Blog, Legal

POOLING CLAUSES VS. RULE OF CAPTURE

Definition:

Pooling involves the consolidation and combining of leased land with adjoining leased tracts. The area of combined tracts is called a pool or a unit. Pooling has the benefit of uniting all landowners’ leases into a common pool with one common underground geological reservoir, often in connection with a program of uniform well spacing. Different pooling units may be established at various depths.

History:

Oil and gas in place, and the right to explore and produce oil and gas, are both regarded as private property. However, the production of oil and gas has always been considered a part of the public interest. The reason is that minerals are non-renewable and are immensely beneficial, if not necessary, to private and public welfare. To prevent waste, the common law rule of capture has been modified by state statutes and regulations. In both ownership in place states, such as Texas, and non-ownership states, such as Louisiana, the courts have held that oil and gas conservation statutes override common law ownership.

There are two types of pooling on leased land. Both types of pooling, voluntary and compulsory, can change the way the lease is interpreted and how the lease provisions are applied.

Voluntary Pooling:

Wherein the landowner gives consent to the pooling and may insert various provisions in the pooling clause, such as setting the acreage to be pooled. The pooling clause sometimes gives unrestricted rights to the production company for the pooling of the leased land. If there is a statutory acreage specified, it will limit the acreage to that minimum number of acres.

Landowners may insert a Pugh clause into the lease to protect their interests in the leased land. The Pugh clause states that the lease shall terminate in all non-producing areas when the primary term ends (or other event occurs).

Compulsory or Statutory Pooling:

Wherein state law has been created for governing oil and gas leases. Most states have this type of provision for compelling the landowner to enter into a pooling arrangement. In compulsory pooling of leased lands, the production company files a request for a pooling order, which provides for the sharing of interest by the landowners known to own an interest in the proposed pool. The pooling order and notice of a hearing may be published in a newspaper with the largest circulation in each county where the pooling will take effect. All known owners must be notified and advised of the legal action. The hearing is held before the appropriate state agency. As a result of the hearing, an order can be issued by the state concerning the guidelines for sharing costs and revenues in the pooled area.

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