Place to discuss and learn about oil and gas legal issues in Texas.
In Texas operator has plat for H shale well. The Plat is perfect Rectangular for better N/S lateral. They cut a 24 acres off a tract that deep rights control by another operator that will not deal with operator drilling new unit. These 24 acres stick out into the rectangular unitCan operator just leave the 24 acres out if not in drill site? Do there have to escrow royalties on the 24 acres? what happen to royalty owner of the 24 acres?
Buddy Cotten
Long story short is this. If the 24 acre tract is non drillsite and not leased to the Operator, the mineral owner has not much of a leg to stand on.
Texas has 5 types of units. Only three affect title to royalties. The voluntary pooled unit (which can be accomplished several ways), a cooperative agreement (field wide unitization for enhanced recovery operations) and forced pooling underneath the Mineral Interest Pooling Act.
To talk about MIPA for 2 seconds, the burden of proof of drainage is on the mineral interest owner to prove drainage. That is a long, very expensive process out of the reach of 99.99% of individuals.
The next concept is it even practical to go unleased in horizontal shale plays in Texas?
There is no equitable pooling in Texas. A tract or interest not in the drillsite, but within the drilling or proration unit, is not entitled to share in the production as a matter of equity pursuant to judicial decree, even if these lands are used for allowable purposes. To allow equitable pooling flies in the face of the Rule of Capture.
Skip, if you want to be pooled, you must have a pooling transaction. A contract. An agreement. Such as signing a lease with pooling or ratifying the pooling agreement/unit declaration.
As to the production in the 24 acre unpooled tract, it goes to the Operator. Tough concept for most people.
This all applies if the 24 acre tract is unleased, leased to another (who has not joined) and the well and its laterals are at a legal location or they have an exception to Rule 37.
Best
Buddy Cotten
Mineral Manager
Jul 17, 2013
adubu
Jul 18, 2013
Andrew
I'd like to comment on Adubu's situation in general by saying this: "Welcome to a world without forced pooling."
Every time some form of forced pooling system is proposed in Texas (or other states without it), ordinary mineral owners come out in droves to fight it in the name of protecting private property rights. I have always found these efforts to be self-defeating, because Adubu's situation (which I think we would all agree is less than ideal), occurs precisely because Texas does not allow compulsory unitization or forced pooling (not counting the MIPA, which I consider to be practically unavailable to ordinary mineral owners).
In most producing states including Louisiana, unitization and pooling are governed by a state regulator whose primary mandates are to ensure efficiency in mineral production and fairness to various stakeholders involved. Texas has no such regulation, and as a rule pooling and unitization are purely a matter of contract.
In theory, this may sound appealing to property-rights advocates who don't want an operator to be able to "force" them into a pool. However, in practice this system allows small mineral owners to be abused or excluded all-together (as Adubu has). Rather than protecting mineral owners from being "forced" into a pool, it prevents the mineral owner from forcing their way into a pool. This hurts the small mineral owner in a number of significant ways:
1. Operators can (and sometimes do) gerrymander unit boundaries purely to exclude some tracts and include others. To demonstrate how this can look, I've attached a map of an actual unit in Rusk County. Two things are immediately apparent from looking at the map. First, the Minden Gas Unit is in a shape that would best be described as bizarre, and obviously bears no rational relationship to drainage. Second, tracts A-D that are highlighted are entirely surrounded by either the Minden Unit or the Craig Unit. They are not in either unit. What can these mineral owners do in this situation? Drill their own well. The practical unavailability of this solution to the owner of a 5-acre residential lot is obvious.
2. The purely voluntary nature of pooling means that a mineral owner can't force his way into a pool even if he is totally inside a unit. As long as the owner of any undivided interest in his tract's minerals consented to the pooling, the other mineral owners can't prevent their minerals being included. However, unless the tract is a drillsite, the other mineral owners aren't entitled to share in the unit production even though their tract is inside the unit. Justifying this result requires adopting the fantasy that the unit well is draining Owner A's minerals in Blackacre, but is magically not draining Owner B-G's minerals in the exact same Blackacre. What can these excluded owners do in this situation? Drill their own well.
3. As an obvious consequence of #1 & #2, small mineral owners are essentially without leverage in lease negotiations. If the small owner isn't willing to take exactly what is being offered him by a potential operator, the operator can draw his tract out of the unit. Far worse for the mineral owner, the operator can lease even the smallest undivided interest in the tract (e.g. 1/1,000th), pool the tract anyway, and keep the royalties on 999/1000ths of that tract's share of production for himself. What can the excluded owners do in this situation? Drill their own well.
None of these situations would occur in states like Louisiana, Oklahoma, Mississippi, and others that have regulations with some degree of sanity and fairness to the mineral owner. Some may differ with my opinion, but if I'm negotiating a lease, I'd much rather do so when the Operator knows he's going to have to deal with me one way or the other.
Jul 19, 2013