State Regulation

Question 1

*Who regulates O/G in Texas?

Answer 1

Railroad Commission

Question 2

*What are the public objectives of state regulation of O/G?

Answer 2

(1) To prevent waste and maximize recovery of O/G
(2) To protect correlative rights by giving owners in a common reservoir the opportunity to recover their fair share of the minerals
(3) To protect the environment

Question 3

How does the RRC regulate O/G?

Answer 3

(1) Drilling permits and spacing rules
(2) Prorationing rules
(3) MIPA and compulsory pooling

Question 4

Drilling Permit

Answer 4

A drilling permit is required before any well can be drilled

Question 5

Spacing Rule

Answer 5

Spacing rule requires that the applicant have a minimum of 40 acre to drill

Exceptions = a small tract owner can get an exception to the spacing rule if:

(a) confiscation (drainage) is proven, and
(b) the small tract was subdivided by deed before O/G was discovered in the area or before land was leased

Question 6

Mineral Interest Pooing Act (MIPA)

Answer 6

In fields discovered after March 8, 1961, the RRC can force owners to pool. This compulsory pooling power preempts the Rule of Capture. It operates much like the default rules for allocating royalties in voluntary pooling agreements, w/ each interest owner getting a share roughly proportional to the relative size of her interest

Question 7

How is MIPA triggered?

Answer 7

How is MIPA triggered?

Question 8

*Plugging Wells

Answer 8

RRC will enforce the duty to plug wells in the following order:

(1) Operator = person responsible for the physical control of the well at the time is is about to be abandoned
(2) Non-operator who owns a working interest
(3) State of Texas = if neither operator or non-operator w/ a working interest can plug the well, the State will be responsible; state has an oilfield cleanup fund

No duty to plug is imposed on mineral interest holders, royalty owners, and other interested person who do not have a working interest in the well