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Ammonite Oil & Gas Corp. v. R.R. Comm’n of Tex.
Texas
The facts here are simple: Ammonite offered to pool 16 units, subject to a mutually agreeable JOA where EOG Resources would act as operator. Ammonite proposed a 10% charge for risk attached to the working interest, a payment to EOG that would compensate them for the risk of drilling additional wells in the forcibly pooled unit. EOG’s expert testified that Ammonite’s offer did not adequately compensate EOG for the risk and that a 100% charge for risk was the proper amount due to the limited permeability of the rocks within the Eagle Ford shale. The expert further noted that unconventional drilling and completion techniques often result in wells that are not commercially successful. Since the Eagle Ford shale requires substantial investment in acreage, the number of wells EOG would have to drill to potentially recoup costs, the expert argued, would be excessive.
In Ammonite Oil & Gas Corp. v. R.R. Comm’n of Tex , the San Antonio Court of Appeals heard an appeal regarding the Mineral Interest Pooling Act (MIPA). Under MIPA, the owner of a mineral estate may ask the Texas Railroad Commission (TRC) to force other tracts owners within both the same proration unit and within a common reservoir to pool their interest with that of the applicant. To invoke MIPA, an applicant must 1) “make a fair and reasonable offer to the owner/operator(s) of the other well(s) to voluntarily create a pooled unit prior to filing an application under MIPA;” 2) file a MIPA application to force pooling; 3) make a showing that the forced pooling would prevent the drilling of unnecessary wells, protect correlative rights, or prevent waste. The Act does not define what constitutes a fair and reasonable offer, meaning that the TRC is charged with determining the nature of a fair offer. In other words, the TRC decides on a case-by-case basis whether an offer meets the definition of fair and reasonable. If the offer is not fair, then the TRC is said to lack jurisdiction over the issue and must dismiss the case.
Further findings that the TRC took into account included:
1) A showing that none of EOG’s well drained Ammonite’s tracts. 2) Ammonite actually agreed in its voluntary
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G rowth T hrough E ducat i on - J uly / A ugus t / S ept ember 2021
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