Assignment Of Overriding Royalty Interest

Assignment Of Overriding Royalty Interest-54
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.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.

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Wyoming has not expressly adopted the exception recognized in Texas, that an overriding royalty interest may be unilaterally pooled by the associated working interest if the underlying lease authorizes pooling.

The Unfortunately the court was not clear in what it meant in that phrase.

In other words, the general rule is not the ordinary case.

To the contrary, ORIs are almost always subject to the lessee’s power and authority to pool.

However, at least one Texas court has refused to recognize custom and practice or surrounding circumstances as providing the basis for such authority to pool.

In , the court first stated the general rule that royalty interests cannot be pooled without express authority.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.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.Subsequently, the lessee (“Predecessor”) assigned the lease to a company (“Successor”), with the reservation of an overriding royalty interest.The assignment did not address pooling, but instead simply assigned “all right, title and interest in and to the [lease] together with the rights incident thereto or used or obtained in connection therewith.” The court concluded the overriding royalty was subject to the unilateral ability to pool by the Successor, even though consent was not directly and expressly given in the assignment.Of course, this is only a debate in the context of voluntary pooling.However, I believe this issue is, at best, unsettled.(Remember, in Texas, ORIs are subject to the lessee’s pooling authority as contained within the lease).The court cited a well-known Texas case which held that an assignor who retains an overriding royalty interest is entitled to the same protections afforded to the lessee under the express or implied covenants of the lease.

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