Have you seen an “Allocation Permit” or been contacted about participating in an “Allocation Well”?
Allocation wells are becoming more common across Texas where old fields were developed with conventional techniques and units were formed that cover all depths.
Those old producing units might not have the best shape for a long horizontal lateral.
The units might not even be operated by the same company. That’s where allocation wells come in.
Operators will often agree to a Production Sharing Agreement (PSA) and get sign off on sharing production based on the length of lateral in each unit.
The PSA’s allow operators to allocate royalty without questions of commingling and royalty owners get their natural resources developed without any waste. Production and royalties are allocated based on how much of the lateral is placed in each unit.
Allocation Well Production Example
If a 5,000 ft lateral is drilled with 500 ft in Unit A, 4,000 ft in Unit B, and 500 ft in Unit C, allocation of production will be:
- 10% to Unit A
- 80% to Unit B
- 10% to Unit C
Use the comments below to let us know if you’ve participated in or receive royalties from an allocation well.