Warranty of Title in Oil & Gas Leasing

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#1

In a common form of oil and gas lease, there is a warranty provision that typically begins, "Lessor herein agrees to warrant and forever defend..." The poor landman or attorney will add an interlineation to read, "Lessor herein does not agrees to warrant and forever defend..."

This is sloppy work in my opinion.

I am not an attorney and I am not giving legal advice. My business advice is to take this clause to your legal advisor to determine if it is satisfactory to include in your lease:

"Lessor makes no warranty of any kind, express or implied, as to title to its interest in said land or its oil and/or gas interests thereunder, and there shall be no liability on the part of Lessor to refund any amount received under the Terms of this Lease (including but not limited to bonuses, delay rentals and/or royalties) in the event of any title failure, nor shall Lessor be required to furnish any bond, abstract or indemnification to any person or entity regarding its title to said lands, such matters of title to be determined at the sole cost, expense and risk of Lessee and not of Lessor."

This is the language that I put in my leases instead of deletion of warranty.

#2

Buddy,

We all know you are the O&G guru, but with all of your provisions and complex jargon and rebuttals on every single aspect of the lease I wonder at what point do you start losing money for your clients - Yes, protecting the landowner's rights in the lease is important, but in my experience, I have found companies back down when they get a lease back where every other sentence is modified or struck.

In fact, just recently, I had a neighbor who was offered two grand an acre for his 640 acres in a very active area of the Niobrara. The guy courted the experience of an oil and gas attorney who took the liberty of modifying every word of the lease. In the end, the guy's offer was taken off the table and both sides missed out. Point being, yes a landowner has to be cautious, but in many instances re-inventing the wheel is not necessary.

#3

Dear Ms. Miller,

Thank you for calling me the O&G guru, I think. As to losing money for my clients, only once did it not work out -- and it was because the client had already made a commitment to a company and had hired an attorney before she called me in. The company got ticked at dealing with her and took the pipeline around her. She brought that on herself. Takes all kinds.

I will give you an example. My client has a 29 page lease form that was executed and sent to the company wanting to lease. They modified something on every page and sent it back for our review.

I do not know for sure what my client will do, but I do suspect that they will put a big red bow on it and send it back, with a note -- not interested. Take it or leave it. I suspect that they will leave it.

As to this particular clause that I offered here, do you really think that an oil company would walk away from a deal because of it?

As to complex jargon, I did not invent it, but I do adhere to the definitions of the language that have been judicially defined by the courts.

As to your neighbor, this sometimes happens. When I do represent landowners, I do have long talks with them concerning what they want in the lease and what they MUST have in the lease to feel protected. Sometimes companies will walk away. Those decisions are made by the client, not me.

Since you say "...in my experience..." just what is the level of your experience from which you speak? In my experience, I have never had a company walk away from a lease form. Here is what I know for certain. What is common in one area of the country is not common in another. I also know for sure that I have bought and negotiated more leases in my lifetime than the average mineral owner will negotiate in 10 lifetimes. I do have lots and lots of real experience.

Oh, I do not think that I have every knowingly lost money for a client. What makes you think that I have complex jargon and rebuttals on every single aspect of the lease? You have never seen my lease form, have you?

#4

Buddy,

As usual, thanks for the prompt response. Buddy, I don't profess to be an expert on the subject matter but my husband owned minerals in several active areas of the US. I am now left on my own to make decisions as to the divestiture and leasing of these minerals. As you can imagine, this left a large learning curve for me - so, I've brought in attorneys and landmen to help assist with the management of my minerals. Some were very good and knew the meaning and covenants of every single aspect of the lease and while I applaud their efforts, the bottom line is to maximize the value of the lease and protect the landowner enough to market title. In general, most bonus values will be affected by an over aggressive lease form. Yes, some landowners are going to value certain aspects of the lease more than others (i.e. surface use), but bottom line, get the deal done.

#5

Dear Ms. Miller,

If you do not own the surface and only minerals, there are just a few changes that need to be made to the lease form to make it more balanced.

#6