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The Voss Law Firm

What Is A Pooling Agreement And How Can I Know If My Property Is Getting The Royalties It Deserves?

Is the oil or natural gas taken from your lease pooled with minerals under your neighbor’s property? Make sure that pooling has been done in good faith as required by Texas oil and gas law. If pooling is appropriate, make sure the proper administration of the pool is in place to accurately measure the production.

Once upon a time, you could keep and sell all the oil you could get from your well, even if you owned a postage stamp sized property and were sucking the oil out from under your neighbors' ground. The result: hundreds of derricks arose like a Christmas tree forest, each trying to suck out as much oil as possible before somebody else did. It wasn't long before this practice depleted the underground pressure which had made the oil flow easily up to the surface. Without the pressure, most of the oil couldn't be economically brought to the surface and the oil was wasted. State governments acted quickly to conserve and promote efficient oil extraction by passing laws authorizing and in some cases requiring pooling and unitization of oil fields.

Pooling Agreements and Unit Agreements should be carefully reviewed by a qualified oil and gas attorney before signing. Some agreements genuinely promote optimal behavior among the parties and attain the conservation objectives of state statutes and rules. Others, however, can be bad for you, particularly when the underlying geological formation differs dramatically from the pooled lease configuration.

You may think your lease gives you the right to re-lease to a new operator when the principal term expires. Not necessarily so. If your lease contains a good Pugh clause, and a vertical rights severance clause, you may be okay. But what if part of the leasehold gets put into a pool beyond your or your operator's control? And what if it is a very small part of your land and a very large pool? The remainder of your leasehold may move into secondary term, locking up virtually all of your mineral interest for years, while your operator free-rides on the net pooling revenues . Our oil and gas lawyers avoid this by negotiating not only Pugh clauses and vertical or depth severance clauses, but also clauses which release your unpooled un-producing lands from lockup in secondary term.

Call us today before executing an oil and gas lease or a pooling agreement.

You may think a pool is simple. You put your land in, and you get a pro-rata payment for oil produced anywhere in the entire pool, based on the size of your land compared to the size of the pool. Well, eventually, yes. But not in the first several years. Pools are usually born as big rectangles or polygons, and the pool producer agrees under either state or federal law to drill a well every six months or lose the rights to keep developing the pool. They drill a first well, and if hydrocarbons (oil & gas) are found in commercial quantities, only the small area around this well zone get royalties. One piece of the puzzle is done. Then a next well goes in, within 6 months. Another strike, and another small participating area around that well. Meanwhile, if you are in a remote area of the pool, you are getting nothing from these wells, even though you and they are in the same pooling area. But wait. Each six months, the operator drills another fill-in well, and eventually the wells are evenly blanketed across the surface above the rock formations containing the oil. Each one has its own small royalty participation area. Eventually, they all start go merge together as more and more wells are drilled.

At some point the operator says, enough. We don't want any more wells. Then presto, the pool is mature. Everyone in a producing area then is combined with everyone else in a producing area, and the final pool shape is discovered. It is often a pretty weird shape. The rest of the original rectangle, which was never drilled or in a producing area, is let go and falls out of the pool, free to lease to someone else. From that point of maturity, each member of the pool gets their share of the whole pool's production, not before. It can be a long road.

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