CHAPTER 7 - Be Careful What You Ask For - Subsequent Operations Under the Model Form Operating Agreement

Sep 16, 2026

Uploaded by Patrick

Chapter 7 explains how co-owners or cotenants of jointly held mineral leases are governed when a subsequent operations clause is triggered. It introduces the rationale for allowing additional operations under an operating agreement, then details proposal and notice mechanics, election rights, and the duties tied to participating or withholding consent. The chapter also addresses cost allocation, remedies protecting operators incurring joint-account expenses, and enforcement against non-consenting parties, including related bankruptcy and royalty responsibility issues.

LanguageEnglish

CategoryForms

FormatPDF

Pages63

Reading Time22 min

AccessFree to download

Synopsis

§7.01 Introduction

§7.02 The Proposal to Conduct a Subsequent Operation

§7.03 Election and Response to Notice

§7.04 The Conduct of the Subsequent Operation

§7.05 Responsibility for Costs of the Subsequent Operation

§7.06 Miscellaneous Issues Concerning the Subsequent Operation

1 # CHAPTER 7 Be Careful What You Ask For:Subsequent Operations Under theModel Form Operating Agreement Patrick S.OttingerOttinger Hebert,L.L.C.Lafayette,Louisiana Adjunct Professor of Law,Paul M.Hebert Law Center,Louisiana State UniversityBaton Rouge,Louisiana ## Synopsis §7.01 Introduction [1]Preface [2]Law of Co-ownership or Co-tenancy [3]Operating Agreements [4]Rationale for a“Subsequent Operations Clause” ## §7.02The Proposal to Conduct a Subsequent Operation [1]Determination of Contract Area [2]Notice of Proposal to Conduct a Subsequent Operation [3]Who May Issue a Proposal to Conduct an Operation [4]Multiple Proposals to Conduct a Subsequent Operation [5]“Limitation on Expenditure Clause” [6]Content of Notice of Proposed Subsequent Operation [7]Proper Characterization of the Proposed Operation The Election to Participate or Not in a Subsequent Operation ## §7.03 [1]Election in Response to Notice of Proposed SubsequentOperation [2]Right of a Party to Change its Initial Election in Response to Louislana state Universy 1AWLBRARY Notice of Proposed Subsequent Operation [3]Implied Duty to Participate in Proposed Subsequent Operation ## §7.04The Conduct o the Subsequent Operation [1]Commencement of Proposed Subsequent Operation [2]“Jumping the Gun”—Premature Commencement of ProposedSubsequent Operation [3]Deviation from Scope of Proposed Subsequent Operation [4]Modification of Operation Being Conducted ## §7.05Responsibility for Costs of the Subsequent Operation [1]Commitment to Pay Costs of Proposed Subsequent Operation [2]Special Remedies to Protect the Operator Who Incurs Costs forthe Joint Account [3]Relinquishment of Interest [4]Recoupment of Costs of the Subsequent Operation [a] Preface [b] “Subsequently Created Interests” [c] Gas Marketing [d]Non-Consent Recoupment Factor [5]Accounting for Non-Consent Account [6]Enforcement of Non-Consent Account Against Third Parties Acquiring from a Non-Consenting Party [7]Enforcement of Non-Consent Recoupment Factor in Bankruptcy [8]Personal Responsibility of a Consenting Party for the Paymentof Royalties to Lessor of a Non-consenting Party ## §7.06Miscellaneous Issues Concerning the Subsequent Operation [1]Alternate Arrangements Concerning a Non-Consent Election [2]Proposal of a Subsequent Operation Before Discharge orSatisfaction of Outstanding Account ## §7.01 Introduction [1]Preface This article examines the conditions pursuant to which parties customarilyagree to develop mineral leases which are owned by more than one personor entity,pursuant to agreements customary in the industry.In Louisiana,acivil law system,this is called ownership“in indivision”and the owners ofthe mineral leases are called "co-owners."In the common law states,theseowners are called "cotenants."For purposes of this article,these terms are used interchangeably.The author attempts to demonstrate the universalityof certain principles by citing the laws of several oil and gas producingstates. [2]Law of Co-0wnership or Co-tenancy By definition,an operating agreement typically exists,if at all,only in thecircumstances where two or more persons or companies own one or moremineral leases in indivision.²Conversely,there is obviously no need for anoperating agreement to exist if a mineral lease(s)is owned by one singleperson or company.One might best appreciate the import of an operatingagreement if one understands what rules apply if no operating agreementexists among co-owners(cotenants)of a mineral lease. In Louisiana,an analysis of the purpose and effect of an operatingagreement begins with the observation that,unless modified by agreement,the administration and management of a thing owned in indivision(or in aregime of co-tenancy)requires the concurrence of all co-owners or cote-nants.3 In Louisiana,an explicit rule pertains to mineral leases which are ownedin indivision.Thus,Article 177 of the Louisian

FAQs

What is the purpose of an operating agreement for mineral leases owned in indivision?

An operating agreement sets the rules for exploration, development, operation, or production among co-owners of jointly owned mineral leases. It also provides how consent is granted and manifested for subsequent operations.

How does a party proceed when it receives a proposal for a subsequent operation?

The chapter outlines the determination of the contract area, notice of the proposal, who may issue it, and how multiple proposals are handled. It then explains election rights, including responses to the proposed subsequent operation.

How are costs handled for subsequent operations when some parties do not consent?

The chapter describes commitments to pay costs of proposed subsequent operations and special remedies to protect the operator who incurs those costs for the joint account. It also covers recoupment concepts and enforcement against non-consenting parties, including related accounting and bankruptcy enforcement.

Sep 16, 2026

Uploaded by Patrick