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Allocation Wells In Old Oil & Gas Fields In Texas

by Kenneth E. DuBose on June 25, 2013

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.

{ 5 comments }

Sharron Shockley June 25, 2013 at 10:06 am

Where in Texas is this new shale discovery?

Ruth Delvige June 25, 2013 at 10:10 am

So far I haven’t heard one thing about anything.
The landman was in such a hurry to get my
signature on the lease contract I thought they would have started drilling by now. My lease is
in Lee County, Texas. Any information would be
appreciated.

Billy June 25, 2013 at 11:23 am

With the simplicity show here it makes it sound reasonable. However say Unit A landowner has 800 acres , Unit B 100 acres and Unit C has 500 acres, that now (A, B, C) becomes unitized or pooled and held by production it would be a very bad deal, rotten to say the least.

Rob Spencer June 25, 2013 at 1:47 pm

Just wondering if or when your company would move into Northeast Montana to do some drilling and fracking. The leases on some of this land had been signed 20 months ago for a term of 36 months with an option of and additional 24 months. So far, little has been drilled out in NE Montana, near the Sheridan and Roosevelt County line and slightly further north. We are in the middle of the Bakken field and just wonder why everything is being completed in North Dakota with lease time running out.

Camille Potts July 21, 2013 at 9:32 am

The term ‘allocation well’ is new, but that is what is happening to an old gas unit I have a WI in in Parker, County, Texas. I have been approached about farming out for a horizontal well, which is on 39% of acreage my lease/gas unit holds.

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