Allocation Wells: Lessor's Remedies for Multi-Tract Horizontal Wells Drilled Without Pooling Authority
59 Pages Posted: 28 Apr 2016 Last revised: 11 May 2016
Date Written: April 11, 2016
Starting in 2010, the Railroad Commission began awarding drilling permits for wells that it designated as “allocation wells.” An allocation well is a term of art developed by the Railroad Commission to refer to a horizontal well where the lessee possesses the working interest for each traversed tract but does not have pooling authority nor obtained the consent of at least sixty-five percent of the royalty interest owners of each traversed tract. This Article argues that a lessee does not have authority to drill a multi-tract allocation well unless the lessee has pooling authority for each of the traversed tracts. If the lessee attempts to drill a multi-tract allocation well without the requisite pooling authority, then this Article argues that the lessor’s remedies include the following: (i) an action in court to set aside the drilling permit, (ii) a private cause of action against the lessee to obtain the fair market value of the leasehold benefits that would have been received had the lessee bargained for the lessor’s retained pooling consent, (iii) injunctive relief to plug the illegally drilled well, and (iv) punitive damages in certain fact patterns. The Article also addresses how the forced pooling provisions of the Mineral Interest Pooling Act (“MIPA”) should be amended so that the MIPA framework can more broadly apply to the horizontal wells that are being drilled today. Finally, the Article argues that the state’s development goals are fulfilled when the law achieves outcomes that promote the state’s efficient development of its finite natural resources while at the same time protects the correlative rights of all affected parties. Compensating the lessor for her pooling consent and affording the lessee broader opportunities to utilize MIPA (after having made a fair and reasonable offers to obtain the lessor’s voluntary pooling consent) provides a framework to protect the correlative rights of all affected parties and at the same time provides appropriate mechanisms for the efficient horizontal development of the state’s finite natural resources.
Keywords: Oil and Gas, Pooling, Allocation Wells, Trespass, Horizontal Wells, Horizontal Development, Unauthorized Pooling
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