Question: Lease Assignment/Failure To Pay Royalties

1.      Lessor signs lease with Lessee A.

2.      The lease contains a consent-to-assign clause and a requirement that if Lessor consents to assignment, Lessee A shall remain responsible for all lease obligations.

3.      Lessee A assigns the lease to Assignee A (Sublessee A), the assignment making no mention of Lessee A being relieved of its responsibilities under the lease.

4.      Assignee A drills and successfully produces a gas well in the Lessor’s unit but subsequently makes no production payments to Lessor whatsoever.

5.      Lessor desires to make a judicial demand for payment of royalties in accordance with:

RS 31:137.  Nonpayment of royalties; notice prerequisite to judicial demand. If a mineral lessor seeks relief for the failure of his lessee to make timely or proper payment of royalties, he must give his lessee written notice of such failure as a prerequisite to a judicial demand for damages or dissolution of the lease.  Acts 1974, No. 50, §137, eff. Jan. 1, 1975.

6.      QUESTION: In light of the assignment to Assignee A, and the fact that Lessee A is contractually responsible to Lessor for lease obligations, to whom does Lessor give written notice of failure to pay royalties…to Lessee A or Assignee A, or to both? Reasoning?

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Permalink Reply by adubu on September 11, 2011 at 12:43
you in Texas or La?--- If Texas post this under Texas Mineral Owners Know You Rights Group--- Ben can help you with answer. First question are you sure your minerals are  in the unit? Are you in the drill site tract? If not you could have been left out of unit and you haver no claim
Permalink Reply by HBP on September 11, 2011 at 14:26

I have not read the lease of the "assignment", and I assume this is LA if you are citing Code...  But If I was at the point to use 137 for its purpose, I would notice both since it would only be another $5 or so for the Cert/RR mailing and there does not appear to be any additional harm in the Code to noticing what may be a non-essential party. 

 

A similar circumstance I've found is where the lease wasn't assigned to the actual operator but the JOA dictated that the non-lease holder operator still administer the royalty.  As an owner, you may not know the terms of the JOA, so in that situation you could also just notice each to be thorough.

 

Now when both of them respond under 31:138 and say the other is responsible for payment, then you've got some fun.

Permalink Reply by drillbit on September 11, 2011 at 16:35

Thanks for the responses. I am in Louisiana and the well is absolutely in my unit though my parcel is not the drill site parcel. The assignee is the operator. Have not read the assignment…it should be recorded, right? If I notice both,  I may get finger pointing when I get their 138 responses, but I am thinking that my lease provision stating that the original lessee shall remain responsible for all lease obligations in the event I consent to the assignment will hold water. If this is true, wouldn’t the original lessee likely pressure the assignee to make payment (assuming that the assignment requires the assignee to pay all royalties)?

Permalink Reply by Ben Elmore on September 12, 2011 at 2:51
Even in LA I would say make your demand on both and cite LA RS 31:137 royalty underpayment statute.  I say send to both, because they will work it out amongst themselves who is liable to you.  You do not want to end up wasting time by sending to only one of them, only to have them respond they are not obligated to pay you.  Send to both.
Permalink Reply by The_Baron on September 13, 2011 at 3:35

I agree. Send to both.

 

I would also copy the Commisioner of Conservation. That might light a fire under the operator to get things resolved.

Permalink Reply by Andrew on December 8, 2012 at 13:53

Drillbit,

Any update on how this played out over the last year?

Permalink Reply by drillbit on December 10, 2012 at 6:13

Andrew...Thanks for your inquiry. Situation is still pending.

Permalink Reply by Andrew on December 10, 2012 at 9:29

Wow. Sorry to hear that. 

May be too little too late, but the answer is that both the assignor and assignee are solidarily liable, meaning you can recover the full amount of damages from either one of them. The Mineral Code article on point is Article 129:

Assignor or sublessor not relieved of obligations or liabilities unless discharged
 
"An assignor or sublessor is not relieved of his obligations or liabilities under a mineral lease unless the lessor has discharged him expressly and in writing."
Permalink Reply by JHH on December 11, 2012 at 5:04

When an assignment IS made from one company to another... is there an exchange of $$ or compensation. if so... is it $$ per acre in the lease... or a % of the royalty or both... or maybe something else they come up with.  Plus what's the usual $$ exchanged or in general terms what does one company give to the other for the assignment?  Thanks! 

Permalink Reply by Andrew on December 11, 2012 at 6:47

An assignment from one company to another is a sale of the rights to the lease, so usually done for cash plus other considerations. The exception would be transactions between sister companies. Occasionally there are royalties paid to the assignor as well. The bigger asset sales involving billions of dollars are obviously more complicated.

The $ per acre varies as much as the $ per acre for lease bonuses - it depends on the value of the leases and their location.

Permalink Reply by JHH on December 11, 2012 at 8:27

Thanks Andrew.  when a company came-a-calling for us to sign an assignment... we asked for $$$ consideration or other compensation to do it.  We had the right in our lease to refuse assignment.  They wouldn't pay... so we didn't sign the assignment.  

Permalink Reply by Andrew on December 11, 2012 at 8:55

Did they do it anyway? I've heard of this happening,

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