Are Allocation Wells Veiled Pooling in Texas?

by Elizabeth Alford on October 27, 2016

Exploration companies drilling in Texas are looking to the 2017 legislative session for clarity on their ability to continue to drill allocation wells.

Related: Own minerals in Texas? Join the discussion.

In Texas, an allocation well is used to refer to a horizontal well that is drilled across lease lines without pooling the tracts on which the well is located. The Texas Railroad Commission (RRC) originally issued permits on these wells when operators had production sharing agreements with the royalty owners, but many people believe they are a way to force mineral owners into a pooling agreements without requiring permission from the mineral rights holders.

Cory Pomeroy, vice president and general counsel for the Texas Oil & Gas Association told Express News, “We are continuing to study the issue of allocation to find the best solution that benefits operators of oil and natural gas wells and private mineral owners. Clarity on this issue is key to our nation’s energy security and our state’s continued dominance in safe and responsible oil and natural gas production.”

The stakes are high as private property owners are pitted against producers who want to speed up the production process. The RRC has maintained it has the authority to issue permits to drill horizontal wells that cross multiple lease lines without pooling those leases together, but there are still no clear rules defining these arrangements.

Because of the lack of clarity, operators have pressed for legislation that would authorize such wells. In 2015, Representative Tom Craddick  introduced HB 1552 that has strong language in favor of operators.

“…An operator or lessee with the right to drill an oil or gas well on or produce or develop oil or gas from each tract independently may, under a permit issued by the commission, drill,operate, and produce oil or gas from an oil or gas well that traverses multiple tracts in order to prevent waste, promote conservation, or protect correlative rights. If there is not an agreement among any of the affected owners of royalty or mineral interests in the tracts regarding the manner in which production from the well shall be allocated among the tracts, the production shall be allocated to each tract in the proportion that the operator or lessee reasonably determines reflects the amount produced from each tract.”

The 2015 bill died in committee but many expect similar legislation will be filed in the upcoming session.

 

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