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Taylor and Ellis Introduce Forced Pooling Bill in Texas Legislature

State Representative Van Taylor, R-Plano, and Senator Rodney Ellis, D-Houston, have introduced a bill to allow for forced pooling in Texas. The House bill, HB 100, may be viewed here.

The bill would allow an operator to force-pool mineral, royalty and leasehold interests into a unit if the operator obtains agreement from 70% of the leasehold owners and 70% of the royalty owners in the area to be unitized. Unleased mineral owners could be pooled, and would be treated as owning a 1/6 royalty interest and a 5/6 working interest. The unit operating agreement can provide for a “sit-out” penalty of no more than 300% for a working interest owner who elects not to pay its share of the well costs. The bill does not allow force-pooling of mineral or royalty interests owned by the State.

Here is just one interesting provision in the bill:

Lease or surface use provisions that conflict with the use of the surface for unit operations in such a manner as to prevent or render uneconomical the implementation of the plan of unitization as approved by the commission must be amended by the unit order to the extent, and only to the extent, necessary to implement the plan in an economical and efficient manner.

If I read this correctly, the bill would allow the Railroad Commission to amend any oil and gas lease surface use provisions if those provisions “conflict with the use of the surface for unit operations in such a manner as to prevent or render unecomonical” the plan of unitization.

Another interesting provision: The operator can apply for and obtain an order forming the unit before getting approval of 70% of the royalty owners. The operator then has six months to get 70% sign-up.

The participation of unit tracts in unit production is not necessarily on a per-acre basis. The bill provides that

A tract’s fair share of the unit production must be measured by the value of each tract and its contributing value to the unit in relation to like values of other tracts in the unit, taking into account acreage, the quantity of oil, gas, or oil and gas recoverable from the tract, the tract’s location on the geological structure, the tract’s probable productivity of oil, gas, or oil and gas in the absence of unit operations, or as many other factors, including other pertinent engineering, geological, or operating factors, as are reasonably susceptible of determination.

Passage of this bill would materially change the nature of the relationship between mineral owners and operators in Texas.

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