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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Replies to This Discussion

Permalink Reply by JHH on December 11, 2012 at 10:48

No.  The lease ran out without a rig/production and we got the release... minerals returned.  Will lease it again some day... maybe.

Permalink Reply by benny on December 11, 2012 at 12:42

Well that worked out real well for you didn't it ??

Ha ha ha, talk about biting your nose to spite your face. Next time (if there is a next time) just let the company assign the lease. Don't be so darn greedy.

Permalink Reply by JHH on December 11, 2012 at 13:15

you're wrong.  and it's working out just fine Pal.  

Permalink Reply by Andrew on December 11, 2012 at 14:32

I don't know if I would exactly call JHH's situation cutting of the nose to spite the face. I'd reserve that expression for giving your property away for less than it's worth.

Permalink Reply by JHH on December 12, 2012 at 2:12

That's right.  we "gave it away" when first leased before the big boom in 2008.  the company never drilled... and we got nothing for three years.  Thankfully we had a good lease with protections and got the minerals back.  we learn more and more every year.

Permalink Reply by Melissa Hausam on January 10, 2013 at 4:06
I think you did the right thing. I'm trying to figure out the same situation.
Did you need a lawyer to get the write the withdrawal contract with the lessee company?

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