Can an allocation well legally violate lease terms? For instance, if a lease has a clause that says a horizontal producing unit cannot exceed 480 acres, can a lessee legally plat an allocation well that is, say, 640 acres? TIA
It depends on the exact language in your lease and state law. If your minerals are in Texas, an allocation well does not have a unit and no DPU is filed. Many oil companies are taking the position that an allocation well does not violate lease provisions limiting units. This is a controversial area. You may be able to work with your lessee on a production sharing agreement (or production allocation agreement) to specify how the production will be allocated to the various tracts and the number of net acres per foot of productive lateral that the well holds. GLO Relinquishment Act Lease uses 0.32 acre per foot and other agreements use higher numbers. Your attorney can help you with this agreement. Otherwise you can consider litigating.
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Thanks so much for your help. I am in Texas and the result of the company making an approximately 640-acre plat for the well is that the company will hold a part of our property that they would otherwise be required to develop or release in a few months. So it is not just a matter of allocation. The other three wells on the section have been platted at around 320 acres (the wells cover two sections) so this breaks the precedent of the other three. The lease was drawn up before allocation wells became so prevalent and there is no language about allocation wells. But there is very specific language about the max size of horizontal wells.
A plat filed with RRC does not override or amend the specific terms of your lease. The lease provisions regarding acreage and depths held by productive wells will determine what rights are retained by the lease and what expires. You should consult with your attorney who prepared the lease to figure this out.
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Tennis Daze, I have no experience with allocation wells yet but I am wanting to learn about them. You stated: “If your minerals are in Texas, an allocation well does not have a unit…”. Which type unit are you referring to? Please elaborate on what having no unit means. Thank you.