The Louisiana State Mineral & Energy Board (“Mineral Board”) is the body tasked with overseeing the mineral resources owned by the State of Louisiana. As part of this work, the Mineral Board and its associated staff within the Louisiana Office of Mineral Resources overview various state leases and operating agreements covering state-owned lands/waterbottoms to ensure that the State receives the royalties or other funds that are called for under their agreements with various mineral lessees and well operators.
Traditionally, these tasks are handled internally by the Mineral Board’s own staff and counsel. Accordingly, auditing of royalty payments was left to the Mineral Board’s internal accountants, and when an issue arose as to whether royalty payments were made correctly, the Mineral Board’s land personnel and internal counsel would oversee sending demands and pursuing litigation against the State’s mineral lessees and well operators.
The Mineral Board’s most recent agenda for its July 12, 2023 meeting noted that the Mineral Board is considering outsourcing these functions to third-party legal counsel as part of the matters to be discussed in its executive session. The agenda specifically states that the Mineral Board will engage in “[a] discussion regarding the potential for the State Mineral and Energy Board to enter into a legal contract with a third party that would pursue claims of underpayments of royalties related to natural gas production on state lands and water bottoms.” A copy of the Mineral Board’s agenda can be found here.
Should the Mineral Board decide to engage outside counsel to pursue claims for the failure of mineral lessees and operators to timely or correctly pay royalties, such an action would signal the Mineral Board’s intention to pursue such claims more aggressively in the future. As a result, parties who currently or previously held mineral leases over state-owned lands/waterbottoms or that operated wells that produced from such acreage should be prepared to address a potential increase in inquiries and demands from the Mineral Board going forward. In addition, such parties should be mindful of the unique provisions that are often found in state mineral leases and operating agreements governing royalty payments as they may differ from the provisions found in standard form mineral leases and operating agreements.
If you would like any further information or insights regarding the Mineral Board’s consideration of retaining outside counsel to pursue royalty claims or issues associated with paying royalties on state-owned lands/waterbottoms, you can contact Brittan Bush or Jeffrey Lieberman in Liskow’s Lafayette office.
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