Louisiana Government and the Oyster & Oil Industries

Louisiana Government and the Oyster & Oil Industries

Louisiana Government and Oyster & Oil Industries LOGA Industry Seminar & CLE, New Orleans, September 16th, 2014 A Contemporaneous Timeline James J. Devitt Deputy General Counsel Office of the Secretary Department of Natural Resources The Early Years of Oil

Surface seeps of hydrocarbons in southern Louisiana were known long before the resource became profitable to exploit. Indians in Louisiana used oil from natural seeps for medicines. In 1540, Hernando DeSoto found the surface resource. Early explorers called the oil "stone pitch" and used it to seal their ships Natural Oysters

Naturally occurring oyster beds were always a food source in Louisiana. In the early 19th century, oysters were harvested from natural reefs for local use. European immigrants from France and Croatia helped to develop the modern oyster industry in coastal Louisiana throughout the 1800s. Cajun/French helped to develop the modern industry in the Houma region, while Croatian immigrants developed oyster farming in

Plaquemines and St. Mary Parishes. European Oyster Fishing Circa 1771 Slurping Oysters in 1825 Osias Beert, circa 1610 Southern Netherlandish painter Still-life with Artichokes The First, (but not the last), Dry Hole

Colonel Edwin L. Drake drilled his famous well in Titusville, Pennsylvania. August 27, 1859, marking the date of Americas first commercial well drilled specifically for oil. However, another well, spud August 31, 1859 just four days later is less known. Americas second oil well was drilled by John Livingston Grandin. It produced at least three petroleum industry firsts, including: First Well in Which Explosive Charge Was Used First Well in Which Tools Stuck

First Dry Hole A decade later, about 1868 -- The Louisiana Oil and Coal Co. drilled a well about 15 miles west of Lake Charles in search of oil but was unsuccessful although it did reveal very extensive sulfur deposits. Late 1800s In 1870, because of numerous complaints that oyster reefs were being rapidly depleted and destroyed, the Legislature passed Act 18, closing the oyster season from April to September, and provided penalties for taking oysters out of season. Also in 1870 -- A night watchman at an ice plant in

Shreveport accidentally discovered natural gas coming from a well drilled in search of artesian water when he struck a match. Gas from the well was piped to the plant to provide illumination the first use in the State. Scarcity is the Genesis of Regulation

The State government of Louisiana got more involved with oyster farming in the 1880s by overseeing the leasing of public waters to oyster fishermen. Many oysters were farmed in privately owned waters, but the State leased around 400,000 acres comprising over 8,000 leases, mostly in southeastern Louisiana, i.e., Plaquemines, St. Bernard and Terrebonne Parishes. A concerted attempt by the State to regulate the oyster industry occurred in 1886 with the passage of Act 106. Patterned after Maryland legislation, it divided the state into three oyster districts and authorized the Governor to appoint an Oyster Commissioner for each district. The act also authorized the leasing of water bottoms (3 acres per to individual or corporation) and established licenses enabling lessors to harvest and protect their oysters and reefs. Although state laws were in effect, enforcement was difficult

because the local judiciary was responsible for apprehension and punishment. Over-use of local oyster reefs continued. Circa 1861-1865, Fresh Baltimore Oysters Label by Double--M on Flickr Going Local Act 110 of 1892 abolished the three oyster districts and gave individual parishes exclusive jurisdiction of the waters within its boundaries. Each parish appointed an oyster inspector and required licenses. Oysters occurring in the parish were considered parish property and only parish residents were allowed to harvest them. This led to conflicts because of competition and unmarked parish boundaries in

open water areas. Enforcement remained difficult because of limited local resources. Late 19th century legislation, such as Act 121 of 1896 and Act 183 of 1898, further addressed closed-season adjustments, leasing of state water bottoms, lease area (10 acres) per person and taxation relief for oysters bedded on State leased water bottoms. New Orleans, circa 1908. "Oyster and charcoal luggers in the old Turning Basin The Century Turns

Louisiana eventually became the nation's largest producer of oysters encouraged by programs which allowed private individuals to cultivate oysters on public lands. By the turn of the century, cultivated oysters were the mainstay of Louisianas oyster industry, the remaining natural reefs were put under state control. In 1900, the legislature realizing the ineffectiveness of the then current oyster policy, appointed a legislative investigative commission composed of two senators and three representatives to study the industry. Commercial Oil Production Begins

1901 in a rice field on the "Mamou Prairie" in the community of Evangeline near Jennings, the states first well began production. Sept. 21, 1901 -- The Heywood well six miles from Jennings was brought in, producing the first oil discovered in the state in commercial quantities. Oyster-Oil Conflicts Begin With thousands of potential

drilling sites in the vast wetlands, State officials allowed oyster farmers and oil companies to hold rights to the same properties. Oyster farmers caused oil spills by damaging pipelines with their dredges. Oil workers detonated charges over reefs, dredged pipeline canals through productive grounds, and polluted oysters with waste. Oyster Regulation Comes of Age

The investigative commissions report to the General Assembly of 1902 resulted in the adoption of Act 153. This act created the five member Oyster Commission of Louisiana and gave them statewide control over the industry. The commission, later became the Oyster, Waterbottoms and Seafood Division, the first and oldest division of the Wildlife & Fisheries Department. The Oyster Commission began to issue leases for all but the offshore reefs, which remained public. The Comprehensive Oyster Law of 1902 encouraged the practice of oyster mariculture and established the basic structure of current industry.

Oyster Industry Comes of Age 1904 State establishes the maximum oyster lease acreage at 1000 acres, $1 per acre per year. 1905 Development of oyster dredge technology, replacing most of tonging. The Nascent Oil Industry 1906 -- The Louisiana Legislature passed the first state oil and gas

conservation law. 1908 -- The first natural gas pipeline was laid in Louisiana, bringing gas from Caddo Field to Shreveport. 1909 -- The new refinery in Baton Rouge went on-stream. Also, construction began on Louisianas first long-distance oil pipeline, which by 1910 was transporting crude oil from Caddo Parish to the Baton Rouge refinery. The Nascent Oil Industry Another major boost to drilling

technology came in 1909 with the development of the Hughes rotary drilling bit. Prior to this time, drilling was accomplished by percussion a slow, tedious method. Also about 1910 -- The first over-water drilling in America occurred on Caddo Lake near Shreveport. Whats in a Name?

1909 - a formal body was appointed and given the task of overseeing wildlife and fisheries conservation in the State. With the support of Governor John Parker, the Louisiana Board of Commissioners for the Protection of Birds, Game and Fish was created. One year later, in 1910, by virtue of Act 265, the Louisiana Oyster Commission (which had been created in 1902) merged with the Board of Commissioners to create the Louisiana Department of Conservation. In 1912, Act 127 consolidated natural resource activities under the name "Conservation Commission of Louisiana." This commission became a constitutional department of the State. It could hire employees and was charged with protection of birds, fish, shellfish, wild quadrupeds, forestry and mineral resources of the state.

Act 105 of 1918 changed the name of the agency back to the Department of Conservation, and directed that it be controlled by an officer known as the Commissioner of Conservation, who would be appointed by the Governor for a term of four years. Vessels of Opportunity 1920s Technology shifted in oyster farming moving from sailing to motorized vessels. The traditional lugger becomes a thing of the past. The 1920s

The next major petroleum exploration technological improvement came in 1923 when seismic exploration was introduced into the Gulf Coast. During the late 1920s and 1930s millions of acres of State owned waterbottoms were leased for petroleum exploration, SL 195, SL 340, etc, Freshwater diversion, Bohemia Spillway, south of Point-a-la-Hache in Plaquemines Parish, constructed in 1925. 1927 Following a catastrophic flood, the Mississippi River levee system began to be enhanced for navigation and flood prevention purposes including construction of additional and larger levees prevented river water from reaching adjacent estuaries and the oyster beds located there. Offshore Exploration

Offshore exploration began in 1934 when the Texas Company drilled a well one mile from the shoreline of Louisiana. The War Years In 1944, the Louisiana Supreme Court ordered the Texas Oil Company to pay damages to oysterman Ludwig Doucet for

dumping chemical waste on his leased property. The ruling established that an oyster leaseholder had a "valuable property right" in his reef, and the court gave him the right to sue for damages. The Department of Conservation continued in the role of lead agency in charge of wildlife and fisheries conservation until the Louisiana Department of Wild Life and Fisheries was officially created on December 11, 1944, via a Constitutional Amendment. The Amendment separated the former Department of Conservation into three independent state agencies: the Department of Wild Life and Fisheries, the Louisiana Forestry Commission, and a new Department of Conservation Post War

Nov. 14, 1947 -- The first oil well out of sight of land was brought in by Kerr-McGee in the Gulf of Mexico about 45 miles south of Morgan City in the Ship Shoal Block 32 Field. 1954 -- The Mr. Charlie rig begins production in the Gulf of Mexico just south of New Orleans in about 40 feet of water. Built in Morgan City, it was the first transportable, submersible drilling rig and an industry springboard to the current offshore rig technology. 1956 - Freshwater diversion structure at Bayou LaMoque constructed by the State of Louisiana. The 1960s

Beginning in 1962, Louisiana's oyster grounds are divided into two regions: 1) those set aside for leasing to individuals and 2) state controlled 1964 - Freshwater diversion White Ditch Siphon, constructed by the State. 1969 -- Louisiana oil production peaked at 728.5 million barrels of crude and condensate, and reserves began to decline.

The 1970s 1970 -- Louisianas natural-gas reserves dropped for the first time since gas was discovered in significant quantities in the state. 1975 -- Gerald R. Ford became the first president of the U.S. to visit an offshore oil platform when he came to Louisiana on April 23. His comment: "We just have to get more and more of these. 1989 -- The first tension well leg platform was installed by Conoco in the

Gulf of Mexico. The 1990s 1991 - Caernavon Freshwater Diversion is completed. 1994 Avenal law suit is filed against the State in Plaquemines Parish and a suit is also filed against the U.S. government (Army Corps of Engineers) 1995 - Oyster Lease Damage Evaluation Board, (OLDEB), is established by Act No. 1304, and becomes La. R.S.

56:700.10, et seq. Procedural Highlights of Avenal Avenal Suit in Trial Courts 1994 - Avenal law suit is filed against the State in Plaquemines Parish and a suit is also filed against the U.S. government (Army Corps of Engineers)

In August 1995, Judge Christine Miller of the Court of Federal Claims dismissed the federal Avenal suit, ruling that a clause in the leases prohibited oyster farmers from recovering damages caused by operation of the project. It was appealed, but the U.S. Court of Appeals denied a rehearing. In December 2000, the Avenal jurors reached a unanimous verdict. They decided that the state had taken the oyster farmers' property without just compensation. But they also issued an award that far exceeded the value of the farmers' property and lost profits. For every acre listed in the suit, the oyster farmers received $21,345, a figure 20 times greater than the highest price any had paid for a lease. The total award came to $1.3 billion. Response to the Avenal Decision

2001 - To avoid future lawsuits, in the state began issuing short-term oyster leases for those in the path of coastal restoration. Oystermen Farmers, who were accustomed to having at least 15 years to recover their investment, find that the new leases -- which can be issued for as little as a year -- don't last long enough to justify the cost of developing them. The state appealed the Avenal verdict while taking steps to protect itself against further liability. It shut down the Caernarvon diversion and delayed opening a second diversion west of New Orleans. It issued a moratorium on all oyster leasing. The Louisiana Wildlife and Fisheries Commission's moratorium on the issuance of new oyster leases was continued. The commission approved the original declaration of emergency at its March 7, 2002 meeting.

The State stopped construction on 15 other projects that represented the initial stage of a $14 billion, comprehensive effort to save the coast from erosion Avenal on Appeal 2003 - A divided 4th Circuit court of appeals affirms the Avenal district court decision by a 3-to-2 margin Due to public response to the verdict, the legislature proposed an amendment to the Constitution retroactively prohibiting a property owner from recovering more than the "fair market value" any holdings damaged by a public project designed to restore the state's coast. The proposal became a referendum on the Avenal case, because it would reduce the award, although that aspect of the amendment was unlikely to have survived a legal challenge. In October 2003 voters approved the amendment by a 20-percent margin.

Two governors (there was a change of leadership, but not of outlook) swore they wouldn't settle the cases, no matter how much the uncertainty might harm the state's finances and bond rating. An appeal was filed with the Louisiana Supreme Court, and when Kathleen Blanco (the third governor to serve during the Avenal case) took office in 2004, she rejected a settlement offer from the oystermen of $160 million, which would have been 12 cents on each dollar of the jury's award. 2004 - The La. Supreme Court reverses Avenal in a unanimous decision, ruling that the oyster-bed lease clause that shielded the state from liabilitythe clause that was the plaintiffss downfall in federal court was valid in 192 of the 204 leases at issue. The holders of the 12 leases in which the clause was not valid could sue for damages to their business, the court said, but not on the basis that there had been a taking of

their property. "The state owns the waters," wrote the justices. "The state owns the oysters. Thus, the state could not take its own property." Olga, Louisiana, 1938, Unloading Oyster Boats The Oyster Lease Damage Evaluation Board Purpose of OLDEB 1995 - Oyster Lease Damage Evaluation Board, (OLDEB), was established by Act No. 1304, becomes La. R.S. 56:700.10 et seq.

The purpose of this Part is to effect an equitable solution to the problem which will result in fair and predictable treatment to the oil and gas industry while assuring the oyster fishermen actual compensation for damages to their oyster beds due to mineral activities. The state has a tremendous interest in preserving the viability of both industries. Since both activities are granted on public waterbottoms by the State it is the obligation of the State to resolve the problems created by this impasse; therefore, the legislature does hereby establish the Oyster Lease Damage Evaluation Board to promulgate rules and regulations to determine the method of establishing a uniform system of compensation for actual damages caused to the beds of leaseholders based on biological test data.

Duties of the Board DNRs secretary, in conjunction with the board, shall prescribe regulations for the filing, processing, and the fair and expeditious settlement of claims pursuant to this Part, including a time limitation on the filing of such claims. These regulations shall insure that the whole claim procedure is as simple and as expeditious as possible. In no case shall the claim procedure exceed ninety days. The duties of the OLDEB, La. R.S. 56:700.13, include in part: develop a list of qualified biologists to provide biological test data in determining the quality, condition, and value of oyster beds and grounds.

The board members shall evaluate the information regarding damage to the beds and make the final determination in awarding damages to claimants. The determination of damages by the board shall be based on the biological survey and shall reflect true and actual damages. Uniform System of Compensation 1996 - Cultch currency matrix is developed for the OLDEB, as a method to calculate damages to an oyster lease. The

matrix is a uniform system of compensating oyster lease holders for damages to their lease due to oil and gas activities. It values oyster leases by determining the cost to replace lost or damaged leases. Also it values the lease depending on the lease substrate (foundation), i.e., reef, shell, hard mud, or soft mud. Choosing an Oyster Biologist When an owner of an oil and gas activity is required under the provisions of R.S. 56:700.12(4) to perform a biological survey, he shall choose a biologist to conduct the survey from the list of qualified biologists supplied by the board. Unless a written objection is filed with the board by either party, if a qualified biologist was previously engaged to conduct a biological survey for the mineral activity subject

to the requested arbitration, that same biologist may be used for the biological surveys. Permission to Sample Oyster Lease The owner, (or representatives), of the oil and gas activity may remove, as a sample, oysters from an oyster lease on state water bottoms in order to make determinations in matters before the OLDEB. In order to take such samples, the owner first submits

written request for permission to the leaseholder. If the leaseholder has not granted permission within fifteen days after the written request was submitted, the owner shall notify the leaseholder of the date and time that the lease will be surveyed. The leaseholder, (or representative), may accompany the biologist during the survey. Judicial Review If the leaseholder or owner is not satisfied with the decision of the board he may obtain judicial review by a suit in district court of the parish where the leasehold

improvements are situated. The burden of proof for liability and damages and all costs shall be borne by the party seeking judicial review. If the district court upholds the findings of damages by the board the party seeking judicial review shall pay all costs and attorney fees of the other party. The End

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