§10. Agreements for drilling units; pooling interests; terms and conditions; expenses

            A. When two or more separately owned tracts of land are embraced within a drilling unit which has been established by the commissioner 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.

            (1) Where the owners have not agreed by separate contract to pool, drill, and produce their interests, the commissioner 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.

            (a) 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 and gas 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.

            (b) 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.

            (2) In the event a drilling unit is formed by a pooling order by the commissioner 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 commissioner, 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 office of conservation, 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 commissioner 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 commissioner 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 commissioner 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 commissioner 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 commissioner 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.

            (3) If there is included in any unit created by the commissioner of conservation 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 commissioner 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 office of conservation 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.

            Acts 1984, No. 345, §1 and §2, eff. Jan. 1, 1985; Acts 1991, No. 595, §1; Acts 2008, No. 115, §1; Acts 2012, No. 743, §1; Acts 2016, No. 524, §1, eff. June 13, 2016; Acts 2022, No. 5, §1.