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Production Sharing Agreements: A Call for Simplicity


Edward Wilhelm and I had the opportunity to make a presentation at the Ark-La-Tex annual landman conference late last month in Shreveport. By the way, the Ark-La-Tex is an excellent conference, competitively priced, and especially good if you are conducting business in east Texas or north Louisiana.


One thing I see frequently, now, are 5-10 page Production Sharing Agreements, which are quite appropriate to "nail down" contractually the authority of an operator to drill a horizontal well that traverses multiple tracts or units, and to "nail down" how revenues will be shared among the owners of the various tracts. However, as an aside, I noted in my presentation in Shreveport that lawyers tend to draft agreements as if "they were being paid by word." Amending a 2-page oil and gas lease with a 5-page production sharing agreement seems like, well, a bit much. I suggested that a better approach, for a number of reasons, was to do a 1-page lease amendment (just like the amendments of some old, oil and gas leases that did not contain pooling clauses that were executed many years ago). These long, production sharing agreements just contain a lot of "fluff."


Well, I hit a nerve. A number of attendees have asked for a copy of my one-page amendment. So, here it is:




"PRODUCTION SHARING AGREEMENT AND ALLOCATION WELL AGREEMENT. This paragraph shall control horizontal wellbores that traverse the leased premises and other acreage (“horizontal well”). Operations on or production from a horizontal well shall be treated as actual operations on or production from the leased premises. Production from a horizontal well shall be allocated to the leased premises based upon the following formula: production from the well multiplied by its total productive drainhole length that traverses the lease acreage divided by its total productive drainhole length. Productive drainhole length is the first producible location in the horizontal well through the last producible location in the horizontal well."


Is this one paragraph complete? Well, I think it is - and it has the added advantage of being written so that a judge or jury, which would enforce and interpret the clause, can follow it without too much effort.


Hey, other title attorneys out there - trouble shoot this one paragraph, make it better, and let me know why your 5-pages are better than my 1-page.


Often, I hear a call for civility - today the call is for "simplicity."


Edward Wilhelm and Jack Wilhelm provide assistance to buyers and sellers of oil and gas properties.


THE WILHELM LAW FIRM, 5524 Bee Caves Road, Suite B5, Austin, Texas 78746; (512) 236 8400 (phone); (512) 236 8404 (fax); www.wilhelmlaw.net


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Wilhelm Law Firm, 5524 Bee Caves Rd., Ste B-5, Austin, TX 78746 (512) 236-8400