Wellbore Interest Guide

This article begins with an introduction to wellbore interests. Below, you can find a guide on how to create a wellbore interest within Tracts.

At the most general level, an assignment conveys a specific interest in property. A wellbore assignment will limit the assignee’s rights to a specific well or wells. Ideally, the language in the document should convey clearly and unambiguously the property that will be conveyed. The issue that frequently occurs with these assignments, however, is that the exact mineral rights that are transferred in the process remain unclear given the fact that Texas adopts the theory of oil and gas ownership in place. 

The first Texas case to address the rights of an assignee in a wellbore-only assignment was PetroPro, Ltd. v. Upland Resources. Petro was a wellbore assignee to the King “F” No. 2 well. Upland was the leasehold owner of the 500-acre tract of land on which King “F” No. 2 was located. This tract of land covered multiple gas-producing formations, the Brown Dolomite formation, located at depths of approximately 3,400 to 3,600 feet, and the Cleveland formation, located at depths of approximately 6,500 to 6,600 feet. The King “F” No 2. Well was completed in the Cleveland formation. Upland later entered into a pooling agreement and completed three gas wells in the Brown Dolomite formation, one of which was located only 600 feet away from King “F” No. 2 well. Petro requested clarification on the parties’ respective interests and claimed the exclusive right to produce gas from the entire 704-acre pooled gas unit, from the surface to a depth of 6,800 feet.

The trial court originally held that Petro’s rights were restricted to the physical confines of the King “F” No. 2 well only. The Court of Appeals, however, held that the wellbore owner has the exclusive right to produce oil and gas from the wellbore it owns and that the wellbore owner owned only the wellbore and the space within the wellbore and the surface area adjacent to the well that was reasonably necessary to operate the well but held no leasehold interest outside the wellbore. In further expanding on what rights were granted to a wellbore assignee, the court found that the wellbore owner could go up the wellbore perforate and obtain new production from an uphole formation. However, the court did not accept the argument that these appurtenant rights should be extended to allow the wellbore owner to deepen the wellbore but were limited by the specific depth of the wellbore at the time of the assignment. The wellbore owner additionally had no right to drill a horizontal well from the wellbore. This essentially means that Texas has found that that a wellbore assignment unambiguously conveys the right to uphole formations but not the right to extend the lateral vertically or horizontally.

Under Unit Petroleum CO. v. David Pond Well Service, Inc., Everett and Lora Tarbox leased their 320 acres first to Armer & Quillan and then assigned that lease to Unit Petroleum Company. This lease contained a reservation of a wellbore known as Tarbox Unit #1 Well. The Tarboxes then leased this reserved wellbore interest to David Pond Well Service, Inc. A dispute arose over after Pond complained that Units’ three new wells caused a drop in wellhead pressure at Tarbox Unit #1 and violated a proration plot from a prior lease. The issue arose over whether Unit was able to reduce the proration unit that covered Pond’s well. The Court of Appeals held that a wellbore reservation in a lease did not permit the wellbore lessee to claim a eighty-acre proration unit, but the oil and gas lessee’s executive right to designate a proration unit encompassing its lease was subject to a duty to designate sufficient acreage to permit the wellbore lessee to produce.

Application in Tracts

A wellbore interest can be created in Tracts using the following method:

Creating a Wellbore Interest:

In order to create a wellbore interest, begin with the tract of land on which the wellbore is located. Then, create a smaller subtract using the Subtract and Depths tool and place it on the first tract of land. Name this new subtract created the exact well’s name and assign it a very small number of acres (.00000001) because zero acres will not work.

Wellbore Assignment:

In order to create an assignment of a wellbore interest in the chain of title, follow the steps above to create an initial wellbore interest. In a new note card, convey only the specific well. The interest of the assignor will be named the same as above "SE4*!('Well name'). The flat report will show the wellbore interest owner only having an interest in the specific well that was reserved or conveyed out. The well will be named in the "area" column of excel the same as tracts are.

Wellbore Reservation:

A reservation of a wellbore interest is a two-step process. In order to create a reservation of a wellbore interest in the chain of title, follow the steps above to create an initial wellbore interest. In the first transaction, convey the entire leasehold interest that the assignor is conveying (for example, SE4). Now, in the second transaction, convey back to the original assignor only the wellbore interest. The assignee will be shown as owning the “SE4*!(‘Well Name’), and the assignor will only own the ‘Well Name.’