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Principles of Oil and Gas Lease Analysis: Uncommon Clauses: Principles of Oil and Gas Lease Analysis, #2
Principles of Oil and Gas Lease Analysis: Uncommon Clauses: Principles of Oil and Gas Lease Analysis, #2
Principles of Oil and Gas Lease Analysis: Uncommon Clauses: Principles of Oil and Gas Lease Analysis, #2
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Principles of Oil and Gas Lease Analysis: Uncommon Clauses: Principles of Oil and Gas Lease Analysis, #2

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This reference book is Volume 2 of the series, "Principles of Oil and Gas Lease Analysis."  It was written by an oil and gas lease professional with over 40 years of experience in the industry, for the purpose of training other oil and gas lease professionals.  It contains a large number of oil and gas lease clauses not commonly found in recorded leases, but often found in private, unrecorded oil and gas leases.  Each clause includes an assortment of examples of that same type of clause.  

This book serves as an important training tool for the oil and gas lease professional to learn how to read and comprehend lease clauses correctly.  The professional also learns how to determine what important data to extract from each clause, for data entry into the oil and gas lease record.

A complete copy of each clause is given, with the important words and phrases bolded and italicized for learning comprehension skills.  It is then reduced to a simplified version for easy reading.  The reader is provided the method of analysis for each clause, together with management policies applications, computer database applications, and internal workflow procedures for each clause, as normal to the industry.  When applicable, the examples also point out when a particular clause could conflict with other clauses in the oil and gas lease.  An explanation is given for recommended action by the lease analyst when they incur such a conflict during their analysis.  135,230 words.

LanguageEnglish
Release dateDec 26, 2018
ISBN9780996551984
Principles of Oil and Gas Lease Analysis: Uncommon Clauses: Principles of Oil and Gas Lease Analysis, #2
Author

Marsha Breazeale

Marsha Breazeale is an oil and gas land professional with over 40 years of experience, certified by the National Association of Division Order Analysts and by the National Association of Lease and Title Analysts. She holds a Masters in education with emphasis in corporate training.

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    Principles of Oil and Gas Lease Analysis - Marsha Breazeale

    Introduction

    Principles of Oil and Gas Lease Analysis: Uncommon Clauses continues the analysis strategy learned in Principles of Oil and Gas Lease Analysis: Common Clauses but presents and explains a wide variety of non-standard clauses seen today by analysts.  There will always be new, uncommon provisions or restrictions for existing provisions written for oil and gas leases drafted in their entirety by law offices across the United States for the benefit of the client Lessor.  As the occurrence of new, uncommon provisions become more commonplace, no doubt a sequel to Non-Standard Clauses will be welcomed.

    As the sequel to Principles of Oil and Gas Lease Analysis: Common Clauses, the basics of oil and gas lease analysis discussed in Common Clauses will not be reiterated here.  For the analyst to fully understand the information and insight provided by this book, the analyst should first read Common Clauses.  The most important key to mastering analysis of legal clauses in experience.  The best experience is gained through volume and variety.  The number and variety of clauses provided in this book encapsulates analytical knowledge and practice that could require years of on-the-job experience for the ordinary lease analyst.  Understanding the oil and gas lease will forever remain the cornerstone of the work of a lease analyst.

    Lowe (2004) writes,

    The key to understanding the oil and gas lease is (1) to identify the fundamental goals that a lessee has in leasing, and (2) to bear in mind the nature of the transaction between the lessor and the lessee.  The first is important to understanding why leases are structured as they are.  Courts often refer to the second in resolving disputes. (Lowe, 2004, p. 169)

    The lease as the sum total of its clauses is meant to memorialize the transaction between the Lessor and Lessee.  If the lease does not contain a particular clause, it is presumed that the Lessor and Lessee did not agree to it.  If the lease does contain a particular clause, it is presumed that the Lessor and Lessee agreed on the intent of that clause at the time of signing.

    What good is understanding the intent of a given clause, if the analyst cannot determine how its function interacts with the functions of the other clauses in the lease?  The interaction between the functions of lease clauses lies at the core of lease analysis and division order analysis.  The most important skills needed by either analyst that can be acquired through training and endless practice are comprehension training and critical thinking skills.

    Acquiring the analytical skills needed to be a superior lease analyst, one who companies value highly and compensate accordingly, requires first the comprehension skills, which have already been discussed.  While comprehension skills are acquired best through repetition, the critical thinking skills to extract important data and apply it to the land database are acquired best by examples.  Examples allow the mentee to see how someone already possessing those skills approaches, analyzes, and applies each lease clause to the everyday work environment.

    Comprehension Training

    In this book, each clause is labeled with a name commonly used in the industry, for the reader to anchor the knowledge that follows.  As many versions of a clause as deemed important for the learning process, and to encourage repetition, are presented for each clause type.  The entire clause, as it appears in an oil and gas lease filed of record somewhere, is presented.  Each example differs in some respect with the other examples for that type, to give the reader as broad an experience base as deemed helpful for beginning their journey of acquiring comprehension skills.

    A general explanation of the clause, its usual purpose, and other important information is provided before the first Example is given.

    Example

    For each example given, the important words and phrases in the clause are shown in bold italics and each critical word or phrase is underlinedThis system of presentation allows the reader to read the entire clause from beginning to end, while the brain subconsciously begins to recognize the key words or phrases from which the analyst will gain an understanding of the meaning of the clause.  It is also from these bolded and underlined words, numbers, and phrases that the analyst will choose to extract data to be entered into the land database.

    Simplified.  The Simplified version follows the Example, containing only the important words and phrases that are bolded in the Example.  All other extraneous, redundant, or otherwise not important surplusage is removed.  By lifting the less necessary verbiage out and flowing together the important and critical passages, a simplified paragraph is created that is more easily understood by the reader.  Those readers still in the beginning stages of their career as a land administration analyst would be well advised to spend quality time comparing the full Example version of the clause to the Simplified version, to begin the process of understanding just why those particular words or phrases were chosen as important and the others were not.  For more experienced analysts, the same exercise will help refresh and sharpen the comprehension skills already in place.

    Critical Thinking Skills

    The technical name for teaching critical thinking skills is cognitivism.  It involves a learner actively acquiring knowledge using an active learning process during which learning passes from the teacher to the learner.  Learning to read, understand, and connect oil and gas lease clauses together based on their interaction to satisfy a legal purpose requires critical thinking.  All analysts, the author included, travel a constant journey to read, understand, and connect the increasing number of complex clauses appearing in modern oil and gas leases.

    This is why, for the purpose of encouraging development of critical thinking skills in the industry analysts of today and tomorrow, this book adds three important areas of analysis that follow the mastery of comprehension of the clause.  Those areas are management policies applications, database applications, and internal workflow procedures.

    Management Policies Applications.  Every oil and gas company has the right to decide the level of financial risk it is willing to take in any given transaction.  For this reason, some companies will make ownership changes to their database based only on a letter or even a phone call. Other companies require not only a copy of the proper documentation, but a copy bearing recording information.  Still others will require certified, recorded copies, bearing certification by the county clerk or court clerk as the case may be.

    One of the most important areas that an analyst must learn first is the limit of authority granted to the analyst by management to make business decisions.  The employer has a duty to inform the analyst of the basic guidelines regarding documentation requirements, time deadlines for completing certain tasks, and a host of other directives within the framework of which the analyst performs their work.  But as many seasoned analysts will readily admit, the work is sprinkled with borderline, gray, or otherwise out-of-the-ordinary transactions.  It is the duty of the analyst to recognize when an item of work is sufficiently gray as to require a special decision because none of the company’s guidelines or directives should apply.  Too often, beginner analysts fail to learn to recognize these lines in the sand, and their career suffers harm as a result.

    This section of the Example overview includes a brief walk through any potential issues most commonly left to management to decide, or that management should carefully approve after the analyst’s decision, if the company prefers the analyst to attempt a decision.

    Database Applications.  The number of lease record land database systems available today are almost astounding.  Even more challenging are the number of ways that different companies can chose to utilize the same database system.  Coding such as property number and owner number schemes most often differ, definitions applied to standard codes such as lease status can differ, as well as the almost-endless number of suspense codes used throughout the industry in revenue divisions of interest.  The analyst should be provided with competently-written guidelines and directives (database systems and procedures) for basic data entry functions by their employer.  Consistency and accuracy should drive the drafting of such written data entry policies.  It is the responsibility of the analyst to translate the lease clauses and all supporting documentation into captured data and to enter that data into the database in compliance with the company’s database systems and procedures.  To do it correctly and competently, this process requires comprehension skills and the critical thinking skill of recognizing the effect of one lease clause on one or more other lease clauses, or on other processes.

    This section discusses any special issues related to database entry for each particular clause of which the analyst should be aware.

    Internal Workflow Procedures.  No employee or contractor working for an oil and gas company is an island.  The work product of one employee is a future task for another, or tool, or resource.  Communication between the various departments dependent upon the information captured or produced is critical to the success of any company.  Some information is more critical than others, but any information necessary to protect or fully exploit the assets of the company are at, or near, the top of the list of critical types of information.

    This section discusses the interaction of the lease record information with the information available in other departments, or the need that other departments have for the information contained in the Example clause covered by it.

    Final Note

    This book was written by a career oil and gas land administration analyst for the training and career development of other analysts.  While every effort has been made to offer a wide variety of possible management policies, database applications, and internal workflow procedures commonplace in the industry, by no means are those presented here conclusive.  Regardless of what is presented in this book, the analyst must follow the instructions and legal guidelines provided by their employer or client.

    Assignment Clause

    The assignment clause was originally drafted to protect both the Lessor and the Lessee, originally intended to protect tender of annual delay rental payments (Lowe, 2004), but applies for the life of the lease.  For the Lessor, a standard assignment clause ensures that if ownership of either party changes during the life of the lease by deed, probate, assignment, or any other means of interest transfer, the new owners are promised recognition by the Lessee or Lessor of their ownership subject to notification requirements.  Lease payments such as rentals, royalties, shut-ins and other payments are not to be interrupted unnecessarily, and the standing of the new owners to hold the Lessee accountable will be recognized.

    For the Lessee, it eliminates the need for the Lessee to check public records before making each payment required under the lease, to make certain they are paying the right person in the right amount.  The Lessee can safely assume they are paying the correct person in the correct amount if they have not been notified of a change of ownership per the terms of the lease.

    An oil and gas lease is a type of bilateral contract, and as such, create both ‘rights’ and ‘duties’ that today can be assigned (Restatement (Second) §317.2) that results in the moving of something from one person to another, just as does the passing of a football or a baton.  (Knapp, Crystal, & Prince, 2003, p. 726).  The basic   assignment clause protects the Lessee because it makes it possible for the Lessee to sell or trade the rights (benefits) and the duties (liabilities) contained in the lease.  These are the deals that enable drilling of wells and generate royalties for the Lessor and profits for the Lessee.  Without an assignment clause allowing it, the Lessee would not be able to assign the liabilities without the signature of the Lessor on the assignment.  A standard assignment clause allows the Lessee to assign all or part of the obligations in the lease to the Assignee, without further permission of the Lessor.

    The first analysis the lease analyst must undertake is to determine if the Lessor-consent-to-assign clause applies only to full divestiture of the Lessee’s interest in the lease, or if it also applies to a partial assignment of interest, such as a sell-down.  A sell-down occurs when a Lessee assigns partial interest in a lease to partners in order to reduce financial risks.  A sell-down usually involves large areas of land typically involving a Joint Venture Agreement or similar contract between the Lessee and the new partners.  If the Joint Venture Agreement requires the assignee to carry the assignor to some point in operations (casing point or to-the-tanks are two examples), the Lessor could assert that the assignment transfers control of the lease to the assignee, even if temporary, and is subject to the clause.  Since the Lessee is retaining some amount of interest in the lease and presumably the responsibility as operator of the lease, an assignment of a less-than-controlling amount of working interest ordinarily would not be subject to the consent-to-assign clause.  

    The analyst also should know that, unless it expressly states otherwise, an assignment of overriding royalty is not subject to a consent-to-assign clause because an override assignment assigns only a benefit under the lease (a right to receive a tiny part of the income from the sale of production).  An overriding royalty owner assumes none of the financial risks or obligations, such as costs of drilling, completing, equipping, and producing.

    The assignment clauses in these examples are not standard, meaning these clauses are not found in pre-printed oil, gas and mineral lease forms available for purchase.  Non-standard assignment clauses replace the standard printed clause and are becoming more commonplace in oil and gas land administration work.  The lease analyst needs to be familiar with the interpretation of some different variations of this clause, and their respective consequences.

    Example 1

    "Notwithstanding anything to the contrary herein, prior to Lessee's transfer of interest or assignment, Lessee must notify Lessor in writing of the assignment and make payment to Lessor for all surface damages, shut-in payments and royalties accumulated as of the date of the transfer."

    Simplified.  Notwithstanding anything to the contrary herein, prior to Lessee's transfer of interest or assignment, Lessee must notify Lessor in writing and make payment for all surface damages, shut-in payments and royalties accumulated as of the date of the transfer.

    Method of Analysis.   The phrase prior to Lessee’s transfer of interest or assignment places a duty on the Lessee prior to assigning all or a portion of the Lessee’s ownership to another person or entity.  The Lessee, as Seller, may assign lease benefits to a subsequent Lessee, as Buyer, without the Lessor’s consent, but the Seller would remain financially liable for all liabilities connected with the lease until the Lessor’s consent is obtained.  Once the Lessor consents to an assignment, the Assignee as subsequent Lessee assumes the benefits as well as the financial liabilities for the lease.

    In this particular version of an assignment clause, the current Lessee (Seller) is required to notify the Lessor in writing, before the assignment is signed and delivered.  In addition to the advance notice, the Seller must make payment for all surface damages, shut-in payments and royalties due the Lessor as of the date of the transfer.

    Notice that this clause does not state a consequence for failure by the Lessee to satisfy this requirement.  This is a covenant clause and not a condition clause.  That said, the Lessor will have recourse against the original Lessee (as Assignor) through the civil courts by asserting breach.  Depending on the type and amount of any damages and other circumstances recognized by the court, the new Lessee potentially could find itself with a court-ordered termination of the lease if this clause is not honored.

    Management Policies Applications.   Exploration and production companies generally monitor clauses requiring Lessor consent to assign the lease in the future.  This clause is not a Lessor consent clause, but does require that notice be given to the Lessor of any assignment in the future, and it requires that if there are any outstanding sums due and payable to the Lessor be paid by the current Lessee at the time of the assignment to the new Lessee.  Key here for the analyst is the word payable.  If the account for the Lessor is suspended due to title defects that meet management’s requirements for holding the sums in suspense, unless the Lessor satisfies those requirements the mere assignment of the lease does not trigger a duty to pay those sums.  Examples would be suspending payment due to missing probate documents, unrecorded documents such as an Affidavit of Death and Heirship, or defective documents needing correction, just to name a few.

    Database Applications.  Most lease records database systems allow identification of a lease clause requiring Lessor consent to assign, usually with a Y (yes) or N (no) flag entered by the analyst for the pre-set Lessor consent field in the lease records screen.  Since this clause does not qualify as a consent-to-assign clause, the analyst could draw attention to it in the record as a miscellaneous entry and describe it.

    Internal Workflow Procedures.  Usually, when one lease contains a clause such as this one, there could be others in the same tract (in the case of partial-interest leases) with the same clause, or leases covering lands in the immediate area containing the same clause.  The analyst should consult their supervisor to determine how the company wants this particular clauses noted in the record so it will be noticed when the company decides to sell all or part of this lease in the future.

    Example 2

    "The rights of the Lessee hereunder shall not be assigned or subleased in whole or in part other than assignments or subleases made to direct affiliates and subsidiaries of Lessee without the prior written consent of the LessorThe Lessor’s consent to any assignment or sublease made by Lessee, in whole or in part, shall not be unreasonably withheldThe Lessor’s consent to any assignment or sublease made by the Lessee shall not relieve the Lessee herein of any duties, liabilities or obligations owed Lessor, except that Lessee shall be relieved from all duties, liabilities, or obligations owed Lessor with respect to (a) any environmental damage caused to the Leased Premises in those instances where the environmental damage caused to the Leased Premises (i) occurs after the Lessee has divested itself of all of its right, title, and interest in the Lease to a third party assignee by an assignment that Lessor has consented to, and (ii) occurs as a result of the sole act or omission of an assignee of Lessee, and (b) to the cost of plugging and abandoning any well drilled on the Leased Premises by a third party assignee after the Lessee has divested itself of all of its right, title, and interest in the Lease to a third party assignee by an assignment that Lessor has consented toFurthermore, any assignment or sublease of this Lease made by the Lessee or its assigns shall contain the following specific provision:

    Notwithstanding anything contained in this Assignment to the contrary, Assignee, by his execution hereof, fully agrees to fulfill all obligations and comply with all terms and conditions imposed on the Lessee by the Lessor or Lessors in the assigned lease or leases (the Assigned Lease or Leases) described on Exhibit A attached heretoAssignee further agrees that it will not assign or sublease all or any part of the interest acquired by the Assignee in the Assigned Lease or Leases in this Assignment, without first obtaining the written consent of the Lessors named in the Assigned Lease or Leases (and/or their successors-in-interest), which consent by Lessor or Lessors (and/or their successors-in-interest) shall not be unreasonably withheldThe execution by the Lessor or Lessors (or by their successors-in-interest) of any consent to this Assignment, or any subsequent assignment of interests in the Assigned Lease or Leases shall not release or relieve the Assignor in this Assignment, or the Assignor in any future assignment or sublease of interests in the Assigned Lease or Leases, from fulfilling the duties, liabilities and obligations imposed on the Lessee, or any of its assigns, in favor of the Lessor or Lessors in the Assigned Lease or Leases except that Assignor shall be relieved from all duties, liabilities, or obligations owed Lessor with respect (a) to any environmental damage caused to the Leased Premises in those instances where the environmental damage caused to the Leased Premises (i) occurs after the Assignor has divested itself of all of its right, title, and interest in the Lease to a third party assignee by an assignment that Lessor has consented to, and (ii) occurs as a result of the sole act or omission of an assignee of Assignor, and (b) to the cost of plugging and abandoning of any well drilled on the Leased Premises by a third party assignee after the Assignor has divested itself of all of its right, title, and interest in the Lease to a third party assignee by an assignment that Lessor has consented to.’

    The Lessor and Lessee herein further agree that the Lessor (and/or its successors-in-interest) may reasonably withhold their consent to any future assignment or sublease of interests in this Lease that is made by the Lessee (and/or its assigns) if the future assignment or sublease of interests in this Lease made by the Lessee (and/or its assigns) does not contain the quoted language in the preceding sentence as set forth above."

    Simplified.  "The rights of the Lessee shall not be assigned or subleased in whole or in part other than assignments or subleases made to direct affiliates and subsidiaries of Lessee without the prior written consent of the Lessor.  Lessor’s consent shall not be unreasonably withheld.  Lessee shall be relieved from all duties, liabilities, or obligations with respect to (a) any environmental damage where the environmental damage (i) occurs after the Lessee has divested itself of all of its right, title, and interest in the Lease by an assignment that Lessor has consented to, and (ii) occurs as a result of the sole act or omission of an assignee of Lessee, and (b) to the cost of plugging and abandoning any well drilled by a third party assignee after the Lessee has divested all of its right, title, and interest in the Lease to a third party assignee by an assignment that Lessor has consented to.  [A]ny assignment or sublease made by the Lessee or its assigns shall contain the following specific provision:

    ‘Notwithstanding anything contained in this Assignment to the contrary, Assignee, by his execution hereof, agrees to fulfill all obligations and comply with all terms and conditions in the assigned lease or leases described on Exhibit A attached hereto.  Assignee further agrees it will not assign or sublease the interest acquired by the Assignee without first obtaining the written consent of the Lessors shall not be unreasonably withheld.  The execution by the Lessor or Lessors (or by their successors-in-interest) of any consent to this Assignment, shall not release or relieve the Assignor from fulfilling the duties, liabilities and obligations except that Assignor shall be relieved from all duties, liabilities, or obligations with respect (a) to any environmental damage where the environmental damage caused (i) occurs after the Assignor has divested itself of all of its right, title, and interest in the Lease by an assignment that Lessor has consented to, and (ii) occurs as a result of the sole act or omission of an assignee of Assignor, and (b) to the cost of plugging and abandoning of any well drilled by a third party assignee after the Assignor has divested itself of all of its right, title, and interest in the Lease by an assignment that Lessor has consented to.’

    Lessor and Lessee agree that the Lessor (and/or its successors-in-interest) may reasonably withhold their consent if the future assignment or sublease of interests in this Lease does not contain the quoted language in the preceding sentence as set forth above."

    Method of Analysis.  The analyst should take note first of the word sublease.  The term sublease is common in Louisiana and represents a unique type of assignment of oil and gas lease.  A sub-lease allows the original Lessee to retain all of its ownership in the original lease by becoming a secondary Lessor in the sublease, leasing the oil and gas rights in the same land to a new Lessee. 

    A very important difference between an assignment and a sublease involves accountability.  Lowe (2004) explains that in the case of a sublease, the lessor’s rights are against the lessee/sublessor and the transferee’s obligations are owed to the lessee/sublessor because no privity of estate exists between the lessor and the sublessee (p. 354).  An assignment transfers both the benefits and the financial obligations of the original Lessee directly to the new Lessee as long as the conditions in the assignment clause of the lease are met.  The original Lessee no longer owns the benefits derived from the interest assigned, nor liable for any duties or obligations imposed upon the interest conveyed.  By contrast, a sub-lease assigns the benefits of the oil and gas lease but maintains the legal relationship between the original Lessee and the Lessor, retaining the obligations owed to the original Lessor.  The sub-lease creates a new relationship between the original Lessee and the new Lessee, one in which the original Lessee typically reserves a higher royalty than stated in the oil and gas lease and adds obligations applicable only between the original Lessee and the new Lessee.  The royalty stated in the original lease will be paid to the original Lessor, and the difference between that amount of royalty and the royalty rate stated in the sublease will be paid to the old Lessee which is now the Lessor in the sublease.

    Under a sub-lease, the new Lessee is accountable to the original Lessee for all payments coming due to the Lessor, and for complying with all of the terms of the base lease and the sublease.  If the Lessor encounters a problem with performance under the lease, he looks to the original Lessee to correct the problem and in turn, the original Lessee looks to the new Lessee to absorb all financial responsibility.

    This clause in this example states that the Lessor’s consent to assign or to sub-lease is required in order for the Lessor to recognize the new Lessee and look only to the new Lessee for all financial obligations under the lease.  The Lessor’s consent must be obtained in writing. A verbal consent is ineffectual.

    This particular clause places an additional requirement on the Lessee and each successive (approved) Lessee that any assignment of the lease, in order to be approved by the Lessor, must contain verbatim the clause stated within the body of this clause.

    As with the comments made for Example 1 above, failure to obtain the Lessor’s consent to an assignment or sub-lease could constitute a breach.  The court in Jacobs v. Kawans, 225 Md. 147, 169 A2d 677 (1961) held in favor of a lease forfeiture for breach of the consent-to-assign clause, even though the clause in that case not contain that result as a consequence.

    Management Policies Applications.  Companies generally categorize a Lessor consent-to-assign clause as a soft or hard consent clause.  A soft consent-to-assign clause is one that does not state a specific consequence for failure to perform, which means it is a covenant clause.  A soft clause would require a lawsuit to settle the issue.  A hard consent-to-assign clause is one that states a specific consequence for failure to perform, making it a condition clause.  Generally, a lawsuit would not be required to enforce a hard consent-to-assign clause unless the Lessor is seeking relief beyond the consequence stated in the clause.  The consequence may include potential termination of the lease.  The analyst needs to determine if their employer distinguishes between soft and hard consent-to-assign clauses, for lease records purposes.

    Database Applications.  If the company categorizes Lessor’s consent-to-assign clauses as either soft or hard clauses, the lease analyst most likely will need to enter that identifying data into the lease data record.

    Internal Workflow Procedures.  The analyst needs to inquire as to what, if any, approvals are needed from a supervisory or management level before labeling a consent-to-assign clause as either soft or hard.  Not all companies will have such an internal workflow procedure, but many do.

    Example 3

    "If Lessee, or any future assignees, assign this lease in whole or in part, the assignee of all or any part of this lease shall supply the Lessor herein a certified copy of such assignment by mailing to the Lessor, at the address shown in the main body of this lease, or to any subsequent address provided to the Lessee or Assignee by Lessor, by Certified Mail within thirty (30) days of recordation, any such assignment.  If Lessee or Assignee fails to do this, any notices or demands made by the Lessor on the current Lessee herein, or on any future Lessee, will be fully effective against any assignees of this lease."

    Simplified.  If Lessee, or any future assignees, assign this lease in whole or in part, the assignee shall supply the Lessor a certified copy of such assignment by mailing to the Lessor, by Certified Mail within thirty (30) days of recordation.  If Lessee or Assignee fails to do this, any notices or demands made by the Lessor on the current Lessee herein, or on any future Lessee, will be fully effective against any assignees of this lease.

    Method of Analysis.  This otherwise common consent-to-assign clause includes added restrictions than those in the other examples above.

    First, the Lessor requires a certified copy of the assignment to be furnished, which means that the assignment must occur before consent can be obtained.  The assignment must be recorded in the public records and a copy of it certified by the County or Parish Clerk.  An ordinary photocopy of the recorded assignment will not satisfy this clause.

    This clause stipulates further than the certified, recorded copy must be mailed by Certified Mail, which means only the U.S. Post Office can deliver it, not FedEx or UPS or other delivery service, and it cannot be mailed by regular First Class mail or by using Registered Mail.

    Next, the clause requires expressly that the certified copy of the recorded assignment must be mailed by Certified Mail within 30 days after recordation.

    Failure to meet any one of these express requirements could result in termination of the lease if a lawsuit is filed by the Lessor asking the court to order forfeiture for cause.

    If this clause appears in a Louisiana oil and gas lease and the Lessor in the future has reason to submit a 30-day demand letter to the current Lessee complaining of a proposed breach and demanding action, the lease eventually could be lost for failure to act within the 30-day window.  A 30-day demand letter is submitted by the Lessor to the most recent Lessee approved by the Lessor.  That letter could be mailed months or years after the lease changed hands but Lessor consent was not obtained, and the Seller may fail to forward the letter.  When the 30 days to take corrective action expires without action required by law, the lease could terminate according to Louisiana statutes.

    Management Policies Applications.  If this lease is acquired, the buyer needs to be aware of this clause in order to amend the purchase and sale agreement or take whatever steps deemed necessary by management to keep the lease alive while it is being acquired.  If this lease is being divested, the seller has the financial responsibility to know about this clause and satisfy its requirements to the letter in order to adhere to the terms and conditions of the purchase and sale agreement.  This clause is a hard consent-to-assign clause.  The oil and gas lease can be terminated as a result of the assignment process unless both the buyer and seller cooperate to make certain that all of this clause’s requirements are met fully during that transition.

    Database Applications.  To fully protect this asset (oil and gas lease) for the employer (current Lessee), the lease data record should reflect that this is a hard consent-to-assign clause.  A remark in the lease data screen should be added for this clause, stating certified copy only, certified mail only, within 30 days after recording in order to ensure all three requirements are met.  Failure in any of the three could result in termination of the lease.

    Internal Workflow Procedures.  This clause should have been fully analyzed, and all necessary data entered into the original lease data record by the original Lessee at the time the lease was taken.  Then, when the original Lessee sells the lease in a divestiture, a copy of the lease data sheet should be provided to the buyer during the due diligence phase of the purchase and sale agreement, or the buyer’s team of due diligence landmen should find this clause and note it as a due diligence item.  Upon signing the assignment, each of the required actions must be performed within 30 days of recordation.  Specific employees of both the seller and the buyer should be delegated responsibility for one or more of the required actions, and each must be in open communication with the others to make certain the lease is preserved during the transfer process.

    Example 4

    "It shall be required of Lessor to correspond only with Lessee at the address shown on this lease until Lessor is advised in writing of the change in Lessee’s address or of a change in ownership of this lease provided that the change in ownership of this lease has been approved by the written consent of the Lessor."

    Simplified.  It shall be required of Lessor to correspond only with Lessee shown on this lease until Lessor is advised in writing of the change in Lessee’s address or of a change in ownership provided that the change in ownership has been approved by the written consent of the Lessor.

    Method of Analysis.  On its face, this is a soft consent-to-assign clause.  In addition to any future 30-day demand letter submitted only to the most recent Lessee approved by the Lessor as discussed in Example 3 above, the Lessor will correspond only with the most recent, recognized Lessee for changes of address and changes of ownership notifications.  Those letters or notices could be mailed months or years after the lease changed hands. If Lessor consent was not obtained, the seller may fail to forward the correspondence.  The end result ultimately could be termination of the lease according to Louisiana statutes.

    If this clause appears in a lease covering land in any other state, the lease could still be forfeited by court action if a certified letter from the Lessor demanding correction of an alleged breach is mailed to the last-known Lessee and goes unanswered.  Or, in the case of changes of address or ownership, rentals or shut-in royalties could be paid incorrectly, again potentially resulting in termination of the lease.

    Management Policies Applications.  Management should be made aware that this clause appears to be a soft Lessor consent-to-assign clause, but the consequences for failure to satisfy its requirements could be the same as a hard clause.  Management policy concerning lease records data management for a clause like this one might be in order.

    Database Applications.  Management’s policy regarding how to treat this clause (as hard or soft) will determine what specific actions the lease analyst needs to take relative to the database record for this lease as outlined in the Database Applications remarks for the other examples above.

    Internal Workflow Procedures.  Specific employees should be designated as responsible for the actions required by this clause in every lease in which it may appear in company records.  Record of the existence of this clause in this form should be readily accessible to appropriate employees of other departments as needed to fully protect the asset.

    Example 5

    "It is expressly provided, as consideration for this lease, that Lessee shall have no authority to transfer or assign a controlling interest in the lease premises to any other entity or individual without providing advance notice of such intended assignment to Lessor for Lessor’s consideration and approvalIt is expressly provided, however, that Lessor shall not unreasonably withhold consent to such proposed assignment."

    Simplified.  It is expressly provided, as consideration for this lease, Lessee shall have no authority to transfer or assign a controlling interest in the lease to any other entity or individual without providing advance notice for Lessor’s consideration and approval.  Lessor shall not unreasonably withhold consent to such proposed assignment.

    Method of Analysis.  This clause places a monetary value on prior notice of a transfer or assignment of a controlling interest in the lease by the Lessee, by including the phrase as consideration for this lease.  It is important for the analyst to notice the term controlling interest as the type of interest, when transferred or conveyed, that will be subject to this clause.  This means that an assignment of overriding royalty, or of an amount of working interest that does not carry lease operatorship with it, is not subject to this clause.  The clause goes on to say that such notice prior to completing the transaction will be considered by the Lessor and Lessor must approve such transaction.  The language Lessor shall not unreasonably withhold consent means that the Lessor will be required to explain satisfactorily the basis for denying approval.  Just a few examples of reasonable objections include lack of demonstrable financial capacity by the assignee (such as lack of adequate bonding), prior unsatisfactory dealings between this Lessor and the assignee, or knowledge by Lessor of prior bad acts by the assignee involving family or neighbors of the Lessor.

    Management Policies Applications.  Generally, companies accommodate Lessor approval requirements by issuing letters requesting consent from each Lessor under leases requiring same, as part of the due diligence phase of a sale.  Usually, leases are not sold individually but rather, are part of a larger package or lease offering when the leases cover lands included in a prior agreement such as a joint venture or participation agreement.  Alternatively, a Lessor will sell an entire area as a divestiture when the Lessor no longer wants to be involved in exploration and production in that particular area.

    Database Applications.  The lease data record should reflect that the Lessor’s consent to assign it is required.  The data needs to be captured in a form to appear on reports, when the company needs to clear the way for selling the lease in the future.  Such a report generally is called a lease obligations report.

    Internal Workflow Procedures.  Once the data relative to this consent-to-assign clause is captured, reporting procedures vary widely from company to company.

    Example 6

    "This lease shall not be assigned to Trans Texas Gas Company or any of its subsidiary companies."

    Simplified.  This lease shall not be assigned to Trans Texas Gas Company or any of its subsidiary companies.

    Method of Analysis.  This clause technically is not a consent to assign clause, but rather, a prohibition against assigning the lease to the company named.  There are many companies that have appeared in clauses like this one over the years, in many states.  The Lessor believes strongly that his interests will be compromised unacceptably if the lease comes under the control of whatever company is named.  Depending upon the age of the lease, a clause like this one might be rendered moot, such as a non-surviving merger of the named company into another company.

    Management Policies Applications.  The lease data record might contain a remark noting the prohibition, but only if the barred company no longer exists.  If the lease is going to be assigned during its primary term, it will be necessary for the Lessee and the assignee to be aware of this prohibition.

    Database Applications.  A lease data record remark will suffice, preferably in a form that will appear on lease obligation reports.

    Internal Workflow Procedures.  There are not special workflow procedures applicable to this particular clause.

    Example 7

    "Anything hereinabove to the contrary notwithstanding, it is expressly provided that any and all contracts of a duration of one year or greater for the sale at less than the market price of Lessor's proportionate part of any gas produced

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