to show cause why the unit9
should not be reduced in size.10
(11) The provisions of Subsection A of this Section shall not be11
applicable to any unit well drilled in a unit established pursuant to this Subsection.12
(12) The commissioner shall prescribe, issue, amend, and rescind such13
orders, rules, and regulations as he may find necessary or appropriate to carry out14
the provisions of this Subsection.15
(13) While the provisions of this Subsection authorize the initial creation16
of a single unit to be served by one or more wells, nothing herein shall be17
construed as limiting the authority of the commissioner to approve the drilling of18
alternate unit wells on drilling units established pursuant to R.S. 30:9(B).19
* * *20
§10. Agreements for drilling units; pooling interests; terms and conditions;21
expenses22
A. When two or more separately owned tracts of land are embraced23
within a drilling unit which has been established by the commissioner as provided24
in R.S. 30:9(B), the owners may validly agree by separate contract to pool, drill,25
and produce their interests and to develop their lands as a drilling unit.26
(1) Where the owners have not agreed by separate contract to pool, drill,27
and produce their interests, the commissioner shall require them to do so and to28
develop their lands as a drilling unit, if he finds it to be necessary to prevent waste29
or to avoid drilling unnecessary wells.30 ENROLLEDHB NO. 504
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(a) All orders requiring pooling shall be made after notice and hearing.1
They shall be upon terms and conditions that are just and reasonable and that will2
afford the owner of each tract the opportunity to recover or receive his just and3
equitable share of the oil and gas in the pool without unnecessary expense. They4
shall prevent or minimize reasonable avoidable drainage from each developed5
tract which is not equalized by counter drainage.6
(b) The portion of the production allocated to the owner of each tract7
included in a drilling unit formed by a pooling order shall, when produced be8
considered as if it had been produced from his tract by a well drilled thereon.9
(2) In the event pooling is required, a drilling unit is formed by a pooling10
order by the commissioner and absent any agreement or contract between owners11
as provided in this Section, then the cost of development and operation of the12
pooled unit chargeable to the owners therein shall be determined and recovered13
as provided herein.14
(a)(i) Any owner drilling or intending to drill a unit well, including a15
substitute unit well, an alternate unit well, or a cross-unit well on any drilling unit16
heretofore or hereafter created by the commissioner, may, by certified registered17
mail, return receipt requested, or other form of guaranteed delivery and18
notification method, not including electronic communication or mail, notify all19
other owners in the unit prior to the actual spudding of any such well of the20
drilling or the intent to drill and give each owner an opportunity to elect to21
participate in the risk and expense of such well. Such notice shall contain:22
(aa) An authorization for expenditure form (AFE), which shall include a23
detailed estimate of the cost of drilling, testing, completing, and equipping the24
unit such proposed well. The AFE shall be dated within one hundred twenty days25
of the date of the mailing of the notice;26
(bb) The proposed location of the unit well;27
(cc) The proposed objective depth of the unit well; and28
(dd) An estimate of ownership as a percentage of expected unit size or29
approximate percentage of well participation;30 ENROLLEDHB NO. 504
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(ee) In the event that the proposed well is being drilled or drilled at the1
time of the notice, then a copy of all available All logs, core analysis, production2
data, and well test data from the unit well which has not been made public.3
(ii) Such An election to participate must be exercised by mailing written4
notice thereof by certified registered mail, return receipt requested, or other form5
of guaranteed delivery and notification method, not including electronic6
communication or mail, to the owner drilling or intending to drill the unit7
proposed well within thirty days after receipt of the initial notice. Failure to give8
timely written notice of the election to participate shall be deemed to be an9
election not to participate and the owner shall be deemed a nonparticipating10
owner.11
(iii) Another initial notice must be sent in order for the provisions of this12
Subsection to apply if If the drilling of the proposed unit well is not commenced13
in accordance with the initial notice within ninety days after receipt of the initial14
notice, then the drilling owner shall send a supplemental notice in order for the15
provisions of this Subsection to apply.16
(b)(i) Should a notified owner elect not to participate in the risk and17
expense of the unit well, substitute unit well, alternate unit well, or cross-unit well18
or should such owner elect to participate in the risk and expense of the unit19
proposed well and but then fail to pay his share of such expenses the drilling20
costs determined by the AFE within sixty days of the spudding of the well or fail21
to pay his share of subsequent drilling, completion, and operating expenses within22
sixty days of receipt of subsequent detailed invoices, then such owner shall be23
deemed a nonparticipating owner, and the drilling owner drilling same shall, in24
addition to any other available legal remedies to enforce collection of such25
expenses, be entitled to own and recover out of production from such unit well26
allocable to the tract belonging under lease to the nonparticipating owner such27
tract's allocated share of the actual reasonable expenditures incurred in drilling,28
testing, completing, equipping, and operating the unit well, including a charge for29
supervision, together with a risk charge, which. The risk charge for a unit well,30 ENROLLEDHB NO. 504
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substitute unit well, or cross-unit well that will serve as the unit well or substitute1
well for the unit shall be two hundred percent of such tract's allocated share of the2
cost of drilling, testing, and completing the unit well, exclusive of amounts the3
drilling owner remits to the nonparticipating owner for the benefit of the4
nonparticipating owner's royalty and overriding royalty owner. The risk charge5
for an alternate unit well or cross-unit well that will serve as an alternate unit well6
for the unit shall be one hundred percent of such tract's allocated share of the cost7
of drilling, testing, and completing such well, exclusive of amounts the drilling8
owner remits to the nonparticipating owner for the benefit of the nonparticipating9
owner's royalty and overriding royalty owner.10
(ii)(aa) During the recovery of the actual reasonable expenditures incurred11
in drilling, testing, completing, equipping, and operating the well, the charge for12
supervision, and the risk charge, the nonparticipating owner shall be entitled to13
receive from the drilling owner for the benefit of his lessor royalty owner that14
portion of production due to the lessor royalty owner under the terms of the15
contract or agreement creating the royalty between the royalty owner and the16
nonparticipating owner reflected of record at the time of the well proposal.17
(bb) In addition, during the recovery set forth in Subsection (ii)(aa) of this18
Subparagraph, the nonparticipating owner shall receive from the drilling owner19
for the benefit of the overriding royalty owner the lesser of: (I) the20
nonparticipating owner's total percentage of actual overriding royalty burdens21
associated with the existing lease or leases which cover each tract attributed to the22
nonparticipating owner reflected of record at the time of the well proposal; or (II)23
the difference between the weighted average percentage of the total actual royalty24
and overriding royalty burdens of the drilling owner's leasehold within the unit25
and the nonparticipating owner's actual leasehold royalty burdens reflected of26
record at the time of the well proposal.27
(cc) The share that is to be received by the nonparticipating owner on28
behalf of its lessor royalty owner and overriding royalty owner shall be reported29 ENROLLEDHB NO. 504
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by the drilling owner in accordance with Part 2-B of Chapter 13 of Title 31 of the1
Louisiana Revised Statutes of 1950.2
(dd) Nothing in this Section shall relieve any lessee of its obligations to3
pay, from the commencement of production, any lessor royalty and overriding4
royalty due under the terms of his lease, and other agreements during the recovery5
of actual well costs and the risk charge, or shall relieve any lessee of his6
obligation to pay all royalty and overriding royalty due under the terms of his7
lease and other agreements after the recovery of the actual well costs and the risk8
charge. Except as provided in this Paragraph, the drilling owner's obligation to9
pay the royalty and the overriding royalty to the nonparticipating owner in no way10
creates an obligation, duty, or relationship between the drilling owner and any11
person to whom the nonparticipating owner is liable to, contractually or12
otherwise.13
(ee) In the event of nonpayment by the nonparticipating owner of the14
royalty and overriding royalty due, the lessor royalty owner and overriding royalty15
owner shall provide written notice of such failure to the nonparticipating owner16
and drilling owner as a prerequisite to a judicial demand for damages. The lessor17
royalty owner and overriding royalty owner shall follow the same procedure and18
have the same remedies provided in Part 6 of Chapter 7 of Title 31 of the19
Louisiana Revised Statutes of 1950 or Part 2-A of Chapter 13 of Title 31 of the20
Louisiana Revised Statutes of 1950, respectively, against the nonparticipating21
owner and the drilling owner. If the drilling owner provides sufficient proof of22
payment of the royalties to the nonparticipating owner, then the lessor royalty23
owner and overriding royalty owner shall have no cause of action against the24
drilling owner for nonpayment.25
(ff) In the event of nonpayment by the drilling owner of the royalty and26
overriding royalty due to the nonparticipating owner for the benefit of the lessor27
royalty owner and overriding royalty owner, and payment by the nonparticipating28
owner of the royalty and overriding royalty due, the nonparticipating owner shall29
provide written notice of such failure to pay to the drilling owner as a prerequisite30 ENROLLEDHB NO. 504
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to a judicial demand for damages. The drilling owner shall have thirty days after1
receipt of the required notice within which to pay the royalties due or to respond2
in writing by stating a reasonable cause for nonpayment. If the drilling owner3
fails to make payment of the royalties or fails to state a reasonable cause for4
nonpayment within this period, the court may award to the nonparticipating owner5
as damages double the amount of royalties due, interest on that sum from the date6
due, and a reasonable attorney fee regardless of the cause for the original failure7
to pay royalties. If the drilling owner provides sufficient proof of payment of the8
royalties to the nonparticipating owner, then the nonparticipating owner shall have9
no cause of action against the drilling owner for nonpayment.10
(iii) Any owner not notified shall bear only his tract's allocated share of11
the actual reasonable expenditures incurred in drilling, testing, completing,12
equipping, and operating the unit well, including a charge for supervision, which13
share shall be subject to the same obligation and remedies and rights to own and14
recover out of production in favor of the drilling party or parties as hereinabove15
provided in this Subsection. A participating owner shall deliver to the owner16
whom has not been notified the proceeds attributable to his royalty and overriding17
royalty burdens as described in this Section.18
(c) Should a drilling unit be created by order of the commissioner around19
a well already drilled or drilling and including one or more tracts as to which the20
owner or owners thereof had not participated in the risk and expense of drilling21
such well, then within sixty days of the date of the order creating such unit the22
provisions hereinabove of this Subsection for notice, election, and participation23
shall be applicable as if a unit well were being proposed by the owner who drilled24
or was drilling such well; however, the cost of drilling, testing, completing,25
equipping, and operating the well allocable to each tract included in the unit shall26
be reduced in the same proportion as the recoverable reserves in the unitized pool27
have been recovered by prior production, if any, in which said tract or tracts did28
not participate prior to determining the share of cost allocable to such tract or29
tracts.30 ENROLLEDHB NO. 504
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(d)(i) Should a drilling unit be revised by order of the commissioner so1
as to include an additional tract or tracts, then within sixty days of the date of the2
order revising such unit the provisions hereinabove of this Subsection for notice,3
election, and participation shall be applicable to such added tract or tracts and the4
owner thereof as if a unit well were being proposed by the owner who had drilled5
the unit well; however, the cost of drilling, testing, completing, equipping, and6
operating the unit well shall be reduced in the same proportion as the recoverable7
reserves in the unitized pool have been recovered by prior production, if any, in8
which said tract or tracts did not participate prior to determining the share of cost9
allocable to the subsequently included tract or tracts.10
(ii) Should a drilling unit be revised by order of the commissioner as to11
exclude a tract or tracts, the cost of drilling, testing, completing, equipping, and12
operating the unit well shall be reduced in the same proportion as the recoverable13
reserves in the unitized pool have been recovered by prior production to determine14
the share of cost allocable to the subsequently excluded tract or tracts.15
(e)(i) The provisions of Paragraph 2(b) above Subparagraph (b) of this16
Paragraph with respect to the risk charge shall not apply to any unleased interest17
not subject to an oil, gas, and mineral lease.18
(ii) Notwithstanding the provisions of Paragraph 2(b) above Subparagraph19
(b) of this Paragraph, the royalty owner and overriding royalty owner shall receive20
that portion of production due to them under the terms of the contract creating the21
royalty. 22
(f) In the event of a dispute relative to the calculation of unit well costs23
or depreciated unit well costs, the commissioner shall determine the proper costs24
after notice to all interested owners and a public hearing thereon.25
(g) Nothing contained herein shall have the effect of enlarging,26
displacing, varying, altering, or in any way whatsoever modifying or changing the27
rights and obligations of the parties thereto under any contract between or among28
owners having a tract or tracts in the unit.29 ENROLLEDHB NO. 504
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(h) The owners in the unit to whom the notice provided for hereinabove1
may be sent, are the owners of record as of the date on which the notice is sent.2
* * *3
SPEAKER OF THE HOUSE OF REPRESENTATI VES
PRESIDENT OF THE SENATE
GOVERNOR OF THE STATE OF LOUISIANA
APPROVED: