Mineral Owners, Oil and Gas Industry Vying Over Property Rights

Can mineral owners be forced into pooling agreements?

While shale drilling has caused a boom in the production of natural gas and oil, it has raised a number of concerns, not the least of which is a struggle over property rights between mineral owners and the oil and gas industry. In fact, some observers believe this fight is headed to the floor of the Texas legislature in its 2017 session.  

The Fight Over Pooling Agreements

The overarching issue concerns the drilling of horizontal wells that reach across different lease lines and whether allocation wells force mineral owners into pooling agreements that are not typically authorized  by oil and gas leases.  Companies traditionally pool adjoining leases on small tracts of land and drill a common underground oil and gas reservoir. In order to do so, however, they need permission from mineral owners.

The problem here is that mineral leases in Texas often forbid pooling and allocation wells enable drillers to pool leases without the permission of mineral rights holders. What was once an obscure issue has become a much larger conflict with the advent of the shale drilling boom. Now, land and mineral owners argue that allocation wells are trampling property rights and undermining negotiated contracts.

“It’s a gross violation of our private property rights,” said Bill Phoenix, director of government affairs for the Texas Land & Mineral Owners Association.

On the other hand, oil companies contend allocation wells accelerate oil and gas production. Moreover horizontal drilling minimizes the number of wells needed to be drilled at the surface, wells that would ultimately produce more hydrocarbons. Ultimately drilling permits fall under the purview of the Texas Rail Road Commission, the regulator that is charged with charged with preventing waste by allowing for the production of as much oil and gas as possible.

Legislative Action Then and Now

A bill that would have permitted allocation wells was considered in the 2015 legislative session never made it to the floor. But a similar bill is expected to be introduced for the 2017 session that will be a battle between advocates of land and mineral owners and industry.

“That’s going to be a big fight this session,” said Phenix,

The Bottom Line

In the end, lateral drilling and hydraulic fracturing has helped Texas maintain its status and a leading oil and gas state. The debate over allocation ultimately requires finding a solution that is a win-win for the oil and gas industry and mineral and landowners, a solution that requires the advice and counsel of experienced oil, gas and energy attorneys.