Assignment Of Overriding Royalty Interest

Of course, this is only a debate in the context of voluntary pooling.

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It is extremely rare for oil and gas leases to state the lessor expressly reserves the power and authority to pool the lease.

Therefore, I believe the reserves the power and authority to pool, and (2) grants the Lessee the power to consent to the Lessor’s pooling authority.

Under Wyoming precedent, a compelling argument can be made that ORIs are subject to pooling by the lessee, so long as (1) the underlying oil and gas lease expressly provides that the lessee has the authority to pool, and (2) the assignment creating the ORI does not otherwise negate this authority.

Again, however, I do believe that this issue has not been directly and clearly resolved by the Wyoming courts.

The court reasoned that “[t]he legal effect of [Predecessor’s] unqualified assignment was to vest in [Successor], his heirs, successors and assigns, the identical rights, privileges, and benefits [the lessee] possessed under the Lease, which included an express power to pool.” The court indicated that it would be “doubtful” that parties would intend a successor lessee to have the right to pool the lessor’s interest, but not an ORI carved out of that leasehold interest. Admittedly, there is one reported case in Wyoming where the Supreme Court held that the lessee did not have the authority to pool the overriding royalty interests.

However, as I will explain below, I believe that this holding is narrowly limited to the relatively uncommon facts of that case.It is unclear whether the court (1) was stating that if the underlying lease granted pooling authority, that the ORI would be subject to pooling by the lessee, (2) was restating, in both sentences, the argument of lessee, or (3) merely stating that if the ORI owner gave consent to lessee pooling authority, that he would not later also be required to execute a unit agreement as well.However, I believe a compelling argument could be made that the court was giving nod to the same rule followed in Texas, where ORIs are subject to lessee’s pooling authority contained in the underlying leases.The court stated that even though oil companies “almost certainly” assume pooling can and will take place with regards to ORIs, pooling must be rooted in the meaning of the contractual language actually used by the parties, not what the parties may have assumed or intended to say but failed to include in their agreement.In Wyoming, I believe the issue as to whether ORIs can be pooled without their direct consent is unsettled.Of course this remains to be definitively determined.One argument in support of the proposition that ORIs should be subject to the lessee’s unilateral pooling power is that exercise of such authority is simply industry custom and practice.In the Wyoming Supreme Court first explained that Wyoming follows a similar general rule as adopted in Texas: a lessee is without authority to unitize royalty interests, including overriding royalty interests, without consent of the interest owner. The only ‘power’ granted to the lessee was the ability to withhold consent to the lessor’s power to pool.The lessee argued that the overriding royalty interest owner constructively gave consent to pooling, due to the inclusion of pooling language in the underlying lease.court then applied this rule to the State of Wyoming lease, concluding that the phrase allowing the lessee to withhold consent to pooling should be characterized as a lessee protection, because it was was intended to protect the lessee from pooling court reasoned that the ORI owner should also be afforded this protection, thereby allowing him to withhold consent from pooling.As stated above, I believe this holding does not have general, wide-reaching applicability.


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