Oil and Gas Lawyer Blog
Today a district court in Travis County held that the Texas Railroad Commission violated the Administrative Procedure Act by informally adopting rules for issuance of allocation and production sharing well permits without following the rule-making procedures of the Act. The Court ruled in an appeal by a mineral owner of the Commission’s order granting a well permit to Magnolia Oil & Gas Operating for a well in Karnes County.
The case is Opiela v. Railroad Commission of Texas, No. D-1-GN-20-000099, in the 53rd District Court of Travis County. Judge Karin Crump’s order can be viewed here. Opiela v. RRC Final Judgment (003) Our firm represents the Opielas in the case.
Magnolia’s well, the Audioslave 1H, was originally permitted by Enervest as an allocation well. The Opielas protested the permit, and while the protest was pending the Commission issued the permit and Enervest drilled the well. Magnolia then took over operation of the well and filed an application for an amended permit for the well as a production-sharing well. That permit was also granted over the Opielas’ protest, and Magnolia fracked and completed the well.
Under Commission rules, an applicant for a well permit must show, if challenged, that it has a good-faith claim of right to drill the well. Judge Crump also held that Magnolia had failed to make that showing. Judge Crump found that the Commission should have considered whether the Opielas’ lease and its pooling clause gave Magnolia authority to drill the well. The Commission had concluded that it has no authority to consider the lease terms. The case was remanded to the Commission for further proceedings consistent with the judgment.
Although the Commission has been issuing permits for allocation and production-sharing wells for years, it has never adopted formal rules as required by the Administrative Procedure Act setting forth the requirements for such well permits. The Act requires publication of proposed rules and opportunity for public comment before adopting them.
Mineral owners have protested applications for allocation wells before, but until now no court has ruled whether the Commission has authority under its rules to issue such permits. In all prior protests, either the parties settled or the permit was withdrawn or expired before a court could address the issue.
The Opielas have also sued Magnolia in the district court in Karnes County contending that Magnolia has no right under their lease to drill its well, which is located partly on the Opielas’ land and partly on adjacent lands. The parties have submitted motions for summary judgment and are awaiting the court’s ruling.
I have written about allocation wells before, beginning in 2012. See my previous posts here, here, here, here and here.