surface. This company also had a lease on a neighbor’s property, but they placed their equipment on Robin- son’s surface. The court ruled that the petroleum company could
not place all the equipment from the neighbor’s prop- erty on Robinson’s, because it was not a reasonable use of his surface. After all, the equipment only benefi tted the neighbor.
Allocation wells In the last few years, a new oil company practice,
known as allocation wells, has taken Texas by storm. During the past 2 or 3 years, some 700 allocation well permits have been issued by the Railroad Commission of Texas (RRC). Established in 1891, the RRC has regulated the pe-
troleum industry in Texas since 1917. Wallace says there are 4 methods of pooling prop-
erty in the Lone Star State: • Pooling by agreement: This can be an additional oil and gas lease or by negotiation with the oil company.
• Unitization: When oil well production is declining, mineral owners combine their mineral interests into a larger unit, sharing proceeds.
• Mineral Interest Pool Act: This involves forced pooling under specifi c circumstances; it is seldom used in Texas.
• Allocation Wells: The RRC allows allocation wells in cases where the landowners did not agree to pooling. It also refers to the combining of 2 or more leases. In 2014, the Texas Supreme Court decided an im-
portant case originating in Washington County. In Key Operating and Equipment Inc. v. Hegar, an issue arose when 2 mineral leases had been pooled but production came from only 1 of the leases. Did the petroleum company have the right to access
94 The Cattleman November 2015
a producing lease by using a road across the surface of a lease with no production? Wallace says that the law will follow the Robinson
v. Robbins Petroleum rule, except when the 2 proper- ties are properly pooled together. He explains that if Property A and Property B have a pooling agreement, they can put surface equipment on Property A because both properties benefi t. However, a recent Travis County case, EOG Resources
Inc. v. Klotzman has muddied the waters. The RRC reviewed the case, deciding that operators could drill horizontally across lease lines or separate unit lines without obtaining pooling authority or complying with restrictive pooling provisions. “After the Klotzman case, oil companies said, ‘We
don’t need the pool,’” Wallace explains. “For the fi rst time, if an allocation well is not properly pooled, the language in Key v. Hegar seems to say that you cannot use my surface for the benefi t of another lease because those are not properly pooled.” One positive result of Key v. Hegar is that the sur-
face owner, in some instances, may deny access to the petroleum company without the mineral owner’s permission for an allocation well. That gives the sur- face owner some say in what surface provisions — an agreement with the oil and gas company protecting the surface owner’s operation — can be added to an oil and gas lease before the well is drilled. “That is the real value of Key v. Hegar,” Wallace
explains. “It says we understand that because most of the wells drilled in the state of Texas are horizontal, because either the size of the lease is not big enough, or the orientation [of the parcels] is wrong, you must get permission from the neighbor [who is the surface owner].” Wallace says that the Key v. Hegar case took away
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