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Permalink Reply by Spring Branch,mineral owner on July 5, 2009 at 23:11

If/When Leasing Company(LC) assigns Lease (L) to Operating Company(O), Operating Company (O) assumes all the legal rights and liabilities (LRL) of Leasing Company (LC) with respect to Leased Property Owner (P).

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Permalink Reply by The_Baron on July 6, 2009 at 3:02

Alphabet soup makes my head spin......


This question is hard to answer without seeing the instrument that conveys the lease to the operator.

There will be an "Assignment" filed in the courthouse that will specify the terms on which the lease was assigned.

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Permalink Reply by Mac Davis on July 6, 2009 at 3:21

"Alphabet soup makes my head spin......"

OICU812.... 8-) & LOL

OK, hypothetical situation 1 I was thinking of:

Leasing Company (L) can't reach an agreement with Operating Company (O). O forms a forced pool without L. Would O pay UMI formula royalties to L? Would L owe "leased" style royalties to the Property Owner (P)? i.e. P gets paid by L for the first production from the well, even before drilling costs are paid off. There are no deductions for management fees, etc. L gets to collect royalties from O on the full price of gas minus expenses, but only pays out the 20% (or whatever) share to P?

(Assuming this situation isn't otherwise covered in the lease contract. Is it usually covered in the contract? )

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Permalink Reply by The_Baron on July 6, 2009 at 3:38

If the leaseholder does not make any deal with the operator, we are not talking UMI.

We are now talking about a leaseholder going non-consent. The leaseholder is ultimally responsible for paying their lessor. They will also be billed for their pro-rate share of expenses plus a 200% risk penalty. This means the non-consent leaseholder will pay a considerable amount so the chances of a leaseholder going non-consent are slim.

More than likely, a leaseholder who chooses to not sell or assign their lease to the operator will elect to participate. The terms of who will be responsible to the lessor will probally be spelled out in what ever agreement is signed between the operator and leaseholder.

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Permalink Reply by Mac Davis on July 6, 2009 at 6:03

Thanks.

I think you're agreeing that, the leased property owner is due royalty payments from the leaseholder for all production, no matter what deal the leaseholder strikes with the operating company.

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Permalink Reply by The_Baron on July 6, 2009 at 7:36

No. Not Exactly.

Say I own a lease on your land. Say I assign that lease to another operator and in that assignment which is duly witnesses, acknowledged and recorded, says:

"This Assignment is made expressly subject to the terms, provisions, and conditions of the aforesaid Oil, Gas, and Mineral Lease and to any Assignment or Sub-lease of record affecting said Lease. Assignee agrees to bear its proportionate part of all royalties, excess royalties, overriding royalties, and other burdens of production presently affecting the aforesaid Lease and lands as evidenced by instruments filed for record in Caddo P{arish, Louisiana."

Then NO I as the original lessee is not responsible.

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Permalink Reply by The_Baron on July 6, 2009 at 7:36

This is why I said we need to see the original lease and assignments.

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Permalink Reply by Mac Davis on July 6, 2009 at 8:03

OK, the original lessee is not responsible. Is the current lessee responsible?

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Permalink Reply by The_Baron on July 6, 2009 at 8:22

Most leases do not have such a clause. Also, as a Landman, I would be hard pressed to accept the second half of the clause. If I assign the lease I do not want to have it come back and bite me because the new lessee messes up.

Permalink Reply by Mac Davis on July 6, 2009 at 8:38

Thanks, wolf.

So the current lessee is responsible for payment of royalties, even if the operator doesn't pay the current lessee. If the current lessee doesn't pay, the original lessee may not be off the hook. Do I have that right?

Sounds like a fun time in court sorting such a situation out. Throw in a bankruptcy or two, multiple lease assignments, companies that sold the lease and then went out of business, etc.

Permalink Reply by Mac Davis on July 6, 2009 at 6:09

OK, I think this question is different enough that it warrants starting a new indent.

Scenario 2: The operator starts production and does not make required payments to the leaseholder.

Is the leaseholder still responsible for paying the leased property owner?

(I know the terms should probably be lessor and lessee, but I can't keep those terms straight in my mind.)

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Permalink Reply by The_Baron on July 6, 2009 at 7:37

SEE ABOVE.

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