Oct 2012 Legal Update by Pat S. Ottinger
LOUISIANA LEGAL UPDATE
By Patrick S. Ottinger
Ottinger Hebert Law Firm
Two bills were adopted in the 2012 legislative session which should be of interest to landmen. They are the following, to-wit:
A. Act No. 795 enacting La. Rev. Stat. Ann. § 30:28I:
“Pre-Entry Notice” to Surface Owner
Act No. 795 of 2012 enacts La. Rev. Stat. Ann. § 30:28I. That statute directs the Commissioner of Conservation to hold a rule-making hearing under the Administrative Procedure Act and thereafter “promulgate rules, regulations, and orders necessary to require an operator, agent, or assigns, to provide a single notice to the surface owner of lands on which the drilling operations are to be conducted.” That notice is referred to in the statute as a “pre-entry notice.”
The statute provides the following parameters to be embodied in the rule to be promulgated by the Commissioner of Conservation, to-wit:
(a) The “pre-entry notice” must be sent to the surface owner no less than thirty days prior to construction operations of a drilling location on the property by the operator for the purpose of commencing drilling operations on the well described in the “pre-entry notice.” The notice must be provided “in the form required by the commissioner,” and no subsequent notice to the surface owner is required.
(b) The “pre-entry notice” must include the following information, to-wit:
(i) The contact name, email address, and phone number for the operator.
(ii) The proposed well name and pad location including section, township, range, and surface plat of the pad location, if available.
(iii) A statement that the operations will commence sometime later than thirty days after the date of the notice.
(c) No “pre-entry notice” shall be required if the operator has a “contractual relationship” with the surface owner.
(d) If the operator is facing “loss or termination of a mineral lease,” or if other “emergency circumstances” might exist, the operator may make application to the Commissioner to either waive the necessity for the “pre-entry notice” or “reduce the thirty-day requirement for such notice.” The Commissioner may act in respect of such notice “without notice or hearing.”
(e) No “pre-entry notice” is necessary “for preparatory activities such as an inspection, surveying, or staking.” Further, it is provided that neither the statute nor the rules promulgated pursuant thereto “shall be construed as altering or reducing the doctrine of correlative rights or altering or reducing the operator’s obligation to conduct his operations with due reducing the operator’s obligation to conduct his operations with due regard for the rights of the surface owner.”
(f) If an existing drilling pad is already located on the property, no “pre-entry notice” is necessary unless the operator intends to “expand the drilling pad or access road.”
The statute defines a “surface owner” as “the person or persons shown in the assessor’s rolls of the parish as the owner of the surface rights for the land for which a pre-entry notification would be required.”
Finally, it is stated that, “[a]fter receipt of the pre-entry notice, the surface owner shall make no alterations to a completed drilling location with the malicious intent to interfere with the drilling operations for which the owner received the pre-entry notice.”
Existing law already provides for a notice to the land owner if the well is proposed to be drilled at a location within five hundred (500’) feet of any “residential or commercial structure.”
If the land is not subject to a mineral servitude, the land owner would own the “right” to the minerals in the land and, presumably, has granted a mineral lease to the operator such that the statute does not apply by reason of the existence of a “contractual relationship” with the surface owner. Thus, seemingly, the statutory definition of “surface owner” is intended to be a landowner whose land is subject to a mineral servitude; only such a person would be considered the “owner of surface rights for the land.”
By tethering the determination of who is a “surface owner” to whom a “pre-entry notice” is due, to the records of the Assessor, rather than of the Clerk of Court, the statute imposes a new burden on an operator; one would think that the records of the Assessor do not permit one to discern whether assessed land is, or is not, subject to a mineral servitude.
If land is co-owned, and the operator has obtained the consent of not less than eighty (80%) per cent of the owners of the land, the operator may lawfully operate, even if some interest less than twenty (20%) per cent has not consented to the operation. It is unclear if this right to operate is impeded by this statute.
If a well is producing and is later deepened or sidetracked (as opposed to merely being reworked), it is not clear if another “pre-entry notice” is required. Such an activity involves the use of a drilling rig. Hopefully, this will be clarified in the rule to be promulgated by the Commissioner of Conservation.
Although it is provided that no “pre-entry notice” shall be required if the operator has a “contractual relationship” with the surface owner, a question is presented as to whether a party operating under a farmout agreement meets this definition. Until such an operator has drilled a well and earned an assignment of the mineral lease, it is a stranger to the surface owner, and probably cannot be said to have a “contractual relationship” with the lessor.
One might also be concerned that the carve-out for “loss or termination of a mineral lease” might not be sufficient protection to an operator who, while not facing lease termination within a month, still is subject to contractual limitations whereby it cannot operate, say, during a hunting or agricultural season – a not uncommon provision in certain parts of the state. Hopefully, this circumstance would constitute an “emergency circumstance” in the eyes of the Commissioner of Conservation.
The statement that the “surface owner shall make no alterations to a completed drilling location with the malicious intent to interfere with the drilling operations for which the owner received the pre-entry notice,” is not particularly comforting if it is to be inferred that interference by the surface owner is problematic only if it is “malicious.” “Self-help” is never condoned by the courts, and this should not be construed as altering that well-established tenet.
Act No. 743 amending La. Rev. Stat. Ann. § 30:5.1 and enacting La. Rev. Stat. Ann. § 30:5.1B:
Authority of the Commissioner to Create Units for “Ultra Deep Structures”
In 1999, the Legislature adopted Act No. 1094 which enacted La. Rev. Stat. Ann. § 30:5.1. That statute authorized the Commissioner to create a unit for a “deep pool” which is a “pool at a depth in excess of fifteen thousand feet true vertical depth.”
By Section 1 of Act No. 743, the text of La. Rev. Stat. Ann. § 30:5.1 was renumbered so that the authority to create a unit for a “deep pool” has been continued – with very minor changes -- as Part A of that statute.
Part B of that statute has now been added. It essentially mirrors the structure of Part A (pertinent to “deep pool units”), and now authorizes the Commissioner to create a unit for an “ultra deep structure,” being a “structure at a depth in excess of twenty two-thousand feet true vertical depth.”
Part A of La. Rev. Stat. Ann. § 30:5.1 (originally enacted in 1999) regulates the creation of “deep pool” units, while Part B (enacted in 2012) governs the creation of “ultra deep structure units.” For purposes of Part A, the definition of a “pool” would be the general definition of that term in the Conservation Act, which is:
“Pool” means an underground reservoir containing a common accumulation of crude petroleum oil or natural gas or both. Each zone of a general structure which is completely separated from any other zone in the structure is covered by the term “pool” as used in this Chapter. However, to promote the development and production of marginally commercial sands, a zone may contain one or more common accumulations and the overall stratigraphic interval of the zone may be considered and treated as a pool for all purposes of this Chapter.
For purposes of Part B, the term “structure” is defined “as a unique geologic feature that potentially traps hydrocarbons in one or more pools or zones.”
The maximum size of an “ultra deep structure unit” is 9,000 acres. The applicant for such a unit must submit a “plan of development,” as to which it is statutorily to be presumed “that a reasonable plan of development will include at least one well for each three thousand acres contained in the unit.” An “ultra deep structure unit” may “be served by one or more wells.”
Interested parties have the right to seek the revision or dissolution of an “ultra deep structure unit” if the Commissioner determines, after a hearing, that such relief is appropriate. In such hearing, the operator has the burden of proof. “If the commissioner determines that the unit operator has not substantially complied with the plan of development, the unit operator shall be required to show cause why the unit should not be reduced in size.”
Although Part B(11) of the statute provides that the “provisions of Subsection A of this Section shall not be applicable to any unit well drilled in a unit established pursuant to this Subsection,” that language would not seem to explicitly state that a “deep pool unit” could not be created for subsurface depths deeper than 22,000 feet since such depths are, obviously, also deeper than 15,000 feet.
Part B(13) of the statute reads, as follows:
While the provisions of this Subsection authorize the initial creation of a single unit to be served by one or more wells, nothing herein shall be construed as limiting the authority of the commissioner to approve the drilling of alternate unit wells on drilling units established pursuant to R.S. 30:9(B).
This passage parallels the corresponding provisions in Part A(9) of the statute. This express reference to “alternate unit wells” in La. Rev. Stat. Ann. § 30:5.1(9), prior to the enactment of Act No. 743, was cited as legislative recognition of the authority to create such units, by the court in a case challenging the authority of the Commissioner to designate alternate unit wells.
Pat Ottinger is a partner in Ottinger Hebert, L.L.C., where he has practiced oil and gas law since 1974. He is a graduate of the Paul M. Hebert Law Center at Louisiana State University. He is licensed to practice in Louisiana and Texas. Since 1996, he has taught the course in Mineral Rights at the Paul M. Hebert Law Center. He is the author of A Course Book on Louisiana Mineral Rights. He is an experienced mediator and arbitrator, rendering such services through The Patterson Resolution Group. He currently serves on the Advisory Council of the Mineral Law Institute at LSU. He is a member of the Mineral Code Committee, Prescription Committee, Counter-letter Committee and the Tax Sales Committee of the Louisiana State Law Institute. He is a Past President of the Louisiana State Bar Association and served as Chair of the Mineral Law Section of that association. He served as City-Parish Attorney of Lafayette Consolidated Government from January 2004 to February 2011.