Termination of Pooling Units through Lease Termination

Termination of Pooling Units through Lease Termination

Does the pooling of a unit terminate when a lease within the unit terminates? In the case of a compulsory unit, the answer is clearly no. This is because the pooling or establishment of the drilling/spacing unit operates on the right to produce throughout the tract, not simply upon a particular lease. A unit order is in the nature of an in rem order. Thus, it does not matter who happens to own the right to produce.
 
In the case of a declared unit or voluntary pooling the question is more difficult. The starting point should be basic principles of property law. For a declared unit in which the lessee pools the leased tract through authority granted it by the lessor, the power of the lessee to bind the property should extend no longer than the lease itself. Thus, if the lease terminates, then the pooling of the lease rights accomplished under it also terminate. However, another way of viewing the pooling clause is in terms of agent and principal. If the lessor gives the lessee authority to pool, is this not binding on the lessor and the property regardless of whether the lease itself continues? While this view can certainly be taken, the more correct view is that the lessor grants a power to pool the leasehold rights, and thus this pooling can extend no longer than the lease itself. The pooling clause is limited to the lease itself; it is not an additional power granted to the lessee that can extend beyond the lease.
 
This is not to say, however, that merely because a lease can be said to terminate that the pooling accomplished under it has necessarily terminated. It is necessary to look at all the circumstances of the pooling in order to determine whether there is a continuation of the pooling once a lease that has been pooled may be said to have terminated. Thus, for example, if a lessor has received substantial benefits, particularly production from other tracts in the pooled unit, the lessor ought to be subject to a continuation of the pooling even though the lease may have terminated for some reason. One might put this in terms of estoppel of the lessor to assert the termination of the pooling or on the basis that the acceptance of the benefits of the pooling has made the pooling irrevocable so long as there is production from the pooled unit. Two cases from the Texas courts illustrate this point well.
 
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This free download is from The Law of Pooling and Unitization, which treats both private and public relationships in pooling and unitization of oil and gas properties, as well as the antitrust aspects of pooling and unitization, pooling clauses, and state-by-state analysis.
General coverage includes:
Conservation regulation
Creation of units
Effects of pooling and unitization
Operating problems
Administrative law aspects of conservation agencies
Federal and Indian land problems
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