Question on Oil and Gas Lease

We are in negotiations with an oil company and they struck this from our Exhibit B.

"No Warranty of Title: Lessor does not warrant or agree to defend title to the lands here leased. Lessee has assumed the risk of title lien, cloud, or claim. Lessee agrees to hold harmless and indemnify Lessor from any and all claims, causes of action and disputes, including attorney's fees and court costs that Lessor may incur as a result of Lessee asserting any claim to the minerals leased."

And they have added:

"Notwithstanding anything to the contrary contained in the Oil and Gas Lease, Lessor hereby warrants and agrees to defend this title to the Leased Premises only as to any party or parties claiming by, through or under Lessor."

If anyone has an opinion on this as to whether we should go along with this verbiage, please respond.

Many thanks in advance.

To your knowledge, how good is your title? If you have a good, unbroken chain of title from the origin, it should be no problem to warrant title. If you do not have clear title, you might find out what it would take to clear it. If the oil co doesn’t like your title they may pay you a bonus but hold royalty in suspense until you clear the clouds from your title. I’d want to know now. You might ask your potential lessee if they saw something they didn’t like.

Dear Mr. Peterson,

This would be an example of a "Special Warranty Clause" which, in my way of thinking, is a compromise position between no warranty and full warranty. To make the clause better, I would add the words "but not otherwise." to the very end of the clause.

What is missing is what responsibility you have to return bonus, delay rentals and royalties in the event of full or partial failure of title through the special warranty. With the oil company after production disbursing royalties, they can withhold the amounts of royalty until they are whole. It is always preferable to make reference as to what happens to the monies already paid prior to the failure of title. This clause also requires you to defend title, which you would want to do, but you are paying for attorneys fees, whether they be your attorney or their attorneys.

Most big time lessors have no huge problem with a Special Warranty with some more language added for clarification. I would suggest reworking the clause entirely. It is just too loose.