The case of R.R. Comm’n of Tex. v. Opiela, illustrates the Texas Railroad Commission’s (“RRC”) authority to approve permits and the requirements for doing so. The central issue in Opiela was whether the RRC had properly granted a permit for horizontal drilling on one parcel when the original lease of the adjacent land prohibited pooling. In November 2023, the Opielas submitted a petition for review to the Texas Supreme Court. Although the Court did not grant the petition, it requested the parties to submit briefs on the merits, which they complied with, However, before the Court could take action on the Opiela’s petition, the parties reached a settlement. Despite this, the Austin Court of Appeals’ opinion offers valuable insight into the dispute.
The Opielas owned a 1/4 of 1/8 royalty interest in 640 acres in Karnes County, which was subject to an old lease that remained in effect due to production from vertical wells. This lease included a clause explicitly prohibiting the use of pooling “in any manner.” Hoping to drill, EnerVest Operating, LLC, (“EnerVest”), attempted to amend the lease to allow pooling but was unable to reach an agreement with the Opielas.
In 2018, EnerVest applied for a permit for its Audioslave well, designating it as an allocation well, a horizontal well that crosses lease boundaries without a formal agreement, meaning the tracts it traverses are not formally pooled. The Opielas immediately filed a protest against EnerVest’s permit; however, before their hearing could take place, the RRC issued the permit.
EnerVest assigned its leases to Magnolia Oil & Gas, (“Magnolia”), and with the permit in hand, Magnolia completed the well. Following the assignment, Magnolia sought an additional permit, this time for a Production-Sharing Agreement (PSA) well. A PSA well is also a horizontal well that requires at least 65% of the working and royalty interest owners to have signed the agreement. The Opielas also protested this permit, but after a hearing, the RRC granted the Permit. In support of its permit application, Magnolia submitted a pooled unit designation, showing that most royalty owners in the Opiela tract had ratified the pooled unit. The Opielas appealed the RRC’s PSA permit decision, arguing that they lacked the right to approve the permit. They also filed a motion for summary judgment against Magnolia, challenging the company’s rights to drill. The Austin Court of appeals focused solely on whether RRC had the authority to grant the PSA permit
In the Travis County district court, it was determined that the RRC violated the Texas Administrative Procedures Act (APA) by implementing rules for allocation and PSAs without formal rulemaking. The court also ruled that the RRC had the authority to review the Opiela’s lease. Additionally, the court found that the RRC erred in determining that Magnolia had provided sufficient evidence of a good-faith claim of right to drill the PSA well. Both the RRC and Magnolia appealed the decision to the Austin Court of Appeals.
The Austin Court of Appeals reversed the trial court’s decision, and, most notably, held that Magnolia did not violate the no-pooling provision in the Opiela’s lease because “a lack of pooling authority alone does not prohibit drilling under a PSA.” However, the court also ruled that the RRC had improperly granted the PSA permit because Magnolia had failed to obtain the required 65% ratification from interest owners under the Opiela’s lease. Instead of securing proper PSA ratifications, Magnolia had obtained consents to pool and other ratifications from different interest owners, compiling them together. The court concluded that this did not present a good-faith showing, as a consent to pool is not a valid substitute for signing a PSA.
Following the Austin Court of Appeals’ ruling in June 2023, the Opielas filed a petition of review with the Supreme Court of Texas the following November. Without granting petition, the Court asked for briefs on the merits from both parties, and both parties subsequently provided their briefs. However, in January 2025, the parties settled outside of court, leaving unresolved the issue of the RRC’s authority to regulate allocation and PSA wells without adopting APA-compliant rules.
The Opiela result provides insight into the complexities of PSAs and horizontal drilling. However, the case did not directly address the allocation wells, and with its settlement, the issue remains unresolved.
Nevertheless, some may argue that the rationale provided by the Austin Court of Appeals lays the groundwork for horizontal drilling without the consent of all interest holders. The court’s statement that the absence of pooling does not prevent a PSA well suggests an alternative path for operators to develop these wells. This may enable operators to drill more multi-tract horizontal wells and secure permits with reduced negotiations with interest holders. The ongoing debate over allocation and PSA wells provides an insight regarding the balance between the rights of interest holders and expanding drilling opportunities, highlighting the underlying tension between the two.
Kuiper Law Firm, PLLC specializes in all aspects of oil and gas operations including oil, gas, and mineral leases. We will continue to monitor any updates as they pertain to this caselaw. If you have any questions about the information in this article or how it may affect your operations, please do not hesitate to contact us.