The pooling or combining of smaller tracts is a recognized and expanding practice in the oil and gas industry. Consequently, it is important to understand the precise legal effect of pooling and unitization. In a typical situation, if A owns tract 1 and B owns tract 2, and A and B lease their tracts to X and Y respectively, it is clear that B would not share in the production from a well located on A's tract. However, if tract 2 is pooled or unitized with tract 1, B would be permitted to share in the royalties from a well located on A's tract.
In Parker v. Parker the owners of contiguous tracts leased them as though they were a single tract owned by the lessors in common. In response to special issues the jury found that the parties had orally agreed that the lease should be considered a unitized one. The court of civil appeals disregarded the jury's finding and held that, as a matter of law, the lessors had pooled their interests "so that they will share pro rata in the royalty no matter from which land oil is produced.
There are many other forms of pooling, as, for example, the true community lease, which generally describes the area that may be pooled and gives the other owners of a mineral interest in the described area an option to join as lessors. When the names of the other owners are subsequently inserted in the agreement and the lease has been executed by them, it has the same effect as a lease executed by one and all at the same time. The entire acreage of the joining lessors is developed and operate as one lease, and all royalties and rentals are treated as an entirety to be divided among the separate owners in the proportion that the acreage in each tract bears to the entire acreage.
A third form of pooling is created by lessors who, subsequent to the leasing of their respective tracts, enter into a separate pooling agreement among themselves and their lessee(s). In Duff v. Du Bose, the pooling agreement signed by the various lessors provided that all of the leases were "combined, merged, pooled, and shall hereafter be considered one lease for the purpose and operation of the Texas Company." The courts have upheld this type of pooling as a valid and binding contract. The most common means of pooling in recent years is that which results from the lessee's exercise of authority to pool conferred by a pooling clause in the lease, or from an amendment that inserts a pooling clause in the lease. Typically, these clauses are drafted in broad, all inclusive fashion and the lessee is granted the right to pool the lease, or any portion thereof, with any other land, lease, or mineral estate, to create a unit of specified size for the purpose of oil and gas development and production. The lease pooling clause has also been upheld by the courts.
Available at: http://works.bepress.com/frank_elliott/17/