It is well established that forced pooling under Oklahoma law is done on a “unit-wide basis rather than on an individual wellbore basis.”[1] However, never has it been the case that an election made under one forced pooling order will carry over and be treated as a binding election on an owner in a completely different unit under a completely new pooling order.  That is until now!

Through various amendments, Oklahoma’s statutes regarding horizontal drilling and spacing units were updated to allow multiunit horizontal well units to overlie smaller vertical well units in the same section of land and the same formation.[2] As such, the amended law now provides that if an owner elected not to participate in the initial vertical well under that unit’s pooling order; then the non-participating owner will not be allowed an election in the new horizontal well in that same formation—even though drilled under a completely new spacing unit order and new pooling order.[3]  This unprecedented change in Oklahoma pooling and spacing law invokes several potential legal questions and challenges.

Constitutional Questions

A. Violation of Substantive Due Process

It is undisputed that forced pooling is constitutional in Oklahoma.[4]  However, it appears to be of first impression that the State of Oklahoma has tied elections made in one unit pooling order to the right to make elections in a completely new unit under a completely new pooling order.  In other words, the law now apparently treats the new horizontal well as a “density” well in the old vertical unit for purposes of establishing election rights in the new horizontal unit.

This is a new development; and, at a minimum, may call into question whether this State action is “a proper exercise of the police power in furtherance of the conservation of natural resources.”[5] It could be argued that to permit the State to alter established leasehold title rights and unleased mineral owner rights would extinguish such owner’s vested property interests in violation of substantive due process; therefore, such State action could be declared unconstitutional. As a reminder, “substantive due process of law . . . is the general requirement that all government actions have a fair and reasonable impact on the life, liberty or property of the person affected.” Government actions that attempt to work an arbitrary forfeiture of property rights are unconstitutional as violations of due process.[6]

B. Retroactive Application

Generally, substantive changes to the law cannot be applied retroactively without express legislative intent.[7]  Here, the Oklahoma legislature did clearly express its intent to apply these new pooling laws retroactively (to pre-existing pooling orders).  The statute specifically reads: “[A]s to any well which is subject to a pooling order which was entered before the effective date of this act [May 20, 2022], to be entitled to the rights and benefits of this subsection [pooling elections in new horizontal well], the owner must have been vested with the right to participate in the subject well [old well] as of the effective date of this act [May 20, 2022]”.[8]

The concern for operators that apply these forced “legacy elections” is that 52 O.S. §87.1 (h) (3) (2024) could ultimately be found to be an unconstitutional taking of property in violation of Article II, Section 23 of the Oklahoma Constitution, when applied to old pooling orders (i.e., pre-dating the new rules).  Indeed, the late Professor Eugene Kuntz highlighted such a problem under the takings clause in the event of a retrospective application of Oklahoma’s Statutory Pugh Clause—52 O.S. §87.1 (b); stating:  “it is submitted that the amendment (Pugh Clause) would be unconstitutional if applied to an existing lease, regardless of whether it is held by production from a unit and that it must therefore be construed to apply only to leases granted after the effective date of the amendment.”[9]

Arguably under Oklahoma constitution precedent, the new horizontal pooling law should only apply (if at all) to new pooling orders issued after the effective date (2017) of the law.  Nevertheless, as of now, the Constitutionality of the newly enacted law has not been challenged in court.[10]

Other Open-Ended Questions

Even if the new pooling law is constitutional, the text itself gives rise to several additional questions that only a court can truly answer. Some of the outstanding questions that might require judicial determination are:

1. How does a title examiner identify and then determine the marketability of title to interests (and elections) under an old pooling order? Pooling affidavits evidencing elections are required to be filed of record by law and constitute constructive notice of such rights. 52 O.S. §87.4.  However, such pooling affidavits are rarely ever filed owing largely to the fact that there is no penalty for failure to file a pooling affidavit.  Without an affidavit evidencing election under an old pooling order, the ability to establish marketable title to election rights under the new horizontal pooling order is nearly impossible.
2. What if an owner participated in the initial vertical well but later assigned its wellbore rights? Who then, owns the election rights in the new horizontal well?
3. What if an owner elected not to participate in the initial vertical well under the old pooling order but later bought into a working interest–does such owner now have an election right under the new horizontal pooling order?
4. What if an owner went non-consent under a JOA in the initial well—does that affect election rights under the new horizontal pooling order?
5. What if an owner participated in the initial vertical well, but later elected not to participate in a subsequent increase density well under the same initial pooling? Who owns the election rights in the new horizontal well?
6. What of the non-participating retained overriding royalty interests under the initial pooling—do those overrides get washed out or do they carry over to the new pooling order?
7. What if a participating owner (with both leasehold and pooled interests) in the initial vertical well elects not to participate in the new horizontal well—what happens to its leasehold interests and what about its acquired pooled interests in the initial vertical well?

Conclusion

In none of the above scenarios can a title examiner (without a judicial determination) confidently establish marketable title to the election rights in the new horizontal well established under an old pooling order.  In such a case, a title attorney may need to suspend all working and overriding royalty interests attributable to the initial vertical well unit and call for a quiet title action in court to determine the rights and ownership of parties relative to the initial vertical well pooling order as would then be applied to the new pooling order. This legislative attempt at streamlining the pooling procedure for overlapping horizontal spacing may prove to be a boon for litigators, but a headache for title examiners!    

References

[1] Amoco Production Co. v. Corporation Com’n, 1986 OK CIV APP 16, 751 P.2d 203 (approved for publication as modified by the Supreme Court, December 16, 1987).

[2] 52 O.S. §87.1 (g) (2023).

[3] Id.

[4] See, e.g., Anderson v. Corporation Comm’n, 327 P.2d 699 (Okla. 1957).

[5] Id. at 702 (emphasis added).

[6] Amoco Production, 751 P.2d 203 at ¶19 (citations omitted).

[7] Wickham v. Gulf Oil Corp. 1981 OK 8, 623 P.2d 613 at ¶13 (discerning the prospective nature of Oklahoma’s Statutory Pugh Clause).

[8] 52 O.S. §87.1 (h) (3) (2023) [brackets added for clarification].

[9] Eugene Kuntz, Statutory Well Spacing and Drilling Units, 31 Okla. L. Rev. 344, 356 (1978) (emphasis added).

[10] See, 52 OS Sec. 87.8 h (3) (2023).