I'm negotiating a lease in East Texas and looking for help regarding Allocation Units.
I do not want the lease to be considered a production sharing agreement across lease boundaries. I prefer to renegotiate if a well is ever proposed that crosses lease boundaries.
Have any of you addressed this issue or know a good place to find more info on language to include in the lease?
I've heard the TLMA lease form addresses this, but I haven't seen it. Is it worth spending $250 to get the TLMA lease form?
Your help is appreciated,
MG
Mineral Guy,
I have not negotiated a PSA but from this article have finally understood the difference between an Allocation Well and a Production Sharing Agreement Well.
HORIZONTAL DRILLING AND PERMITTING Vol. 76, No. 4 • Texas Bar Journal • April 2013 http://www.texasbar.com/AM/Template.cfm?Section=Texas_Bar_Journal&Template=/CM/ContentDisplay.cfm&ContentID=22010 Excerpt from page 330:
PSA Permits—
A production sharing agreement provides a means for mineral interest owners in multiple pooled units and/or unpooled leases to agree to an allocation of production from horizontal wells traversing their lands. Rather than pooling two or more leases into a single unit, PSAs may combine pooled units and/or unpooled tracts together into “super units” or otherwise allocate production for horizontal wells drilled across tracts with mineral interest owners who had not previously agreed to production allocation. The RRC will issue a PSA permit if the operator represents that at least 65 percent of the working interest owners and 65 percent of the royalty interest owners in each component tract have agreed to the PSA.
Allocation Well Permits—
Allocation well permits allocate production from multiple leases or units, but unlike PSAs, do not require operators to obtain agreement from the interest owners. To date, the RRC has issued more than 60 allocation well permits, but the future of this practice is uncertain....
You might find this helpful.
Drafting Production Sharing Agreements
http://www.msmtx.com/assets/files/2013_Olmstead_Production_Sharing.pdf
The following is the latest information that I know of concerning the status of Allocation Wells and the TRRC.
Railroad Commissioners Approve Allocation Well Application
September 17, 2013 http://www.burlesonllp.com/?t=40&an=23685&format=xml
I wonder if it is possible to forbid an Allocation Well from being drilled in the terms of the lease?
Mineral Guy,
I have never seen anything in a lease ever concerning PSA, but that does not mean that you could not draft something such as: "Pooling, or Unitizing of Interests, as provided in paragraph XX of this lease, shall never grant rights to Lessee to form Production Sharing Agreements across unit or lease boundaries without the express consent of Lessor" or something like that.
Production Sharing Agreements are generally not across lease boundaries, but unit boundaries, that could include multiple stand alone non-pooled tracts. Crossing unit boundaries was the prime reason for PSA's in the first place.
Best
Buddy Cotten