Allocation wells and production-sharing agreement (PSA) wells are horizontal wells whose production is divided among several tracts the lateral crosses, allocating each tract's share — often by lateral length — rather than forming a traditional pooled unit.
A modern horizontal lateral can run two miles and cross several separately-owned tracts. When the operator cannot or chooses not to form a traditional pooled unit across all of them, an allocation well (common in Texas) or a production-sharing agreement allocates production to each tract — usually in proportion to the lateral footage beneath it.
The result for you is a decimal interest derived from how much of the wellbore lies under your acreage, instead of a unit-wide share. The method is spelled out on your division order.
How operators decide where to drill
Educational information only — not legal, tax, or investment advice. Consult a qualified attorney, CPA, or landman about your specific situation.
Typically by the percentage of the productive lateral that lies beneath your tract (the "lateral-length" method), then applied to your mineral interest and royalty rate. The operator's allocation methodology should be disclosed.
No. Pooling forms a defined unit and shares all unit production; allocation wells split a single wellbore's production across the tracts it crosses, without forming a conventional unit.
Yes. The allocation method drives your decimal interest. If the numbers look off versus your acreage and the lateral path, it is worth professional review before signing.
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