Applying Familiar Concepts to New Technology: Under the Traditional Oil and Gas Lease, a Lessee Does Not Need Pooling Authority to Drill a Horizontal Well That Crosses Lease Lines [reprint, first published 2017]
andEnergyJournalbyanauthoirzededitorofUniversityofOklahomaCollegeofLawDigitalCommons.Formoer
information
firs t published 2017]
Ernest E. Smith
Mineral Law Commons
Recommended Citation ErnestE.Smith,ApplyingFamiliarConceptstoNewTechnology:UndertheTraditionalOilandGasLease,aLesseeDoesNotNeedPooling AuthoritytoDrillaHorizontalWellThatCrossesLeaseLines[reprint,firstpublished2017],3Oil&Gas,Nat.Resources&EnergyJ. 553(2017), http://digitalcommons.law.ou.edu/onej/vol3/iss2/9
Part of theEnergy and Utilities Law Commons; Natural Resources Law Commons; and theOil
VOLUME 3
NUMBER 2
APPLYING FAMILIAR CONCEPTS TO NEW
TECHNOLOGY: UNDER THE TRADITIONAL OIL
AND GAS LEASE, A LESSEE DOES NOT NEED
POOLING AUTHORITY TO DRILL A HORIZONTAL
WELL THAT CROSSES LEASE LINES*
[reprint, first published 2017]
ERNEST E. SMITH**
I. The Proliferation of Horizontal Wells in the Shale Has Raised the
Question Whether a Lessee Without Pooling Authority Is Authorized to
Drill an “Allocation Well” ........................................................................ 554
II. The Standard Oil and Gas Lease Grants to the Lessee Authority to Drill
a Horizontal Well That Crosses Lease Lines ............................................ 558
III. A Lessee Does Not Need Pooling Authority to Drill a Horizontal Well
That Crosses Lease Lines.......................................................................... 560
* This article was originally published in the Texas Journal of Oil, Gas, and Energy
Law (“TJOGEL”). See Ernest E. Smith, Applying Familiar Concepts to New Technology:
Under the Traditional Oil and Gas Lease, a Lessee Does Not Need Pooling Authority to
Drill a Horizontal Well That Crosses Lease Lines, 12. TEX. J. OIL GAS & ENERGY L. 1
(2017), available at http://sites.utexas.edu/kbhenergycenter/files/2017/04/12TexJOilGas
EnergyL1.pdf. The Journal would like to thank Professor Smith and the editorial staff of
TJOGEL for their permission to republish the article. For more information about TJOGEL,
visit http://tjogel.org/.
An earlier version of this article was featured in the Spring 2016 Section Report of the
Oil, Gas & Energy Resources Law section of the State Bar of Texas.
** Ernest Smith is a Professor of Law and the Rex G. Baker Centennial Chair in
Natural Resources Law at The University of Texas School of Law; he is also the co-author
of the Texas Law of Oil & Gas treatise. Professor Smith is also a faculty advisor to the
TEXAS JOURNAL OF OIL, GAS, AND ENERGY LAW.
553
A. Drilling a horizontal well that crosses lease lines is not pooling
because the horizontal well does not result in a cross-conveyance of
royalty interests or change the allocation of production....................... 560
B. The Browning decision illustrates the difference between pooling and
drilling a horizontal well that crosses lease lines.................................. 562
C. The Browning decision indicates why a lessee may prefer to exercise
pooling authority when drilling a horizontal well that crosses lease lines563
D. In the Klotzman case, the Railroad Commission concluded that, even
though the lessee lacked pooling authority, the lessee had a good faith
claim to title to obtain a permit for drilling a horizontal well across lease
lines ...................................................................................................... 565
E. The common usage of Production Sharing Agreements suggests that
pooling authority is not required for a lessee to drill a horizontal well that
crosses lease lines ................................................................................. 566
F. The public policy of Texas supports interpreting the typical oil and
gas lease to allow a lessee to drill a horizontal well that crosses lease
lines, even where the lessee lacks pooling authority ............................ 567
IV. Because a Lessee Does Not Engage in Pooling by Drilling a Horizontal
Well That Crosses Lease Lines, a Lessee Does Not Engage in Any
Wrongful Conduct by Drilling Such a Well Absent Pooling Authority ... 567
A. A drilling permit should not be set aside, and production should not
be enjoined, if, absent pooling authority, the lessee seeks a permit for or
drills a horizontal well that crosses lease lines ..................................... 568
B. The lessee does not engage in tortious conduct if, absent pooling
authority, the lessee drills a horizontal well that crosses lease lines .... 569
C. The lessee is not exposed to exemplary damages if, absent pooling
authority, the lessee drills a horizontal well that crosses lease lines .... 569
V. Conclusion ........................................................................................... 570
I. The Proliferation of Horizontal Wells in the Shale Has
Raised the Question Whether a Lessee Without Pooling Authority
Is Authorized to Drill an “Allocation Well”
Oil and gas development in Texas has witnessed a proliferation of
horizontal wells that often must cross lease lines to be eco (...truncated)