CHAPTER 9 LIABILITY OF CO-LESSEES, PREDECESSORS, SUCCESSORS, AND ASSIGNS

• Jurisdiction: United States

Federal and Indian Oil and Gas Royalty Valuation and Management
(Feb 2007)
CHAPTER 9
LIABILITY OF CO-LESSEES, PREDECESSORS, SUCCESSORS, AND ASSIGNS
Jonathan A. Hunter
Attorney
Liskow & Lewis
New Orleans, Louisiana

JONATHAN A. HUNTER

Jonathan A. Hunter is a shareholder in the New Orleans office of Liskow & Lewis, where he is head of the firm's offshore oil and gas practice group.

He received his bachelor's degree from Yale University and his law degree from Louisiana State University Law Center, where he was Editor-in-Chief of the Louisiana Law Review and a member of the Order of the Coif.

He is an Adjunct Assistant Professor of Law at Tulane Law School, where he teaches basic Oil and Gas Law and a seminar on Federal Offshore Oil and Gas Law.

He has represented producers in more than one hundred administrative appeals of MMS orders, including orders to pay royalties, orders to pay civil penalties, and orders to comply with the agency's operational regulations. He has also represented producers in numerous judicial appeals of such agency orders. He was recently selected to be included in the 2007 edition of The Best Lawyers in America.

• The frequency of joint ownership of lease interests and transfers of lease interests raises important issues of liability by and among co-owners of lease rights and assignors and assignees of lease rights.

• Changes in both regulations and statutes in recent years impact these issues with respect to both lease abandonment and payment of royalties.

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Basic Questions

• Who is liable for payment of royalties? (i.e., "who" not "how much is due"?)

• What is the effect of co-ownership of an entire lease?

• What is the effect of ownership and/or co-ownership of a portion of a lease?

• What is the effect of a transfer of ownership?

Basic Ownership Interests - Record Title

• "Record title means a lessee's interest in a lease which includes the obligation to pay rent, and the rights to assign and relinquish the lease. Overriding royalty and operating rights are severable from record title interests." 43 CFR 3100.0-5 (onshore regulations)

• "Lessee means a person who has entered into a lease with the United States to explore for, develop, and produce the leased minerals. The term lessee also includes the MMS-approved assignee of the lease, and the owner or the MMS-approved assignee of operating rights for the lease." 30 CFR 250.105 (offshore regulations)

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• "Lessee means any person to whom the United States issues a lease, and any person who has been assigned an obligation to make royalty or other payments required by the lease. This includes any person who has an interest in a lease as well as an operator or payor who has no interest in the lease but who has assumed the royalty payment responsibility." 30 CFR 206.151 (gas valuation regulations)

• "Lessee means any person to whom the United States issues an oil and gas lease, an assignee of all or a part of the record title interest, or any person to whom operating rights in a lease have been assigned." 30 CFR 206.101 (oil valuation regulations)

LIABILITY OF ASSIGNORS, ASSIGNEES, AND CO-LESSEES

Basic Ownership Interests - Operating Rights

• "Operating right (working interest) means the interest created out of a lease authorizing the holder of that right to enter upon the leased lands to conduct drilling and related operations, including production of oil or gas from such lands in accordance with the terms of the lease." 43 CFR 3100.0-5 (onshore)

• "Operating rights means any interest held in a lease with the right to explore for, develop, and produce leased substances." 30 CFR 250.105 (offshore)

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Record Title Transfers

1. Assignments in Whole

• Simplest type of assignment - Assignor owns 100 percent of the record title interest of a lease and...