Legal Definitions - pooling clause

A pooling clause is a specific provision often included in oil and gas leases. It grants the company leasing the land (the "lessee") the authority to combine all or part of the leased property with adjacent or nearby properties. This combination, known as "pooling," is done to facilitate more efficient drilling, production, and overall development of oil and gas resources across a larger, unified area.

Here are some examples to illustrate how a pooling clause works:

• Scenario: Efficient Resource Extraction Across Small Parcels

  Imagine a large underground oil reservoir extends beneath several small, individually owned family farms. An energy company wants to extract the oil and gas, so it leases drilling rights from each farmer. Without a pooling clause, the company might be required to drill a separate, less efficient well on each small farm. However, with a pooling clause in each lease, the company can combine these small farm properties into one larger "drilling unit." This allows them to drill a single, strategically placed well that accesses the oil and gas under all the pooled farms, and the production profits are then shared proportionally among the landowners based on their acreage in the pooled unit.

  This example illustrates how a pooling clause enables the consolidation of multiple smaller leased areas into a single, more manageable unit for efficient drilling, reducing costs and environmental impact compared to drilling multiple wells.

• Scenario: Maximizing Production with Advanced Drilling Techniques

  A company plans to use advanced horizontal drilling techniques to extract natural gas from a shale formation that extends beneath three neighboring ranches. Each rancher has signed a separate lease with the company. The pooling clause in each lease permits the company to create a single drilling unit encompassing parts of all three ranches. This enables them to drill one well vertically and then horizontally through the shale layer under all three properties. This method maximizes the recovery of gas from the shared underground reservoir, as a single horizontal well can access a much larger area than multiple vertical wells, and the landowners share in the production from this single, efficient well.

  This example demonstrates how pooling clauses facilitate the use of modern drilling technologies that often require operations to cross property lines, ensuring maximum resource recovery from a shared geological formation.

• Scenario: Meeting Regulatory Requirements for Drilling Units

  A state's oil and gas commission mandates that any new well must be drilled on a minimum of 80 acres to prevent over-drilling and ensure responsible resource management. An energy company has leased a 40-acre parcel from one landowner and an adjacent 50-acre parcel from another. Neither parcel alone meets the 80-acre requirement. The pooling clauses in both leases allow the company to combine these two parcels into a 90-acre drilling unit. This enables them to comply with the state regulation and proceed with drilling a single well that covers the combined area, with both landowners sharing in the production.

  This example shows how a pooling clause can be crucial for meeting regulatory requirements regarding the minimum size of a drilling unit, allowing companies to operate legally and efficiently when individual leased parcels are too small on their own.