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Unitization Bill Introduced in Texas

A Texas state lawmaker has filed a bill that would "update" the Lone Star State's unitization procedures -- what some call forced pooling -- and bring them in line with those in other top oil-producing states.

SB 177, titled the Majority Rights Protection Act and filed by state Sen. Van Taylor (R-Plano), would allow for a super majority of 70% or more of both working and royalty interest owners to enter into a pool in order to proceed with field development for secondary and tertiary recovery operations.

"With a 70% super majority of both working interest owners and royalty interest owners, Texas would have a standard of agreement greater than or equal to 26 of the 29 states with a 'majority rights protection' statute already in place," Taylor's office said. "Current law requires that all rights holders of an oil field agree to any field-level redevelopment activity. This means that a single owner, or small group of owners, can stall the redevelopment of an oil reservoir. This effectively negates the property rights of all of the other owners in the field to use enhanced oil recovery methods."

Not everyone is necessarily going to be on board with the proposed changes to unitization, which have come up numerous times before over the years.

"Unitization, or forced pooling, has been a contentious issue with operators, royalty owners and the legislature for several decades in our state," said Texas Independent Producers & Royalty Owners (TIPRO) President Ed Longanecker. "TIPRO's membership has historically been divided on this issue, and our organization has therefore taken a position of neutrality. TIPRO will analyze and discuss all bills of relevance to our industry with our board and policy committee members in the coming months, including Senate Bill 177."

Elsewhere, OhioWest Virginia and North Carolina are among states that have recently wrestled with rules for unitization/forced pooling.

Taylor said new techniques for oil extraction offer opportunities to grow production and state revenue; however, Texas law has failed to keep up. "The Majority Rights Protection Act would unlock hundreds of billions of dollars of energy production by establishing a proven legal framework successfully used in 29 other states," Taylor said. "Passing this bill has the potential to be the biggest job creation, investment expanding, and revenue generating legislation in a generation."

The legislation would only affect secondary or tertiary recovery. Because enhanced recovery operations used for field redevelopment involves the creation of an underground reservoir, the physical location of minerals can shift necessitating the management of the entire reservoir as one property, or unit, according to Taylor.

According to the senator, geologists have estimated that 10 billion to 20 billion bbl of oil could be recovered under the proposed Majority Rights Protection Act.

The Texas legislature is to convene in its next regular session in January.

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