Energy Industry (Oil & Gas)/lease assignment

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Question
We are in a co-tenant/partitioning situation in Texas where one landowner executed an oil lease on jointly owned land.  At partition, Company A (that originally held the lease) executed a Partial Waiver of Surface Rights recorded in the courthouse records on the same day as the Partition Deed. (This occurred after Company A already had executed a Partial Assignment of Oil and Gas Leases to Company B three years earlier.) The Waiver says that Company A waives the right of ingress and egress on the non-leased owners property; Company B did not join in the execution of the Waiver but the wording in the Waiver says that Company A agrees that it still holds the lease and has the authority to amend the lease on behalf of itself, its successors and assigns and that Company B has no authority to amend the lease.  However, the Memorandum of Assignment to Company B in the courthouse records gives Company B the "sole and exclusive right to research, develop, produce, market, deliver, treat, save and deliver groundwater." The Partial Assignment of Leases remains in force for the life of the lease and provides that Company A be paid a production payment based on groundwater sold from the acreage.  Company B assumes all of the obligations and responsibilities of Company A under the assigned leases.  The Memorandum of Assignment further says that Company B shall indemnify and hold Company A harmless from and against any and all claims associated with said lease and that Company A shall have the exclusive right to acquire all additional and future leases within the area.  The Assignment is made in accordance with and subject to terms, conditions and provisions of a Marketing Agreement of which a Memorandum of Marketing Agreement is being recorded in the county records.  The Assignment contains a Termination and Re-assignment provision which provides that any rights/interests which have been assigned to Company B that may subsequently terminate in the future be re-assigned to Company A. Company A retains a security interest and lien upon the leases subject to the UCC of the State of TX and is entitled to exercise the rights and remedies of a secured party under the code.  This is all the information that the Memorandum of Assignment shows and Company A refused to produce the Assignment for us to see in order to prove they had the authority to execute the Waiver of Surface Rights.

Everything I understand about assignments of oil & gas leases leads me to believe that Company A had no right to execute any kind of Waiver of Surface Rights because it had assigned its leases to Company B; however, Company A did put guarantee wording in the Waiver and it was recorded. (however, the Company A representative has a past conviction of Fraud.)  I've read that, under an assignment, if any time or interest is reserved by a tenant assignor then the act is not an assignment, but is instead a sublease. I also read that the assignor must not retain any sort of reversionary interest in the right to possess.  Could it be that, because Company A retained a security interest and lien upon the leases, or because there is the clause about the leases reverting back to Company A, that this Partial Assignment of Leases was not an assignment but rather a sublease?  And, if it would be considered a sublease, would that give Company A the authority to amend the existing lease by executing a Waiver of Surface Use particular to one of the leases included in the Partial Assignment of Leases?

Thank you for your time!

Rose

Answer
Hello again Rose.  I can't answer your question with certainty without examining the assignments, but it looks LIke A assigned its rights to use water for leasehold purposes to B, and retained its other leasehold rights.  I have questions about the propriety of making a water assignment like this if the purpose of the assignment is to let B sell water off of the leased premises to third parties.  It seems to me that this would not be permissible unless the underlying lease permitted this.  This is an unusual situation.   In any event, the failure of B to join in the surface waiver would allow it to access both sides of the partitioned premises, in my opinion.   I think B should have joined in the surface waiver, and needs to join in the surface waiver.

It looks like the assignment to B would constitute a sublease, and I have questions as to whether A 's waiver of surface rights had any effect on whatever rights B had received in the property.

Sorry I can't be more specific here.  Good luck and let me know if you have any other questions.  

Energy Industry (Oil & Gas)

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David B. McCall

Expertise

Questions regarding oil and gas exploration and production, the operation and management of oil and gas producing properties, and questions related to mineral ownership, title problems, and oil and gas leases.

Experience

I am Board Certified in Oil, Gas and Mineral Law in the state of Texas. I have more than 37 years of experience in the industry as both an in house attorney for major oil companies and as a partner in oil and gas firms. I am also a mineral owner and receive royalties from oil and gas production. I have extensive title examination experience, and have represented clients in many administrative and court proceedings.

Organizations
State Bar of Texas, Texas Bar Foundation, and Austin Bar Foundation.

Publications
Various state bar seminars on Oil and Gas matters.

Education/Credentials
I have a business degree in marketing from McMurry University, 1971, and a JD degree from Texas Tech University in 1974, where I graduated 17th in my class. Board Certified in Oil, Gas and Mineral Law in 1986.

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