XOG Operating, LLC v. Chesapeake Exploration L.P., 2015 Tex. App. LEXIS 9411 (Tex.App. Amarillo)

This is a “retained acreage” dispute over how much acreage would be retained after the primary term of the lease expired. The lease provided for the lessee to retain the acreage included within the proration or pooled unit for each well drilled by the lessee. The term “proration unit” was defined as the “area within the surface boundaries of the proration unit then established or prescribed by field rules or special order of the appropriate regulatory authority” and in the absence of field rules, 320 acres per well.

One field had five of the six wells and the field rules provided for a maximum area for a prescribed proration unit of 320 acres. The field in which the last well was drilled had no field rules. Chesapeake filed Form P-15s for the wells totaling only 802 acres. XOG argued that this determined the extent of the retained acreage.

Chesapeake contended, and the court agreed, that each well should have 320 acres for a total of 1,625 acres. The court held that a proration unit is “the acreage assigned to a well for purposes of assigning allowables and allocating production to the well” under Railroad Commission rules and that Chesapeake’s Form P-15 filings did not define a proration unit – they designated “fractional proration units.”