Allocation Wells In Texas
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Example of allocation wells drilled across existing (un) leased, or partially leased tracts, or tracts that grant no pooling authority within a drilling unit. All of these wells are allocation wells. The operator has filed a P12 Pooling Authority with the TRRC in conjunction with filing these drilling permits (filed 8.12.22) and tracts 1 and 2 allow pooling ; tract 3 does not. These allocation permits facilitate lateral lengths of 8/9K feet; if the operator adhered to the rule of law regarding pooling, it would only have been able to drill 4K lateral lengths. The mineral ownership in tract 3 might be just fine with all this shit, many mineral owners are not. This is Phantom Wolfcamp Field in Loving County. You may click to enlarge
As Midland and Delaware Basin core areas fill up with HZ laterals, and more and more operators are trying to find places to drill longer laterals in those sweet spots, allocation wells are becoming more prevalent.
My ladies in the office and I did a dead stop last week for 10 minutes and jointly and severally got on the Texas Railroad Commission Drilling Permit Query site to each of us do our own little "poll." Fully 35% of all HZ permits we looked at in the Delaware Basin are now allocation wells. I dug in on Anadarko (OXY) in the Delaware and nearly 53% of all the HZ wells it is permitting in the Delaware Basin are now allocation wells.
There is actually a great deal of risk associated with drilling 10, 11 and 12 million dollar allocation, or PSA wells, in Texas. If an operator has no, or only partial pooling authority, and pools anyway, it takes its chances.
Allocation wells are a form of forced pooling in Texas, something there is NO legal basis for in our State. A Lessee cannot force a mineral owner to lease, or agree to pooling its minerals with other minerals, nor can it place un-leased and/or unwilling mineral owners into a pooled drilling unit or production sharing agreement (PSA) without its full consent. In other words, allocation wells are illegal wells. The Texas Railroad Commission knows they are illegal but grants allocation and PSA related drilling permits anyway.
"Allocation wells violate Statewide Rule 26, which requires that all liquid hydrocarbons be measured before leaving the lease, and Statewide Rule 40, which requires that operators establish a pooled unit if they want to combine acreage from separate leases to form a drilling unit." Thompson & Knight
The operator that pools without pooling authority (allocation and PSA wells) also knows its violating Texas law. It is simply going to get away with violating that law until they get their socks sued off them and they can't do it anymore. Operators have nothing to fear from the TRRC.
One of the fundamental principles of oil and gas regulation in Texas is the prevention of waste, like flaring, the conservation of resources, like natural gas (flaring), the use of potable groundwater for frac'ing, and the protection of Texan's correlative rights. All Texans! The Texas Constitution mandates that of the TRRC. If you are a mineral owner and you are being forced into a unit, or PSA you don't want to be in, your "rights" are NOT being protected by the the only regulatory agency in the State charged with protecting your rights. Instead you will have to lawyer up, and belly up with lots of bucks, to fight the matter in a court.
HZ Permit for Phantom (Wolfcamp) Field in Loving County, Anadarko.
Below is the boilerplate indemnification clause the TRRC installs in every allocation permit being approved; it basically says we (TRRC) know it's against the law, we are going to grant you the permit anyway and if shit hits the fan down the road regarding lawsuits over improper royalty distribution, forced pooling without consent, mineral trespass, etc, etc. it's on you, Mr. Operator, not us. We're only trying to get re-elected in Texas for consecutive terms...don't blame us.
You may click the images to enlarge
"To date, the RRC’s permitting process has worked in concert with other factors to facilitate the rapid growth of onshore U.S. oil and gas production, the importance of which should not be underestimated." Haynes & Boone
Fully 70-75% of all Permian Basin tight oil production is exported to foreign countries. Today, 25-30% of all HZ wells being permitted appear to be allocation wells, or illegal wells approved by the only entity in Texas regulating oil and natural gas. You must decide for yourself how "important" allocation and production wells are to oil exports and OUR nation's long term energy security. I would suspect that the UK, Singapore and the Netherlands, for example, are plenty good with allocation wells.
On matters of the rule of law, the Texas Natural Resource Code and the Texas Constitution, the Railroad Commission of Texas seems to ignore all that and chose what IT thinks is best for Texas and for Texans. Absurd exceptions to Statewide rules have allowed Wolfcamp wells to be drilled 330 feet apart from each other, flaring has been allowed on wells for years, without permits, regulators have given up entirely on reservoir pressure maintenance regulations. If you've ever seen 400 MCFGPD going up a flare stack, you'd understand what I mean by pressure preservation.
As a proud Texan, and an oilman of over 60 years, I consider my correlative "rights" to include the expectations that my children and grandchildren have the use of hydrocarbons in their futures... at reasonably affordable prices. I have a right to expect that regulators in Texas will help to ensure that. My State's Constitution requires that of them.
The Texas Railroad Commission, and the tight oil industry it regulates, is on a Mission From God to drain Texas, first. Allocation wells and production sharing agreements are helping to speed up the process. Draining my State of its last remaining oil resources, to export 4.5 MM BOPD of the stuff to foreign countries, does NOT sit well with this 'ol hand, no sir. Its beyond stupid.
On April 27 2022 the Railroad Commission of Texas appealed this court ruling; as you might expect every tight oil operator in Texas, including Pioneer, supports the TRRC's appeal. Why? Because they are in deep shit if it is upheld by the SC. You will not believe the money the Texas shale industry is going to throw at THIS issue.