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Travis County District Court Finds that Texas Railroad Commission Lacks Power to Issue Allocation and Production Sharing Well Permits
Texas
Plaintiffs appealed the RRC’s decision to the Travis Coun- ty Court arguing that the RRC erred when it granted the allocation well permit due to the lack of pooling author- ity in the lease. Ultimately, Opiela held that the RRC wrongfully granted the permit because Magnolia failed to establish a good faith claim of right to drill the well, as is required under RRC rules. Magnolia asserted that its good faith claim was supported by the plain language of the lease permitting it to drill a well on Plaintiffs’ tract and Texas authority supporting allocation and production sharing wells. Further, Magnolia argued that the permit was supported by RRC’s precedent and public policy in maximizing the recovery of resources and preventing waste. Although, the court held that the RRC erred and remanded the case to the RRC for further proceedings, the order did not explain why Magnolia’s showing was insufficient, nor did it explain the importance of the pool- ing clause. Importantly, Opiela did not invalidate allocation or pro- duction sharing permits, per se. Rather, Opiela, directed that RRC that it must scrutinize those permits to deter- mine whether there is a good faith basis for the right to drill. Opiela explained that it was incorrect for the RRC to take the position that it does not interpret the lease “or other relevant title documents” when reviewing a permit application. In other words, Opiela, contrary to other Texas decisions, is directing the RRC to conduct a de- tailed title analysis of the lease and any other relevant title documents prior to granting a permit. Opiela appears to take a contrary position to the Texas Supreme Court’s position in Magnolia Petroleum Co. v. Railroad Comm’n of Texas, 170 S.W.2d 189 (Tex. 1943).[4] As a result, Opiela also concluded that the RRC should have consid- ered the effect of pooling clause of the lease in evaluating whether to grant an allocation or production sharing well permit. However, such a requirement is in contrast to the type of permit sought. An application for allocation or production sharing well is not application for a pooled
In Opiela v. Railroad Commission of Texas, No. D- 1-GN-20-000099, the 53rd District Court of Travis County, Texas, concluded that the Texas Railroad Com- mission (“RRC”) violated the Administrative Procedure Act, Tex. Gov’t Code § 2001.001 et seq., by adopting rules for issuing allocation and production sharing well permits. Further, the court held that the permit appli- cant, EnerVest (and subsequently Magnolia Oil & Gas), failed to make the requisite showing that it had a good faith claim of right to drill the proposed well under RRC rules. In Opiela, the Plaintiffs objected to an application filed by EnerVest with the RRC for a drilling permit on a well, claiming that EnerVest lacked authority to drill an alloca- tion well. Plaintiffs asserted that the express authority allowing an allocation must be in the lease and Plaintiffs’ lease prohibited pooling, which also prohibited the issu- ance of an allocation well permit.[1] After drilling the well, EnerVest then assigned its interest in the property to Magnolia Oil & Gas, who then applied to the RRC to amend the original permit application to convert the well from an allocation well to a production sharing agreement well. The Plaintiffs objected to Mag- nolia’s existing permit involving the property, arguing that the RRC did not have the authority to grant a permit for horizontal drilling across multiple leased but unpooled tracts. After the RRC adjudicated and dismissed Plain- tiffs’ objection, Magnolia proceeded with its operations. The RRC’s dismissal of Plaintiffs’ objection was consistent with the RRC’s long-standing practice of allowing al- location and production sharing wells.[2] In those other RRC decisions, the RRC concluded that its position was not to adjudicate title and interpret leases, but to grant or deny permits to prevent waste and protect correlative rights, provided that the permit applicant established a good faith basis that it had a right to drill the proposed well. In accordance with that practice, the RRC included disclaimers on allocation well permits.[3]
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