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How may an oil and gas lease transfer to another party?

On Behalf of | Feb 11, 2022 | Gas And Mineral Law, Oil

The Texas Natural Resources Code allows parties to transfer or relinquish their oil and gas lease agreements. As noted on the Texas Constitution and Statutes website, the transferee must take over the terms and obligations of the lease.

A transferee takes responsibility for plugging wells and cleaning up contamination on the land. The transferee also has a right to relinquish the lease to the Lone Star State government.

How may a landowner restrict a tenant from a lease transfer?

Some agreements require drillers to receive written consent from a landowner to transfer a lease. As described on the RRC.Texas.gov website, surface owners may have purchased mineral rights to reduce the risks of transferring or ending a contract.

Provisions, for example, may describe how landowners with mineral rights could contact a potential transferee and discuss their rights before consenting. If exploration or development activities changed the land, a lease transfer could result in property damage.

How may a landowner decide to approve or withhold consent?

The American Bar Association notes that property owners may view a transfer as a way to improve their financial position. With consent-to-assign provisions, landlords have the right to withhold consent to a transfer if it could lead to a loss. Parties may perform due diligence on the individual or entity taking over the lease before discussing an assignment.

OILMAN Magazine notes that landowners may review potential transferees’ solvency and business operations. Doing so may help assess their financial position. Gaining a clear understanding of planned objectives may offer insights into the reliability of transferees assuming lease obligations.

An oil and gas lease agreement may outline when drillers may transfer the contract to another party. Provisions may describe whether the landowner must provide an approval and the means to protect each party’s oil, gas and mineral rights.