Retention of minerals by production

I have a dispute on acreage in Reeves County. 1) There are 2 horizontal wells drilled along the W section line, on top of each other, but at different depths (but not classified as stacked laterals). 1a)The company designated each well with 320 acres and claims to hold the entire section’s minerals by production with these wells. Problem: shale is not porous and the reach of wells 330’ from the west edge have no chance to obtain production from the E half, even with fracking. 1b) If each well must include it’s drilling unit (described in the Administrative Code as all points from the ftp to the terminus), and if all of the acreage must be continuous and contiguous, it is impossible for the acreage assigned to reach more than 330’ past the midsection line between the E and W halves and equal 320 acres. That makes it impossible for the wells to hold more than the 330’ on the W edge of the E half by my logic. I realize that horizontal wells do not have proration units, but all wells have their drilling unit, so using this, it seems like the company is improperly holding acreage that is not producing and is not in a properly assigned drilling unit’s acreage. Is this logical?

The answer depends on the terms of your lease as that sets out the acreage and depths which are held by the wells. If the operator formed a unit, then did your lease require your consent or did it allow the operator to form the unit and related acreage and depths?

Just for the record, Shale actually has porosity, if it didn’t it wouldn’t hold any oil. It lacks permeability which is why it must be hydraulically fractured.

Unit sizes are set by the Railroad Commission. If your lease has a Pugh clause that specifies something less than 320 acres per well, you have a case, although I can’t imagine any Operator ever agreeing to that in a horizontal drilling play.

While I agree that the drainage area of shale wells is typically only a few hundred feet either side of the well, there are other reasons why the larger unit size is desirable. Having separate surface facilities for every well would be economically unfeasible. If the initial wells are profitable you can expect the Operator to come back and drill more wells in the Unit. If the initial wells are not profitable, getting your acreage back likely wouldn’t help you because no one else would want it.

Dear Ms. Morris,

The general answer to your questions is in the contract that you signed for pooling. That was the Lease Form (generally) and you generally granted to the Operaror broad rights to drill wells, pool lands and maintain acreage.

You created a question concerning drainage radius around each well bore. That has nothing to do with pooling. The State of Texas has not only voluntary pooling (at least 99% of the pooled units are voluntary in nature), but there is NO such thing as equitable pooling in Texas.

You used the term “drilling unit” and I suspect that term is not used in your oil and gas lease. It generally is not used. I would also suspect that the lands are actually not pooled and the wells are simply lease wells, since you said nothing about pooling. In the absence of pooling, a sophisticated lease form would have a sections of the lease form generally referred to as a Retained Acreage Unit.

I would hazard a guess that you did not get professional representation in the negotiation of the lease. You might want to rethink that if there is a next time.

Best regards,

Buddy Cotten

We did not get legal representation for the lease, but may in the future. The situation has a number of factors. The company told us that we only had executive rights because our mineral assignment had to cover previous npri’s. When I began questioning the mineral retention of the lease after receiving a lease offer of non-released minerals, I went back and downloaded all of the pertinent deeds. There were 2 assignments of npri that the company granted full mineral ownership instead of what the assignment specified. The 30/640 and 20/640 royalty assignments gave the specifics in the assignment that they were to receive 30/640 * 1/8 (which was the usual lease royalty at the time) and 20/640 * 1/8, so there should have been royalty remaining for our assignment, which was 50/640 mineral interest. In the original posting, I noted the term ‘drilling unit’ as used in the Tx Administrative Code. If the drilling unit has to have all points from the first take point to the terminus, it is impossible for the well to include that area (which basically runs the entire length of the section, 330’ from the W section line, plus additional continuous and contiguous acreage, and comprise 320 acres and thereby hold the entire section. Even if the wells were allowed to be oddly shaped, it is a mathematical impossibility to include the drilling unit & up to 320 acres and cover the whole section. The wells are on top of each other at different depths. The wells are producing, and I hope to get royalties, plus have the E half minerals released and be able to lease them to other companies who have made offers. We’ll see what happens. I just wondered if anyone else had a similar situation where minerals were held inappropriately. It’s also impossible for the E half to be producing because of the low permeability.

With all due respect, I think you are missing the point. Your minerals are not “…held inappropriately…”, unless your lease says they are. Whether or not your lease was written to your maximum advantage is another argument altogether.

There have been a number of Texas court decisions regarding the interpretation of deeds. It depends on the exact language in the deed as a whole, and not a one or two lines from the deed. Some rulings have created fine lines between the wording in one deed versus other another deed. You should consult an oil and gas title attorney about your deeds, and based on the deed history back to sovereignty. The Texas Administrative Code defines a drilling unit as the acreage assigned to a well for drilling purposes. This has to do with RRC and its rules, regulations and requirements. It does not override the provisions of a unit agreement, pooling agreement and any lease terms which allow for more acreage.

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