Lawrence, I’m always interested in your input to the forum and appreciate your sharing. Can you please elaborate further on your comment regarding RKI Energy drilling BIG gas wells near County Road 336 @ west of 17. Can you better identify where the “several new locations” are?
Thank you for keeping all of us up to date.
JB
Allocation wells are drilled between different leases where the owners on the different lease agree to an allocation of production formula instead of forming a unit. Your lease should require consent to both pooling and allocation wells to be clear you can control both.
The lease form provided by an oil company will most likely have a clause authorizing pooling and is very unlikely to reference allocation wells. Many older leases are silent on pooling and the courts have held that pooling requires the consent of the lessor. As lessor, you can add a clause requiring consent to pooling and allocation wells. Think of this as being akin to the issue of adding a clause for royalties to be paid at the market price without any deduction of transportation, gathering, marketing and expenses. If the lease says “market value at the well” then by case law, you will be charged costs. Everything requires care in the wording of the lease terms. I recommend that you download and review the Relinquishment Act lease form from the General Land Office website for an example of a lease that describes the calculation of royalties and prohibits expenses. The GLO not only requires royalties on lease use gas, but also on flared gas, vented gas and flash gas. It also requires consent for pooling or allocation wells.
Linton,
Thanks for sharing your map of Reeves County. Very nice.
Clint Liles
Lawrence, thanks for the info re RKI drilling at 336 & 121. I looked at their permit and notice it will be an “allocation well”. I think it is permitted as such in lieu of typical pooling. RRC stance on horizontal wells and pooling seems cloudy. Do you (or anyone else) know if or how allocation wells affect rule of capture?
Thanks, JB
JB,
My knowledge of is limited, but my understanding is that PSA/Allocation wells are permitted when pooling is not an option- usually due to the lease having no pooling clause or not allowing enough acres to drill a lateral. Im a little confused on how to answer your question, but- Only tracts that are drilled will produce. Since this is used in lieu of pooling, other tracts not drilled would not benefit. Thus drainage is a concern. I don’t know how you would prove harm though if your tract was being “drained.” I came across this artical that is a little dated, but informative:
https://www.energylegalblog.com/blog/2016/10/13/psa-and-allocation-…
Perhaps one of the practicing resident attorneys could shine more light on this (I’m more of a landman than I am an attorney).
Mike
Randy Duggan,
GIS(Geographic Information System) map of Ward County Section 7/Block 33/A-148:
CLICK ON MAP TO ENLARGE
Clint Liles
Thanks, Clint. You rawk!!
That’s interesting. Do the lease agreements typically have the differences spelled out regarding this issue? I don’t remember seeing this kind of wording in my lease.
Riverstone, Goldman Sachs JV acquire Delaware Basin assets for $1.6B
Dallas-based Lucid Energy Group and its financial sponsor, EnCap Flatrock Midstream, said Monday they have reached agreement to sell Lucid Energy Group II in the northern Delaware Basin for $1.6 billion to a joint venture of private equity firm Riverstone Holdings and the merchant banking division of Goldman Sachs. Closing is expected in 2018Q1. (Read more…)
MORE money for drilling coming into the Delaware basin. RKI Energy
has several new locations on the north side of County Road 336 west
of Hwy 17. BIG gas wells.
Clint, the rigs started going in around Sept I think. Isn’t it typical 4-6 months before they actually start oil production? I assume once that’s close someone will reach out and inquire about setting up a direct deposit to those that have mineral rights?
https://www.dropbox.com/s/7fnai6m7fjqlw9s/Reeves%20County%20Land%20…
Lawrence, the link above will take you to a 1945 Reeves County map you might find helpful. I have to export it on my phone to a file viewer called “Fast Image Viewer” in order to see the blocks/sections. Let me know if you have trouble with it. Linton
Linton,
Our minerals are in Sec 7 Blk 33 H &TC RY. Ward County.
Thank you.
TennisDaze… thanks for the lesson on explaining allocation wells. The sharing of your knowledge and experience is much appreciated on this wonderful Forum.
Clint Liles
Glen Kirk -
Are you certain you are phrasing your question correctly?
I have never heard of someone selling a Royalty Trust. Could you mean putting together a group of investors to buy royalties? Creating a Royalty Trust?
Does anyone know ??.. my lease says that I am to be paid 25% of the net proceeds of the sale or the market value thereof which ever is higher, all free of all cost and expenses,
does that mean I am to be paid the posted WTI price or the discounted price the oil co. says the pipeline pays them. there seems to be quite a difference.
Mike, Allocation wells is a very hot topic at legal seminars as everyone agrees that there is no definitive law on this subject. John McFarland at Graves Daugherty law firm has spoken against allocation wells on the panels at the seminars. There is a good article by Ronald Nickum taking the position against allocation wells. Here is a link to John McFarland’s lawyer blog on this topic.
https://www.oilandgaslawyerblog.com/2016/07/debate-allocation-wells…
Allocation wells are an abuse by oil companies as they are being used to get around the requirement to form a unit (pooling the leases) or to use form a production sharing well between leases or units. A sharing well generally requires the consent of the lessors. Allocation wells are based on the legal theory that oil company can create a “new” term to evade pooling requirements. There is no case law or statutory law that provides support for this position. The RRC is allowing oil companies to designate wells as “allocation wells” and then they do not have to file an authorization for pooling or form a unit. The RRC is aware that there is no legal basis for allocation wells and has been adding a statement to the approved permits that it is not taking the position that the well is in compliance with leases. In the end, the RRC is enabling oil companies to avoid the historic requirement to have pooling authorization in the leases or to obtain the consent of lessors. The ultimate purpose is for oil companies to extend old leases at low royalty rates instead of getting consent or new leases. As most mineral owners do not have the ability to protest, the oil companies have made an end-run around historic oil and gas law. Follow Wade Caldwell’s advice for your lease to require the mineral owner’s consent for pooling, sharing and allocation wells.
Does anyone have any info on Royalty Trusts or know anyone who sells them?
Thanks,
GKirk
I am confused. Is the allocation vs. pooling stating that a horizontal well that crosses a lease boundary can strip the mineral owner on an adjacent track from income potential?
