Pooling Issues--Avoiding Pitfalls

January 01, 1995

Introduction

A. Scope

This paper will focus primarily on voluntary pooling in Texas pursuant to the authority granted to the lessee by the pooling clause of an oil and gas lease. It will not cover unitization, secondary recovery, the Mineral Interest Pooling Act or the regulatory aspects of pooling.

In addition to pooling by the authority granted in the pooling clause of an oil and gas lease, voluntary pooling may also be accomplished by execution of a community lease. A discussion of the problems arising from community leases is a topic in itself. This paper will examine the problems of community leases only from the viewpoint of the lessee attempting to avoid conflicts with the royalty owners in a pooled unit. It will not examine the complex relationship between the holder of the executive rights and the nonparticipating royalty owner.

We will first briefly discuss the historical background of pooling. Then we will consider the basic quistions related to pooling, including an examination of lessee's authoroty to pool and lessee's obligation in the exercise of its pooling authority. This paper will then focus on the pooling transaction itself. We will briefly analyze the elements of the pooling clause and the elements of a declaration of pooled unit. Then we will examine in detail the common problems which arise when exercising the pooling authority granted in an oil and gas lease.

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