Replies to This Discussion

Permalink Reply by Robert B Dunlap on April 21, 2014 at 5:02

I've been in west Texas since Thursday, so just getting back to a computer and good internet access.

This is how I see the statute insofar as shifting financial risks is concerned. No statute has ever been cited to me that provides that the operator gets to use the lessor's royalties to recoup operating costs.  To the contrary, the prior version of 30:10 and the current version both provide that "Notwithstanding the provisions of Paragraph 2(b) the royalty owner and overriding royalty owner shall receive that portion of production due to them under the terms of the contract creating the royalty."  I think the phrase "shall receive that portion of production due them" is significant. If it read simply that the royalty owner was still entitled to royalties, then your position might have some sway in that the lessor could get (or have the right to get) the value of the royalties from the lessee.  But instead, the statute is clear from where the royalties are to come, production. Notably, 30:10 provides that from production is precisely where the operator is entitled to recover its costs and penalties. LSA-R.S. 30:10(2)(b).  So as I read 30:10, the risk stays the same for the operator; the operator has never had the right to use the royalties to recoup its costs.  Indeed, royalties are a cost of doing business if there is production. Now the non-op lessee can always terminate the lease to make the lessor an unleased mineral interest, but until then, the royalty owner should always get royalties when minerals are being produced from the royalty owner's lands.  Remember, the royalty owner is the in the weakest position vis a vis the operator, lessee and lessor.  We all know who's getting it in that menage trois... (sorry couldn't help myself)

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Permalink Reply by 1kw6x71km1v37 on April 21, 2014 at 7:41

I think it goes like this: A royalty owner must give notice to the operator to receive his royalty in production. Otherwise, he gets the proceeds of production.

There is a case no too long ago where the court ruled the operator has the right to recover his costs before anything else. The lessor has recourse only to the lessee for royalties due. I'm not sure it was really the best decision. I will try to dig it up.

Permalink Reply by Robert B Dunlap on April 21, 2014 at 7:48

Not sure if I'm replying correctly, but Cheap Shot, you are probably thinking of Gulf Explorer vs. Clayton Williams Energy, 964 So.2d 1042. 

Permalink Reply by Dion Warr, CPL on April 17, 2014 at 5:14

Robert D:

Before I get too far in the weeds here, do you have a link to the judgment to which you are referring, or a scan of what you have to post here?

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Permalink Reply by 1kw6x71km1v37 on April 17, 2014 at 6:08

I think, Mr. Dunlap, that you are entirely correct in your argument for retroactive application of the statute, and the district court was simply wrong in it's analysis and judgement. I doubt if CHK will be appealing here.

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Permalink Reply by Andrew on August 2, 2012 at 8:39

Got this email update today. It provides a broader overview of the changes than the specific part of the law I've discussed. One thing not mentioned below or previously on this thread is that the new law's language makes it much more clear that each WELL is a separate election and recoupment. This isn't really new, but I have heard a common tactic to pressure mineral owners to lease is to say that you don't get paid until all the wells in a unit pay out. The new language makes it abundantly clear this is not the case.

First, Act No. 743 adds a new subsection to La R.S. 30.5.1 authorizing the

Commissioner of Conservation to create "ultra deep" units, defined as structures

with a top at the depth below 22,000 feet, TVD.  Second, it makes major changes

to the "risk fee" provision in La. R.S. 30:10. Under Louisiana's risk fee

statute, a unit operator may offer all other owners the option to participate in

the cost, risk and expense of drilling a unit well; if an owner elects not to

participate, it is subject to a risk fee penalty.

 

The key changes to the current risk fee provision include:

* Making alternate unit wells and cross-unit wells eligible;

* Expanding the scope of the operator's notice to include a detailed AFE and estimate of an owner's percentage interest in the unit;

* Requiring that the operator's notice must be sent before "the actual spudding" of a well;

* Expanding the permitted method of delivery of the operator's notice and non-operator's response to include delivery by registered mail or other form of guaranteed delivery and notification method;

* Requiring a participating party to pay for drilling costs within 60 days of spudding the well or within 60 days of receipt of detailed invoices, as applicable;

* Requiring the drilling owner/operator to pay the non-participating party, during  the recoupment period, "that portion of production" due to the non-participant's royalty owners under the terms of the agreements creating such royalties as "reflected of record at the time of the well proposal";

* Requiring the drilling owner/operator to pay the non-participating party, during  the recoupment period, an amount  equal to the non-participant's overriding royalty burdens reflected of record at the time of the well proposal, with some limitations; and

* Providing for damages and attorneys fees (after notice) against the drilling owner/operator in the event drilling owner/operator fails to pay non-participants the burdens described above.

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Permalink Reply by Les Bamburg on August 2, 2012 at 9:28

Andrew, thanks for clarifying the treatment of non-consents of alternate unit wells.  This is consistent with my past experience where I had non-consented multiple wells in the same unit.

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Permalink Reply by HBP on August 2, 2012 at 11:00

Sort of interesting, but of note for some owners leased to a non-operator that may not be large corporation with funds to participate:

The amended 30:10 specifically does not create a duty between the royalty owner and the operator (unless you're leased to them) at the end of Subsection A (2) (b)(ii)(dd) , but it suggests a cause of action that the royalty owner may have against an operator for non-payment of royalties even when the operator is not their lessee in Subsection A (2) (b)(ii)(ee).

Subsection A (2) (b)(ii)(aa) says the operator must pay the nonparticpator amounts calculated according to the terms of the contract creating the royalty of record at the time of the well proposal.  With so many Memos filed to hide actual royalty rates and terms - this all may be hard to do in some circumstances. 

But overall, it will be interesting to see how it affects the bargaining power of the large companies over the small lessees in the more expensive wells.  Should give the small lessee some breathing room.

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Permalink Reply by Andrew on August 2, 2012 at 12:12

If the royalty was not of record, and the Lessee didn't furnish the operator with the lease and correct royalty (which they would be crazy not to do), the operator would possibly just pay the weighted average royalty of the whole unit. However, that is the maximum they would have to pay, so they may be reluctant to do that for fear of overpaying.

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Permalink Reply by Andrew on September 9, 2012 at 21:22

Here's an excellent synopsis by Randall Songy of the Onebane Law Firm.

http://www.onebane.com/Files/Newsletter/RCSEalert0731.pdf

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Permalink Reply by pip318 on January 17, 2014 at 1:45

I have a question about liability exposure for the mineral owner who chooses to force pool. Would the Unleased Mineral Interest have any direct liability stemming from a lawsuit related to the drilling or operation of the well?  For instance, if there was a serious accident or death during the drilling of a well, could the UMI be sued directly or would the well operator be sued and just treat that expense like any other well operating expense as it affects the UMI? 

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Permalink Reply by Andrew on January 19, 2014 at 20:14

To my knowledge a UMI has never been sued directly for unit operations, so the question hasn't been answered, but I strongly suspect the answer would be "no."

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