BASIC MINERAL LAW
FOR FOREST LANDOWNERS
PAUL D. SPILLERS,
THEUS, GRISHAM, DAVIS & LEIGH
3129 Mercedes Dr
P. O. Drawer 4768
Monroe, Louisiana 71201
(318) 388-0100 – phone
(318) 322-8813 – fax
NOTE: These materials are intended for educational purposes only. Consult your own legal advisor before relying on these materials.
BASIC MINERAL LAW FOR FOREST LANDOWNERS
1. What is a “mineral”?
Minerals include oil and gas, coal, gravel, soil itself, sulfur, underground water, and “other substances occurring naturally in or as a part of the soil, or geological formations on or underlying the land”.
2. What law governs minerals in Louisiana?
Louisiana law, not federal. The part of our law that governs minerals is known as the Louisiana Mineral Code. The Louisiana Mineral Code is distinctly different from the mineral law of other states.
B. MINERAL SERVITUDE:
1. Is it possible to own the minerals under your land?
No. Unlike in other states, you can not own the minerals under your land in Louisiana.
Under our law you can not own minerals under your land. Ownership of minerals begins only when you pump the oil and gas out of the ground and put it in a tank or a pipeline. Ownership begins with possession. Prior to possession the landowner has only a mineral servitude.
2. What is a mineral servitude?
A mineral servitude is the right to explore for minerals and bring them to the surface. The landowner usually leases this right to companies in the exploration business.
3. Can I sell my land and keep the minerals?
Yes. The deed must clearly state that you are “reserving all minerals”. You can reserve all, or some fractional part, of your mineral servitude. You may also reserve certain minerals, such as oil and gas, but not other minerals. Your deed should clearly and precisely specify what minerals you are reserving. The failure to specifically reserve a mineral results in the mineral being conveyed to the purchaser. Oral agreements about the minerals are not enforceable.
4. How long can I keep my minerals?
You keep your mineral servitude as long as you own the surface. If you sell the surface and reserve the minerals the minerals will then pass to the current surface owner after ten (10) years of “non-use” of the servitude. The drilling of a well (even a dry hole) is a “use” that starts the running of another ten year prescriptive period. If you do not own the surface you must make some good faith effort to use your servitude (drill a well) every ten (10) years in order to maintain ownership of your mineral servitude.
C. MINERAL LEASE:
1. What is a “mineral lease”?
A mineral lease is a contract in which the mineral servitude owner (Lessor) grants to the Lessee the right to explore for and produce minerals. The parties to the contract are, generally, free to include whatever terms and provisions mutually agreed upon. Oil companies will present a boilerplate lease form for you to sign. Get advice before you sign. You have the right to negotiate for more favorable terms.
2. What are the basic terms of a mineral lease?
a) Bonus Money: The amount paid initially to the Lessor. This usually is stated in so many dollars per acre. For example, $200.00 per acre. Some landowners have recently been paid over $20,000 per acre.
b) Royalty: This is the percentage of mineral production paid by the Lessee to the Lessor. For example, it could be a 20% royalty. I have seen leases that provide as little as 1/8, and as much as 1/3, royalty.
c) Primary Term: The length of the lease. The primary term is usually three (3) years, but can never be more than ten (10) years. Shorter is better for the landowner.
3. What lease terms benefit the Lessor (landowner)?
a) Vertical Pugh Clause – The lease is continued beyond the Primary Term only to the deepest point drilled during the Primary Term. All depths below are free to be re-leased by the landowner.
b) Horizontal Pugh Clause – The lease is continued beyond the Primary Term only on lands included in a production unit. All other lands outside the unit are free to be re-leased by the landowner.
c) No drilling without Lessor’s consent. Use to protect against drilling near your home or in other sensitive areas.
d) Location and construction specifications of roads.
e) Surface damages. Specify amounts for timber, drill sites, etc.
f) Transportation (pipeline) expenses are not charged to landowner.
g) Required depth of pipeline.
h) Shut-in Royalty. Amount paid to Lessor when well is a producer, but there is no market for oil and gas. Increase amounts found in form lease.
i) No permanent above-ground structures, other than well-head.
4. When does a mineral lease terminate?
A mineral lease terminates at the end of the primary term or, if there is production, when the well stops producing in “paying quantities”. A company can not maintain a lease at a financial loss for an extended period of time.
5. A producing well was drilled many years ago on my land. The three acre well site and access road are not maintained very well. There are lots of trash and abandoned pipes laying around. I am fearful there may be hazardous chemicals in the soil. Trees and grass will not grow. What can I do?
The company has an obligation to clean up its mess. It must use as little surface as is reasonably possible, restore the surface after drilling and not allow dangerous chemicals to escape. Make a written demand upon the company that they clean up their mess. Consider legal action if not cleaned up within thirty (30) days.
6. The oil company has not paid me my royalties for several months. What can I do?
Make a written demand, by certified mail, for payment. If the company does not pay within thirty (30) days, the company will then owe double royalties, plus any attorney fees you have incurred. In addition, the company risks lease cancellation if the royalties are not timely paid.
1. What is a “unit”?
The State of Louisiana, Department of Conservation has the authority to “force pool” acreage into oil and gas production units, often 640 acres in size. A unit includes only one productive sand. After creation of the unit all mineral interest owners within the unit receive their proportionate share of mineral production from all wells located anywhere within the unit boundaries. Unit boundaries, with many dollars at issue, are often strenuously disputed by mineral Lessees and landowners. The Department of Conservation, after a public hearing, makes a decision as to the unit boundaries.
2. Are all wells unitized?
No. Shallow wells usually are not unitized. There are thousands of gas wells located in the Monroe Gas Rock Formation (Ouachita, Morehouse, and Union Parishes) that are approximately 2,000 feet deep that are not unitized. Production from a non-unitized well is not shared with other adjacent landowners.
3. What happens if I do not sign a Lease, a producing well is drilled nearby, and my 20 acres of land is included within the 640 acre Unit?
You are now in the oil and gas business! You now own a “working interest” in the well. That means you have an ownership interest in the well and all income and expenses associated with the well. You will receive 100% of your proportionate share (20/640) of all production from the well, not some smaller royalty percentage. You are also exposed to all liabilities and claims associated with the well. You may attempt to insulate yourself from these liabilities by using a limited liability company that will own your mineral interest.
4. I leased my land. A well was drilled on my neighbor’s adjoining land but within 300 feet of my property. I suspect, but can not prove, the well is pulling oil and gas from under my property. My land is not within the production unit and I am receiving no royalty payments. Am I out of luck?
Maybe not. Your mineral Lessee has an obligation under our Mineral Code to protect your property from drainage and to fully develop minerals under your land. You could make a demand upon your mineral Lessee to drill another well that would protect your land from drainage from the adjoining well and fully develop your minerals.
Mineral interests have provided Louisiana landowners significant income. The value of minerals have increased dramatically over the last few years and are expected to increase even more in the future. A landowner who has basic knowledge of mineral law is better prepared to manage, and profit, from this facet of land ownership.