Louisiana State Mineral and Energy Board Approves Resolutions Providing Relief for State Lessees

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A special meeting of the Louisiana State Mineral and Energy Board was held on April 29, 2020, to address the impacts of both COVID-19 and historically low oil prices on operation and maintenance of Louisiana State Leases. The Board approved two proposed resolutions (1. Proposed Enforcement Moratorium Resolution 2. Proposed Penalty Waiver Resolution) that will assist State Lessees during these difficult times.

  1. The Enforcement Moratorium Resolution

The first resolution in pertinent part “enacts a temporary moratorium on the enforcement of any and all lease maintenance obligations and conditions for all State Leases for the period beginning on March 11, 2020, and ending July 13, 2020 (“Temporary Moratorium”). At the conclusion of this period the Board will allow for another 30 days (“Resumption Period”) for Lessees to resume or begin operations, production or lease maintenance payments sufficient to maintain the State Leases in effect. If any lease maintenance obligation comes due during the Temporary Moratorium or the Resumption Period and is not met by the end of the Resumption Period, the Board shall at that time have the right to enforce such obligation. Any and all lease maintenance obligations that are complied with prior to or during the Resumption Period will be deemed to have occurred retroactively prior to the actual due date required by the terms of the State Lease. Similarly, if any State Lease would expire in whole or in part during the Temporary Moratorium or Resumption Period but for a rental, shut-in or other payment to the State, the performance of certain operations and/or the commencement or resumption of production and such payment is made, such operations are commenced and/or such production is commenced or resumed before the end of the Resumption Period, then for purposes of lease maintenance such payment shall be deemed to have been made, such operations shall be deemed to have commenced and such production shall be deemed to have commenced or resumed immediately before the time such State Lease would have otherwise expired without such payment, production or operations. All State Leases are hereby amended, without further action, to include the terms and provisions of this Resolution.”

Importantly, the first resolution emphasizes “that the Temporary Moratorium and Resumption Period enacted by this Resolution do not allow an operator or lessee to fail to pay royalties if they continue to obtain production during these times. If an operator or lessee continues to obtain production from State Leases, royalties and state production interests must be timely paid in accordance with the terms of the State Lease and applicable laws.”

Last, the first resolution “postpone[s], delay[s], and suspend[s] the specified deadlines established by the Board or OMR for State Lessees to respond to requests for reasonable development that were required to be submitted to OMR from March 11, 2020, through August 13, 2020, unless extended by future Board resolution, and the Board authorizes OMR to reschedule these deadlines to respond to reasonable development demands in a manner that allows for the orderly management of lease reviews and grants State Lessees sufficient time to perform their other obligations timely.”

  1. The Penalty Waiver Resolution

The second resolution addresses penalties assessed against State Lessees for lease and statutory obligations based on the following non-exclusive list of statutory provisions: La. R.S. 30:123.1(C), 128(B), 136(A)(1)(b), 136(B)(1)-(3), 144(A)(8), 213(B), and 217(B)(5).

This resolution “postpone[s], delay[s], suspend[s] and waive[s] the penalties mentioned above and accruing from March 11, 2020, through August 12, 2020 (unless extended by Board resolution), for alleged breaches of lease or statutory obligations that occurred prior to March 11, 2020, and for those alleged breaches that occur after March 11, 2020, and appear to be caused by either: 1) a good-faith error or disagreement over lease obligations; or, 2) are directly caused by the COVID-19 pandemic, are hereby postponed, delayed, suspended and waived in full.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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