Pooling and unitization are two legal structures that allow for the combination of mineral interests or leases. They are very similar and are often used interchangeably, though they are technically distinct.
Pooling (sometimes called “communization”) is joining together separate mineral interests or leases to meet regulatory requirements about well spacing. For instance, Texas prohibits spacing any well within 467 feet of a lease line. So if an operator owns a lease and wants to drill closer than 467 feet to the lease line, the operator will need to sign a lease with the adjacent property owner and “pool” the two leases together into a single “pooled unit” that is treated as a single lease.
Unitization is the joint operation of part of all of a field/reservoir without regard for lease or property lines so as to maximize production. Unlike pooling, which deals with particular wells, unitization deals with entire areas. Thus unitization can be thought of as pooling on a larger scale, designed to maximize the total production of all properties.
In both cases, the “pooled” or “unitized” properties are treated as a single property, and all the participating properties are paid out on an allocated basis (usually by acreage). For instance, if an operator pools two properties, one with 40 acres and one with 60 acres and then drills a single well on either property, 40% of royalty payments with go to the first property and 60% of the royalty payments will go to the second property.
Pooling vs. Allocation Wells
Both pooling and unitization are contractually arrangements between lessors and operators, and the terms of the pooling or unitization provision govern what the operator can, cannot, or must do. (Though many states, not including Texas, do provide for forced pooling).
An allocation well, by contrast, is a horizontal well that traverses the boundary between two or more leases that have been leases by the operator but have not been pooled together with each other. For instance, if an operator has leased two adjacent 640-acre sections, Section N to the north and Section S immediately to its south, the operator might drill an allocation well starting in the north of Section N and ending in south of Section S, even though the leases for Section N and Section S both prohibit pooling.
The general rule is that payments made on allocation wells are made in proportion to the length of “productive interval” (the length of the well that is actually producing). For instance, if 40% of the productive interval of a well is in Section N and 60% of the productive interval is in Section S, the owners of Section N and S will receive payments on 40% and 60% of the production, respectively.