A new law has been passed by the Louisiana legislature imposing a substantial new penalty on working interest owners in conservation units who do not contribute a share of the well costs. The law, Act No. 115 of 2008, was sponsored by Henry Burns (R-Haughton) and is set to become law in August of this year, based on Governor Jindal's failure to sign or veto the measure.

Act No. 115 allows the unit operator to charge a 200% "risk penalty" on any "unleased interest owner" who fails to pay their share of costs upon being invoiced.

Under early rules developed by the courts, when there were owners or lessees in an involuntary conservation unit who had not leased to the unit operator and who had not consented to participate in drilling a unit well, the operator could sell the non-consenting party's share of the production and deduct the non-consenting party's share of the drilling, completion and operating costs. Then, the Louisiana legislature stepped in and started imposing a "risk penalty" of 100% of the drilling and completion costs, which the operator could charge against the non-consenting owner's share of mineral production in addition to the actual costs.

Now, Act No. 115 will raise that risk penalty amount to 200%.

However, another portion of the law continues to exempt landowners who don't lease at all from the risk penalty. What does this mean? The definition of "unleased interest owners" really includes only companies that take leases on interests in units but fail to contribute to the unit's operations. Apparently, if you do not lease at all, the operator can only charge your share of production for its share of actual drilling and completion costs. [Hat tip to Les B for clarifying what the amendment didn't change].

So what do you think? Is being an unleased interest owner in a unit an economically viable choice?