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Pursuing natural gas opportunities in Louisiana

8/03/2009

by DAVID L. PRATT II

The game and the results are familiar: petroleum prices go up, landowners become wealthy, the bubble bursts, the lull period ensues and the cycle eventually begins again. During the urban drilling and natural gas boom of 2008 ? or what a great friend of mine referred to as the ?gas rigs popping up in neighborhoods like dandelions pop up in the front yard? period ? technological advances and unprecedented bonus payments led to tremendous growth in the oil and gas business. But with natural gas prices off of their historic highs, many oil and gas professionals and prospectors are seeking new opportunities. Among these opportunities is the developing natural gas play in the Haynesville Shale, which is located predominately in northwestern Louisiana.

As the development of the Haynesville Shale progresses, and as many of the oil and gas professionals in Texas begin to migrate eastward, it is important for those accustomed to Texas oil and gas law to develop an understanding of Louisiana law as it relates to mineral interests. Indeed, there are critical differences between the laws of Texas and Louisiana that can have a significant impact on identifying who has the capacity to enter into mineral leases, timing drilling operations and classifying those who are entitled to receive the financial benefits of production.

The most critical difference between Texas and Louisiana laws is the treatment of mineral ownership when the landowner sells the surface but retains the minerals. Under Texas law, real property may be horizontally severed such that title to the surface may be vested in one party, while title to the minerals is vested in another. This process, commonly known as ?severance? of estates, occurs either through a grant of the minerals in a deed or lease or by reservation of the minerals in a conveyance of the property. The outcome is two separate and distinct estates in the land?the surface estate and the mineral estate. As such, the minerals underlying a tract of land in Texas are subject to absolute ownership, separate and apart from the surface under which those minerals are found. 

In contrast, Louisiana law does not recognize separate estates that are subject to absolute ownership. Rather, a retention of mineral rights in Louisiana creates an interest known as a ?servitude,? which is the right to use land belonging to another for the purpose of exploring for and producing minerals and reducing them to possession and ownership. As a result, the owner of a mineral servitude in Louisiana does not acquire absolute ownership of the minerals until they are actually removed from the ground. 

More importantly, the right to explore for and produce minerals from land in Louisiana that is subject to a mineral servitude is not unlimited in duration. Indeed, one of the most critical aspects of Louisiana mineral servitudes is the concept of prescription?or loss of servitude rights?resulting from non-use for a period of ten years. To ?use? the land in a manner sufficient to avoid prescription, the owner of a mineral servitude must engage in either actual production of minerals, or good-faith operations for the discovery and production of minerals before the expiration of the 10-year period. In such cases, the servitude may be extended beyond the 10-year period such that the servitude owner may indefinitely realize the benefits of royalties and payments that flow from the production of minerals from the land. But to achieve this right to indefinite benefits, the servitude owner must ensure that drilling operations begin before the 10-year period expires.

Ultimately, mineral interest owners in Texas and Louisiana are able to realize the same results of perpetual benefits that flow from a producing mineral deposit. But the hoops and obstacles that landowners must navigate to achieve those results in Louisiana highlight the importance of having a clear understanding of the applicable law.

David L. Pratt II is an associate attorney with Decker, Jones,

McMackin, McClane, Hall & Bates, P.C.,and can be reached at 817.336.2400 or dpratt@deckerjones.com.

Fort Worth Business Press

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