§ 30:10 — Agreements for drilling units; pooling interests; terms and conditions; expenses
§10. Agreements for drilling units; pooling interests; terms and conditions; expenses A.
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§10. Agreements for drilling units; pooling interests; terms and conditions; expenses
A.(1) When two or more separately owned tracts of land are embraced within a
drilling unit which has been established by the secretary as provided in R.S. 30:9(B), the
owners may validly agree by separate contract to pool, drill, and produce their interests and
to develop their lands as a drilling unit.
(2)(a) Where the owners have not agreed by separate contract to pool, drill, and
produce their interests, the secretary shall require them to do so and to develop their lands
as a drilling unit, if he finds it to be necessary to prevent waste or to avoid drilling
unnecessary wells.
(b) All orders requiring pooling shall be made after notice and hearing. They shall be
upon terms and conditions that are just and reasonable and that will afford the owner of each
tract the opportunity to recover or receive his just and equitable share of the oil, gas, or brine
in the pool without unnecessary expense. They shall prevent or minimize reasonable
avoidable drainage from each developed tract which is not equalized by counter drainage.
(c) The portion of the production allocated to the owner of each tract included in a
drilling unit formed by a pooling order shall, when produced be considered as if it had been
produced from his tract by a well drilled thereon.
(3) In the event a drilling unit is formed by a pooling order by the secretary and
absent any agreement or contract between owners as provided in this Section, then the cost
of development and operation of the pooled unit chargeable to the owners therein shall be
determined and recovered as provided herein.
(a)(i) Any owner drilling, intending to drill, or who has drilled a unit well, a
substitute unit well, an alternate unit well, or a cross-unit well on any drilling unit heretofore
or hereafter created by the secretary, may, by registered mail, return receipt requested, or
other form of guaranteed delivery and notification method, not including electronic
communication or mail, notify all other owners in the unit of the drilling or the intent to drill
and give each owner an opportunity to elect to participate in the risk and expense of such
well. Such notice shall be called a "risk charge notice" and shall contain:
(aa) An authorization for expenditure form (AFE), which shall include a detailed
estimate or the actual amount of the cost of drilling, testing, completing, and equipping such
well. The AFE shall be dated within one hundred twenty days of the date of the mailing of
the risk charge notice.
(bb) The proposed or actual location of the well.
(cc) The proposed or actual objective depth of the well.
(dd) An estimate of ownership as a percentage of expected unit size or approximate
percentage of well participation.
(ee) In the event that the well is being drilled or has been drilled at the time of
mailing the risk charge notice, then a copy of all available logs, core analysis, production
data, and well test data from the well which has not been made public.
(ff) At the option of the drilling owner, a statement that payment in full of the
notified owner's share of costs as set forth in the AFE is required to be included with any
election to participate.
(ii) An election to participate must be exercised by mailing written notice thereof by
registered mail, return receipt requested, or other form of guaranteed delivery and
notification method, not including electronic communication or mail, to the owner drilling
or intending to drill the proposed well within thirty days after receipt of the initial risk charge
notice. If required by the drilling owner in accordance with Subitem (i)(ff) of this
Subparagraph, such an election to participate shall include payment of the notified owner's
share of costs as set forth in the AFE. Failure to give timely written notice of the election to
participate or, if required by the drilling owner in accordance with Subitem (i)(ff) of this
Subparagraph, timely delivery of such payment of the notified owner's share of the costs as
set forth in the AFE, shall be deemed to be an election not to participate and the owner shall
be deemed a nonparticipating owner. In cases where some or all of the AFE costs are
estimated, financial adjustments shall be made between the drilling owner and the
participating owners within sixty days of receipt of detailed invoices in order to account for
the difference between any cost estimates and actual costs.
(iii) If the drilling of the proposed well is not commenced in accordance with the
initial risk charge notice within ninety days after receipt of the initial risk charge notice, then
the drilling owner shall send a supplemental risk charge notice in order for the provisions of
this Subsection to apply.
(b)(i) Should a notified owner elect not to participate, or be deemed a
nonparticipating owner, in the risk and expense of the unit well, substitute unit well, alternate
unit well, or cross-unit well or should such owner elect to participate in the risk and expense
of the proposed well but, except where the drilling owner has required payment with the
election in accordance with Subitem (a)(i)(ff) of this Paragraph, then fail to pay his share of
the estimated drilling costs determined by the AFE timely or fail to pay his share of actual
reasonable drilling, testing, completing, equipping, and operating expenses within sixty days
of receipt of detailed invoices, then such owner shall be deemed a nonparticipating owner,
and the drilling owner shall, in addition to any other available legal remedies to enforce
collection of such expenses, be entitled to own and recover out of production from such well
allocable to the tract under lease to the nonparticipating owner such tract's allocated share
of the actual reasonable expenditures incurred in drilling, testing, completing, equipping, and
operating the well, including a charge for supervision, together with a risk charge. Should
the drilling owner require payment with the election, failure to include payment in full with
the election in accordance with Subitem (a)(i)(ff) of this Paragraph, regardless of the
election, shall be deemed an election not to participate. Should a notified owner elect to
participate by satisfying the requirements of this Paragraph and subsequently fail to pay any
actual costs that were not previously paid by that owner as set forth in the AFE, the drilling
owner, in addition to any other available legal remedies, shall be entitled to recover such
unpaid costs out of production of such well. For purposes of this Subparagraph, and except
where the drilling owner has required payment with the election in accordance with Subitem
(a)(i)(ff) of this Paragraph, the payment of estimated drilling costs shall be deemed timely
if received by the drilling owner within sixty days of the actual spudding of the well or the
receipt by the notified owner of the notice required by this Subsection, whichever is later.
The risk charge for a unit well, substitute unit well, or cross-unit well that will serve as the
unit well or substitute well for the unit shall be two hundred percent of such tract's allocated
share of the cost of drilling, testing, and completing the well, exclusive of amounts the
drilling owner remits to the nonparticipating owner for the benefit of the nonparticipating
owner's royalty and overriding royalty owner. The risk charge for an alternate unit well or
cross-unit well that will serve as an alternate unit well for the unit shall be one hundred
percent of such tract's allocated share of the cost of drilling, testing, and completing such
well, exclusive of amounts the drilling owner remits to the nonparticipating owner for the
benefit of the nonparticipating owner's royalty and overriding royalty owner.
(ii)(aa) During the recovery of the actual reasonable expenditures incurred in drilling,
testing, completing, equipping, and operating the well, the charge for supervision, and the
risk charge, the nonparticipating owner who has furnished the information set forth in
Subitem (gg) of this Item shall be entitled to receive from the drilling owner for the benefit
of his lessor royalty owner that portion of the proceeds from the sale or other disposition of
production due to the lessor royalty owner under the terms of the contract or agreement
creating the royalty between the lessor royalty owner and the nonparticipating owner
reflected of record at the time of the risk charge notice.
(bb) In addition, during the recovery set forth in Subitem (aa) of this Item, the
nonparticipating owner shall receive from the drilling owner for the benefit of the overriding
royalty owner a portion of the proceeds from the sale or other disposition of production that
is the lesser of: (I) the nonparticipating owner's total percentage of actual overriding royalty
burdens associated with the existing lease or leases which cover each tract attributed to the
nonparticipating owner reflected of record at the time of the risk charge notice; or (II) the
difference between the weighted average percentage of the total actual lessor royalty and
overriding royalty burdens of the drilling owner's leasehold within the unit and the weighted
average percentage of the total actual lessor royalty of the nonparticipating owner's leasehold
within the unit reflected of record at the time of the risk charge notice. Payment of the
amount due shall be made in accordance with the terms of the contract or agreement creating
the overriding royalty.
(cc) The share that is to be received by the nonparticipating owner on behalf of its
lessor royalty owner and overriding royalty owner shall be reported by the drilling owner in
accordance with Part 2-B of Chapter 13 of Title 31 of the Louisiana Revised Statutes of
1950.
(dd) Nothing in this Section shall relieve any lessee of its obligations to pay, from
the commencement of production, any lessor royalty and overriding royalty due under the
terms of his lease and other agreements during the recoupment of recoverable costs and the
risk charge, or shall relieve any lessee of its obligation to pay all lessor royalty and overriding
royalty due under the terms of his lease and other agreements after the recoupment of
recoverable costs and the risk charge. The lessor royalty owner and overriding royalty owner
shall follow the same procedure and have the same remedies against the nonparticipating
owner provided in Part 6 of Chapter 7 of Title 31 of the Louisiana Revised Statutes of 1950
or Part 2-A of Chapter 13 of Title 31 of the Louisiana Revised Statutes of 1950.
(ee) Except as provided in this Paragraph, the drilling owner's obligation to pay the
lessor royalty and the overriding royalty to the nonparticipating owner in no way creates an
obligation, duty, or relationship between the drilling owner and any person to whom the
nonparticipating owner is liable, contractually or otherwise. In the event of nonpayment by
the nonparticipating owner of the lessor royalty and overriding royalty due, and as a
prerequisite to a judicial demand for damages against the drilling owner, the lessor royalty
owner and overriding royalty owner shall provide written notice of such failure to the
nonparticipating owner and drilling owner. The lessor royalty owner and overriding royalty
owner shall follow the same procedure and have the same remedies against the drilling
owner, except dissolution, provided in Part 6 of Chapter 7 of Title 31 of the Louisiana
Revised Statutes of 1950 or Part 2-A of Chapter 13 of Title 31 of the Louisiana Revised
Statutes of 1950. The written notice provided to the drilling owner by the lessor royalty
owner or overriding royalty owner shall include a true and complete, or redacted, copy of the
mineral lease or other agreement creating any lessor royalty or overriding royalty. If the
drilling owner provides sufficient proof of payment of the royalties to the nonparticipating
owner, then the lessor royalty owner and overriding royalty owner shall have no cause of
action against the drilling owner for nonpayment.
(ff) In the event of nonpayment by the drilling owner of the lessor royalty and
overriding royalty due to the nonparticipating owner for the benefit of the lessor royalty
owner and overriding royalty owner, and payment by the nonparticipating owner of a good
faith estimate of the lessor royalty and overriding royalty due, the nonparticipating owner
shall provide written notice of such failure to pay to the drilling owner as a prerequisite to
a judicial demand for damages. The drilling owner shall have thirty days after receipt of the
required notice within which to pay the royalties due or to respond in writing by stating a
reasonable cause for nonpayment. If the drilling owner fails to make payment of the royalties
or fails to state a reasonable cause for nonpayment within this period, the court may award
to the nonparticipating owner as damages double the amount of royalties due, interest on that
sum from the date due, and a reasonable attorney fee regardless of the cause for the original
failure to pay royalties. If the drilling owner provides sufficient proof of payment of the
royalties to the nonparticipating owner, then the nonparticipating owner shall have no cause
of action against the drilling owner for nonpayment.
(gg) Each nonparticipating owner entitled to receive a portion of the proceeds from
the sale or other disposition of production as provided in Subitems (aa) and (bb) of this Item
shall furnish to the drilling owner both of the following:
(I) A true and complete, or redacted, copy of the mineral lease or other agreement
creating any lessor royalty or overriding royalty for which the nonparticipating owner is
entitled to receive a portion of the proceeds from the sale or other disposition of production;
provided that a redacted copy may be submitted in lieu of a complete copy, if it contains in
full the provisions dealing with the determination and calculation of the portion of proceeds
from the sale or other disposition of production due to the lessor or overriding royalty owner.
(II) A sworn statement of the ownership of the nonparticipating owner as to each
tract embraced within the unit in which the nonparticipating owner has an interest and the
amounts of the lessor royalty and overriding royalty burdens for which the nonparticipating
owner is entitled to receive a portion of the proceeds from the sale or other disposition of
production. In its discretion, the nonparticipating owner may also provide to the drilling
owner copies of any title opinions in its possession or portions thereof on which the
statement of ownership is based in whole or in part; however, doing so shall not relieve the
nonparticipating owner of its obligation to provide the sworn statement described in this
Subsubitem.
(hh) Each nonparticipating owner who has received from the drilling owner a portion
of the proceeds from the sale or other disposition of production for the benefit of a lessor
royalty owner or overriding royalty owner, based only on the information furnished pursuant
to Subitem (gg) of this Item, shall indemnify and hold harmless the drilling owner from and
against any claims asserted against the drilling owner related to any amounts paid to the
nonparticipating owner. The nonparticipating owner shall also restore to the drilling owner
any amounts paid by the drilling owner to the nonparticipating owner in reliance on the
information furnished pursuant to Subitem (gg) of this Item, if and to the extent determined
to be incorrect.
(ii) No change or division of the ownership of a nonparticipating owner who is
receiving a portion of the proceeds from the sale or other disposition of production from the
drilling owner shall be binding upon the drilling owner for the purpose of paying to the
nonparticipating owner for the benefit of its lessor royalty owner or overriding royalty owner,
under Subitems (aa) and (bb) of this Item, until such new nonparticipating owner acquiring
any interest has furnished the drilling owner, at the drilling owner's address as reflected in
the records maintained by the department, with a certified copy of the instrument or
instruments, constituting the chain of title from the original nonparticipating owner.
(jj) In the event that the drilling owner secures a title opinion from a licensed
Louisiana attorney covering a tract of land in a unit burdened by a mineral lease, or other
agreement, that creates any lessor royalty or overriding royalty for which a nonparticipating
owner is entitled to receive from the drilling owner a portion of the proceeds from the sale
or other disposition of production, the actual reasonable costs incurred by the drilling owner
in obtaining the title examination and the title opinion may, at the drilling owner's sole
discretion, be chargeable as a cost recoverable by the drilling owner out of the tract's
allocable share of production. In such case, the drilling owner shall provide the
nonparticipating owner applicable excerpts of such title opinion.
(iii) Any owner not notified shall bear only his tract's allocated share of the actual
reasonable expenditures incurred in drilling, testing, completing, equipping, and operating
the unit well or in connection with any subsequent unit operation, including a charge for
supervision, which share shall be subject to the same obligation and remedies and rights to
own and recover out of production in favor of the drilling owner as provided in this
Subsection. The drilling owner shall deliver to the owner not notified, for the benefit of his
lessor royalty owner or overriding royalty owner, the proceeds attributable to the lessor
royalty and overriding royalty burdens as described in this Section.
(iv) Any owner of a well described in Subparagraph (a) of this Paragraph who is
conducting, intends to conduct, or has conducted a subsequent unit operation on such well
may notify all other owners in the unit of the conducting or the intent to conduct such
operation in the form and manner of the risk charge notice described in Subparagraph (a) of
this Paragraph, and in that event, all of the provisions of this Paragraph shall be applicable
to that subsequent unit operation to the same extent, and in the same manner, that they would
apply to the drilling of a new well, subject to Items (v) and (vi) of this Subparagraph.
(v) The risk charge for any subsequent unit operation shall be one hundred percent
of the tract's allocated share of the actual reasonable expenditures incurred in conducting the
subsequent unit operation, including a charge for supervision, regardless of whether the
wellbore on which such operations were conducted is a unit well, alternate unit well,
substitute unit well, or cross-unit well.
(vi) The notice to be provided by the drilling owner to the other owners in the unit
pursuant to Item (iv) of this Subparagraph shall contain:
(aa) A detailed description identifying the well to which the subsequent unit
operation relates, the work associated therewith, and the new location and objective depth
of the well if changed as a result of such work.
(bb) A copy of the order of the secretary creating the drilling unit to which the
subsequent unit operation relates.
(cc) An AFE that shall include a detailed estimate, or the actual amount, of the cost
of conducting the subsequent unit operation and that is dated within one hundred twenty days
of the date of the mailing of the notice.
(dd) An estimate of the notified owner's approximate percentage of well
participation.
(ee) A copy of all available logs, core analysis, production data, and well test data
with respect to the well that has not been made public.
(vii) If, on the date of the notice of the subsequent unit operation, there are still
amounts uncollected on a risk charge from a nonparticipating owner for the drilling of, or a
previous operation on, the wellbore for which the notice is sent, the drilling owner may
recoup a risk charge from that nonparticipating owner on the costs of the noticed subsequent
unit operation only if the drilling owner sends that nonparticipating owner a notice of the
subsequent unit operation. The notice may offer that nonparticipating owner the opportunity
to participate in the subsequent unit operation upon payment to the drilling owner, within
sixty days of the date of receipt of the notice, of the nonparticipating owner's entire
outstanding balance due for all previous operations on the wellbore, including any amounts
uncollected on a risk charge. If the drilling owner sends the nonparticipating owner the
notice, the drilling owner may, in addition to recouping the costs of a subsequent unit
operation, recoup a risk charge on the costs of the subsequent unit operation from the
production from the well attributable to the tract under lease to that nonparticipating owner
if it fails to elect timely to participate in the subsequent unit operation, or if it fails to pay
timely the entire outstanding balance due for all previous operations on the wellbore, or if
it fails to pay timely its share of the estimated costs of the subsequent unit operation
determined by the AFE.
(c) Should a drilling unit be created by order of the secretary around a well already
drilled or drilling and including one or more tracts as to which the owner or owners thereof
had not participated in the risk and expense of drilling such well, then the provisions of this
Subsection for notice, election, and participation shall be applicable as if a well were being
proposed by the owner who drilled or was drilling such well; however, the cost of drilling,
testing, completing, equipping, and operating the well allocable to each tract included in the
unit shall be reduced in the same proportion as the recoverable reserves in the unitized pool
have been recovered by prior production, if any, in which said tract or tracts did not
participate prior to determining the share of cost allocable to such tract or tracts.
(d)(i) Should a drilling unit be revised by order of the secretary so as to include an
additional tract or tracts, then the provisions of this Subsection for notice, election, and
participation shall be applicable to such added tract or tracts and the owner thereof as if a
well were being proposed by the owner who had drilled the well; however, the cost of
drilling, testing, completing, equipping, and operating the unit well shall be reduced in the
same proportion as the recoverable reserves in the unitized pool have been recovered by prior
production, if any, in which said tract or tracts did not participate prior to determining the
share of cost allocable to the subsequently included tract or tracts.
(ii) Should a drilling unit be revised by order of the secretary as to exclude a tract or
tracts, the cost of drilling, testing, completing, equipping, and operating the unit well shall
be reduced in the same proportion as the recoverable reserves in the unitized pool have been
recovered by prior production to determine the share of cost allocable to the subsequently
excluded tract or tracts.
(e)(i) The provisions of Subparagraph (b) of this Paragraph with respect to the risk
charge shall not apply to any unleased interest not subject to an oil, gas, and mineral lease.
(ii) Notwithstanding the provisions of Subparagraph (b) of this Paragraph, the lessor
royalty owner and overriding royalty owner shall receive that portion of production proceeds
due to them under the terms of the contract creating the royalty.
(f) In the event of a dispute relative to the calculation of unit well costs or
depreciated unit well costs, the secretary shall determine the proper costs after notice to all
interested owners and a public hearing thereon.
(g) Nothing contained herein shall have the effect of enlarging, displacing, varying,
altering, or in any way whatsoever modifying or changing the rights and obligations of the
parties thereto under any contract between or among owners having a tract or tracts in the
unit.
(h) The owners in the unit to whom the risk charge notice provided for in this
Section may be sent are the owners of record as of the date on which the risk charge notice
is sent.
(i) Failure of the drilling owner to provide to an owner a risk charge notice as
required by Subparagraph (a) of this Paragraph shall not affect the validity of the risk charge
notice properly provided to any other owner in the unit.
(4) If there is included in any unit created by the secretary one or more unleased
interests for which the party or parties entitled to market production therefrom have not made
arrangements to separately sell or otherwise dispose of the share of such production
attributable to such tract, and the unit operator sells or otherwise disposes of such unit
production, then the unit operator shall pay to such party or parties such tract's pro rata share
of the proceeds of the sale or other disposition of production within one hundred eighty days
of such sale or other disposition.
B. Should the owners of separate tracts embraced within a drilling unit fail to agree
upon the pooling of the tracts and the drilling of a well on the unit, and should it be
established by final and unappealable judgment of court that the secretary is without
authority to require pooling as provided for in Subsection A of this Section, then, subject to
all other applicable provisions of this Chapter, the owner of each tract embraced within the
drilling unit may drill thereon. The allowable production therefrom shall be such proportion
of the allowable for the full unit as the area of the separately owned tract bears to the full
drilling unit.
C. For purposes of this Section, the following definitions shall apply:
(1) "Deepening" means an operation whereby an existing wellbore serving as a unit
well, alternate unit well, substitute unit well, or cross-unit well is extended to a point within
the same unit and unitized interval beyond its previously drilled total vertical depth.
(2) "Extension" means an operation related to a horizontal well whereby a lateral is
drilled in the same unitized interval to a greater total measured depth or extent than the
lateral was drilled pursuant to a previous proposal.
(3) "Recompletion" means an operation to attempt a completion in a portion of the
unitized interval in the existing wellbore different from the initial completion in the unitized
interval.
(4) "Rework" means an operation conducted in the wellbore after it is initially
completed in the unitized interval in a good faith effort to secure, restore, or improve
production in a stratum within the unitized interval that was previously open to production
in that wellbore, including re-perforating, hydraulic fracturing and re-fracturing, tubing repair
or replacement, casing repair or replacement, squeeze cementing, setting bridge plugs, and
any essential preparatory steps. "Rework" does not include routine maintenance such as
acidizing, sand or paraffin removal, repair, or replacement of downhole equipment such as
rods, pumps, packers, or other mechanical devices.
(5) "Sidetrack" means the intentional deviation of an existing wellbore serving as a
unit well, alternate unit well, or substitute unit well from its actual or permitted bottom hole
location within that unit and unitized interval to a different bottom hole location within the
same unit and unitized interval or done to drill around junk in the hole or to overcome other
mechanical difficulties in order to reach the permitted bottom hole location.
(6) "Subsequent unit operation" means a recompletion, rework, deepening, sidetrack,
or extension conducted within the unitized interval for a unit or units created under R.S.
30:9(B).
(7) "Unitized interval" means the subsurface interval defined in the department order
creating the unit or units that the existing wellbore is serving as a unit well, alternate unit
well, substitute unit well, or cross-unit well.
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