The Pooling Clause

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The Pooling Clause

 The typical  industry lease contains the following type of pooling clause:        

         Lessee is hereby granted the right, at its option, to pool or unitize all or any part of said land and of this lease as to any or all minerals or horizons thereunder, with other lands, lease or leases, or portion or portions thereof, or mineral or horizon thereunder, so as to establish units containing not more than 80 surface acres plus 10% acreage tolerance; provided, however, a unit may be established or an existing unit may be enlarged to contain not more than 640 reservoir.  If larger units are required, under any governmental rule or order, for the drilling or operation of a well at a regular location, or for obtaining maximum allowable, from any well to be drilled, drilling, or already drilled, any such unit may be established or enlarged, to conform to the size required by record in the public office in which this lease is recorded.  Each of said options may be exercised by lessee from time to time, and whether before or after production has been established either on said land or on the portion of said land included in the unit or on other land unitized therewith and any such unit lease even though there may be land or mineral, royalty or leasehold interests in land within the unit which are not pooled or unitized.  Any operations conducted on any part of such unitized land shall be considered, for all purposes, except the payment of royalty, operations conducted under this lease.  There shall be allocated to the land covered by this lease included in any such unit that proportion of the total production of unitized minerals from wells in the unit, after deducting any used in lease or unit operations, which the number of surface acres in the land covered by this lease included in the unit bears to the total number of surface acres in the unit.  The production so allocated shall be considered for all purposes, including the payment or delivery of royalty, over-riding royalty, and any other payments out of production, to be the entire production of unitized minerals from the portion of said land covered hereby and included in such unit in the same manner as though produced from said land under the terms of this lease.  The owner of the reversionary estate of any term royalty or mineral estate agrees that the accrual of royalties pursuant to this paragraph or of shut-in royalties from a well on the unit shall satisfy any limitation of term requiring production of oil or gas.  The formation of such unit shall not have the effect of changing the ownership of any shut-in production royalty which may become payable under this lease.  Neither shall it impair the right of lessee to release from this lease all or any portion of said land, except that lessee may not so release as to lands within a unit while there are operations thereon for unitized minerals unless all pooled leases are released as to lands within the unit.  Lessee may dissolve any unit established hereunder by filing for record in the public office where this lease recorded a declaration to that effect, if at that time no operations are being conducted thereon for unitized minerals.  Subject to the provisions of this paragraph 4, a unit once established hereunder shall remain in force so long as any lease subject thereto shall remain in force.  A unit may be so established, modified or dissolved during the life of this lease.

 

 Sometimes, the lessor can benefit from having a right to object to pooling.  You would want to object to a proposed pooling only when an oil company is attempting to pool your land or your client’s land with land that you suspect is non-productive.  In that case the pooling would dilute the your royalty revenue or your client’s royalty revenue from a well in a drilling and production unit containing the non-productive land.  Oil companies strongly resist giving the lessor the right to oppose pooling.  Unless you or your client has in house geophysicists or contractual geophysicists who would be in a position to advise you on pooling decisions, a pooling opposition clause would not be a benefit, and it might break the deal.  A sample of a pooling opposition clause accepted by an oil company is set forth below:

 Lessor’s Right to Oppose.  Notwithstanding Lessee’s right, at its option, to pool or unitize the Leased Premises as granted herein, Lessor reserves the right to protest and not agree to any such pooling or unitization and to appear before the State Oil and Gas Board of Alabama or other competent regulatory board or agency regarding any such application made by Lessee and oppose the formation of such unit that includes only part, but not all of the Leased Premises.

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