## Facts

- Lessors executed four oil and gas leases to the lessee in 1970, each with a five-year primary term and a pooling clause authorizing gas units.
- The lessee entered a farmout agreement under which an assignee drilled a test well that became a producing gas well.
- Near the end of the primary terms, the assignee filed a unit declaration creating a 688.02-acre gas unit drawn from eight leases totaling 2,252.03 acres.
- The unit included only small portions of certain lessor tracts (e.g., 10–20 acres taken from 320-acre tracts), leaving most acreage outside the unit while production from the unit would hold the entire leases beyond their primary terms.
- The lessors contended the unit boundaries and timing showed the pooling power was used mainly to prevent lease expiration rather than to advance reservoir development or conservation.

## Issues

1. Whether a lessee’s contractual pooling authority is limited by a duty to exercise that power in good faith for the purposes contemplated by the leases.
2. Whether legally and factually sufficient evidence supported the jury’s finding that the gas unit designation was not made in good faith.
3. Whether cancellation of the declared gas unit was a proper remedy for a bad-faith pooling designation.

## Decision

- The court affirmed the judgment for the lessors.
- It held the evidence supported the jury’s finding that the unit designation was not made in good faith.
- The court upheld cancellation of the gas unit, preventing the lessee and assignees from using unit production to hold the leases beyond their primary terms through the pooling clauses.

## Legal Principles

- A lessee’s power to pool under a lease is not absolute; it must be exercised in good faith and consistent with the purposes for which pooling is authorized.
- Pooling used primarily as a device to hold large blocks of acreage with minimal development may constitute bad faith.
- Whether a pooling designation was made in good faith is typically a fact question for the jury; appellate review applies ordinary legal and factual sufficiency standards.
- When pooling is exercised in bad faith, cancellation of the unit declaration may be an available remedy.

## Conclusion

The court sustained a jury finding that the lessee’s late-term unitization of small slivers of multiple tracts, with the practical effect of extending many leases with limited corresponding development justification, was not a good-faith use of the pooling clauses; cancellation of the gas unit was therefore proper.


Amoco Prod. Co. v. Underwood, 558 S.W.2d 509 (Tex. Civ. App.—Eastland 1977, writ ref’d n.r.e.)