Operations on Drilling and Production Units

Top  Previous  Next

Operations on Drilling and Production Units

 

Drilling or reworking operations on a pooled unit can maintain leases in that unit where the lease permits such activities to extend the term of the lease. Sheffield v. Exxon Corp., 424 So.2d 1297 (Ala. 1982).   Where oil and gas leases have shut-in clauses, the shut in clause can maintain a lease after the expiration of its primary term when a portion of the leased premises is included within a drilling and production unit with a shut-in well, even when the well is not on the portion of the leased premises included in the unit. Jones v. Bronco Oil & Gas Co., 446 So.2d 611 (Ala. 1984).  Furthermore, in such cases, the lease will be maintained both as to the acreage within the drilling unit and without the drilling unit unless some other provision of the lease dictates otherwise. Id.   The Alabama Supreme Court has recognized that the parties to an oil and gas lease can choose to use “Pugh” clauses that cause a division of the leased premises in the event of partial pooling. Id.;  (The “Pugh” clause is named after Lawerence G. Pugh, Sr., the lawyer accredited with creating the clause. Meaher v. Getty Oil Co., 450 So.2d 443 (Ala. 1984).)  In such cases, the Pugh clause might preclude the maintenance of the lease as to leased premises outside the drilling and production unit through the payment of shut-in royalties for the unit well.

The operator of a drilling and production unit has the right to use the surface of all lands embraced within the unit “in a manner reasonably necessary to recover” the hydrocarbons. Gulf Oil Corp. v. Deese, 153 So.2d 614, 619 (1963). The operator’s use of the land, however, must be reasonably necessary for the enjoyment of the mineral estate. The remedy for excessive use in Alabama is trespass, which can carry punitive damages. See Hickox v. Vester Morgan, Inc., 439 So.2d 95 (Ala. 1983).  The reasonableness of the use is a jury question. Id.

Copyright 2011 by Edward G, Hawkins. All rights reserved.