The Louisiana oil and gas system is based on a civil code as opposed to the Texas paradigm based on common law. This difference originated with the development of Louisiana by the French, while Texas, and the other 48 states, were developed under case law. There are critical differences between the laws of the states that can have a significant impact on identifying who has the right to enter into mineral leases, rules governing drilling operations, and determining who’s entitled to receive financial benefit from production.
MINERALS IN TEXAS:
In Texas there is the concept of severed estates in land, or the ability to sever ownership of the surface from ownership of all or part of the minerals underlying the surface. In Texas, and all other states except Louisiana, real property may be horizontally severed in that title to the surface may be vested in one party, while title to the minerals may be vested in another.
Severance of the surface from the minerals occurs either by a grant of the minerals in a deed or lease, or by reservation of the minerals in a conveyance of the property. This process results in two separate and distinct estates.
MINERALS IN LOUISIANA:
Louisiana law recognizes only two types of estates: one being a corporeal ownership of the soil, and the other being an incorporeal servitude for use of the soil. There can be no separate estate in, or severance of, the minerals underlying a tract of land because minerals in place are not “owned”. Consequently, a sale or reservation of mineral rights does not vest in the purchaser or reserving party an estate in the minerals. Transfer creates only a right to go upon the land to explore for, develop, and produce the minerals. The party purchasing or reserving the minerals is vested with a mineral “servitude”.
This is called the rule of prescription and does NOT last past ten years if it goes “unused”. Prescription places a significant burden on the servitude owner to ensure that good-faith drilling operations begin prior to the servitude expiration date. Once the prescriptive period is interrupted, the ten-year clock resets. The clock starts to run again on the last day on which operations are conducted in good faith to restore production. There is a standard of reasonable expectation of success in drilling to trigger the stop of the ten year clock.
In Texas, the estates in land may be owned indefinitely. Not so in Louisiana. The concept of interrupting prescription is one of the most important aspects of Louisiana law in that it requires proper calculation of the servitude expiration date and an understanding of the events that are sufficient to extend that date. Landmen must have a thorough factual understanding of which tracts of land are subject to an extended mineral servitude, and operators must determine which parties are entitled to receive payments from production.
In Louisiana, Division orders are not required, wherein Texas they are essential. In Louisiana, revenues may be suspended for specific reasons, but if royalties aren’t paid after demand, the payor may be subject to triple damages.
In Louisiana, first to file wins – i.e. a document must be recorded to offer protection against third parties. Actual notice does not create protection, and almost anything can be recorded. In Texas, notice is relevant, and there are strict recording and acknowledgement guidelines for filing documents.
In Louisiana, there is a type of “forced heirship” in that a testator may not completely disinherit certain relatives, wherein Texas allows disposal of property at will.
Louisiana pooled units are governed by the Louisiana Conservation Commission, which allows forced pooling. In this regard, if a lease requires pooling before it expires, the operator must obtain a drilling unit from the Conservation Commission. In Texas pooled units are governed under the Mineral Interest Pooling Act (MIPA) and regulated by the Texas Railroad Commission.