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What is a horizontal allocation well?

Simply put, a horizontal allocation well is a horizontal well that begins on one lease or pooled unit and ends in another lease or pooled unit. The entire are of land containing the horizontal well from beginning to end is not pooled for that well.

In Texas, forced pooling is rarely, if ever, used. So, if a landowner refuses to agree to pooling their lease with other leases to form a pooled unit, the well operator might have to resort to drilling the horizontal well anyway, under a production sharing agreement between partners owning the non-pooled leases.

But a horizontal allocation well can also begin in one existing pooled unit and terminate in a contiguous, existing pooled unit. Or, the well could begin in a stand-alone lease with large acreage and terminate in an existing pooled unit contiguous to that lease or vice versa.

Horizontal allocation wells are not unique to Texas, however. In Louisiana and Oklahoma (and perhaps other states using the rectangular survey system of land measurement) these allocation wells are called cross-unit wells. The primary difference between Texas and Louisiana or Oklahoma is the use of forced pooling. Force pooling is mandatory in Louisiana, and frequently used in Oklahoma. A unit is established by the Department of Natural Resources in Louisiana or the Oklahoma Corporation Commission based on applications filed by the proposed exploratory well operator. Once the forced pooled units are in place, the proposed exploratory well operator and partners owning leases inside the new unit move ahead with drilling a well. A horizontal allocation well is one that will begin in one force-pooled unit and terminate in another one next to it.

A super unit is different, however. A super unit, at least in Louisiana, is one that is formed taking in all of the acreage required for the length of the horizontal lateral. A super unit might be over one thousand acres in size, and all of that acreage is force pooled into one, specific unit valid only for a specific interval of depth or production formation. Super units in Louisiana sometimes can begin with a pre-existing pooled unit and add additional acreage from an adjoining section to create a new, super unit.

For the analyst, all of this presents a unique set of challenges in calculating the division of interest for a horizontal allocation well. There are three basic ways to allocate production between stand-alone leases or existing pooled units for such a well, but the one used most often begins with the distance in the wellbore lateral between the first take point and the last take point. Careful downhole surveys measure how much of that portion of the lateral runs through each non-pooled lease (could be more than one, in Texas) or existing pooled unit, and how much is in the other existing pooled unit(s).

Using the percentages of producing lateral given by the downhole surveys, the division order analyst should begin by creating a separate division of interest for each existing pooled unit or non-pooled lease. That division of interest must be based on record title, or contractual title, or combination of the two. After completing these individual divisions of interest, the analyst will combine them by reducing every decimal in each of them by the percentage of the lateral producing inside that existing unit or non-pooled lease. Once all of the reductions have been made, and each reduced division of interest equals the percentage of the lateral producing from it, the analyst can combine all of them into one gigantic division of interest totaling 1.0. After division orders are mailed out to owners, the division order analyst must be prepared to explain the calculation for each decimal for each owner listed in the division of interest.

Division order work is not easy. Far from it. Mastery of basic mathematical calculations is mandatory, but so is mastery of correct application of title documents and contracts, to the construction of any division of interest. It is a very rewarding career for those who enjoy working with numbers, enjoy working with legal documents of virtually every kind and description, and enjoy working with landowners who might, or might not, be having a good day on the day they call to ask a question.

The one thing every division order analyst will agree on is that this work pays very well, for those who are conscientious and self-disciplined, and does not require a specialized degree to get started. Just the willingness to work hard and pay close attention to details.

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