Oil and Gas Lease ,Controlling Addendum's Versus,Regular Lease Clauses and related issues.

Some friends and I have been discussing lease controlling factors and would like to start a post for questions and answers from  other issues that have been experienced by our fellow readers related to the initial lease and additional problems as time goes by into a producing unit .

One issue is the Order of Payment versus the attached Addendum list added to many lease's. Many have seen the Order of Payment page which comes with some leases which gives the related company a lot of extra time to hold a landowner and then still release them without any liability .

In this situation some of the  normal lease's have various terms and provisions,and they also include an Order of Payment page . In addition as a benefit to the lessor sometimes these same lease's have an attached Exhibit with several addendum's added as extra protection for the landowner .

The addendum page usually states something like this : If there are any conflicts or inconsistency with this list of Addendum's and the normal lease terms ,the associated addendum's will control.

In most case this means the addendum will be considered to rule the situation over the normal lease terms

One question which came up ,was which item controls the following situation .

When a particular lease has an extra attached Exhibit with various addendum's in it, and in addition this same lease has an Order of Payment page which is normally included with it ,which one will control the required per acre bonus payment allowed time frame

For instance one Addendum states the lessee must pay the entire bonus consideration for all acres approved within 120 days after receipt of the executed lease .

But the order of payment page states ,if the  lease has not been surrendered within 120 days or paid for ,the lessor is required to send a letter to the company asking them to either pay for the acres in the lease or to release the property back to the lessor ,But when they get this letter it also gives the company an additional 30 business days to respond and they could still drop the lease and not pay a dime to the lessor .This way the company has a lot longer time period to hold the landowner and they can still release the landowner without any liability to them and the landowner could have missed out on other offers at better money or terms as the case may be .

One additional point to add to this situation ,is that  oil and gas lease is legally defined as a conveyance and a contract .

In this case even though the Order of Payment page is signed in addition to the normal lease ,it appears that the following clause listed in the lease itself makes this order of payment an actual part of the lease itself and should not be able to be used a separate requirement in my humble opinion .

This same original lease has various listed provisions and terms, and one particular clause  states the following definition under the heading Entire Contract .

ENTIRE CONTRACT clause goes on to say:*  The entire agreement is embodied herein and in the associated  Order of payment (if any)

I would take this to mean that if an order of payment page was included with the standard company lease the combined two parts equals the whole Contract /Lease  .Otherwise if no order of payment was included, the lease itself will be the only part to become the Entire Contract .

As I see this issue this if there is a combined lease /order of payment which has become the entire contract ,then this is a definite inconsistency , and it is a conflict to the particular Addendum which only requires a total of 120 calendar days for the Lessee to pay the Bonus consideration versus  the Order of Payment ,which requires the lessor/landowner to send the company a letter if they have not had their property paid for or released back to them in the first 120 calendar days. And after the company receives this letter this gives them an additional 30 more business days to either pay the Bonus consideration or they could still release the property back to the landowner without any liability .

With that being said this is without question a inconsistency and it does conflict with the addendum terms so I think the addendum should control this situation and only allow the original 120 day time period to either be paid or released back to the landowner without any additional requirement for the landowner .

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One reason this question was brought up is because most of the lease's are so one sided and the one good thing about an extra attached Exhibit Addendum list ,is that it gives a balance to the lease a little more for the lessor /landowner ,otherwise the lessee can string the lessor/landowner along for a long time and release them with no cost to them in many cases . But the landowner cannot just say they want to cancel their end of the lease until the lessee decides if they want to pay you or not .This extra time would still delay a landowner from committing to another leasing offer with no chance of any compensation still.

Has anyone else had any experience with this issue , and oes anyone know legally if this is  right to feel that the extra attached addendum in this case should control the time frame allowed to pay for the lease and make the time frame to be held at 120 calendar days ,in this type situation without the landowner being required to ask to be paid for something that was agreed on initially .

Also has anyone else found other situations where there is a way the lessee can still control a problem in their  favor over and above an addendum list by the way the terminology is written in the normal lease so the addendum is not considered to be the controlling provision.

Please post any related situations to help each other to understand our rights and ways to protect their families into the future to  understand our rights  as development and expansion begin .

As always it is best to get a qualified Oil and Gas attorney to review all situations but a starting post may help to get the ball rolling and give us as landowners the encouragement needed to do what is right .

This is a very helpful site and the educated landowners are very helpful to others who are in the learning curve since this is a new ball game for most of us .

This will be very helpful for those who have not been in a group lease deal as well who have not had the good fortune of the extra education the landowner groups have helped to provide .

Best wishes to everyone as time goes on.Mickgyver 

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Replies to This Discussion

Permalink Reply by Mickgyver on April 13, 2013 at 12:57pm

As you say a lot of issues do need attorneys since the wording can become tricky ,we talked about this one because it is interesting the way it is listed . Along with other issues such as storage, covenants ,water usage ,Force Majeure and others, there was this one labeled as (Entire Contract ) and it stated the entire agreement between lessor and lessee is embodied herein (and) in the order of payment ,. The way it reads it combines the written terminology embodied in the lease ,(and) the written terminology contained in the order of payment to become the entire  contract /lease,  SInce the addendum list is in addition to anything in the normal contract /lease provisons . this is why we thought the addendum would be the control , but we are going to ask an attorney to be sure,as  friend of mine will be facing this issue shortly .

We are  hoping this, and other issues will be addressed by either the professionals that monitor this site or by others that have experienced various problems .to pass on to each other..

Permalink Reply by Mickgyver on April 13, 2013 at 5:16pm

yes it is an interesting point ,that is why I posted it to get some input . There are several situations where the addendum's are in close proximity of the other clauses ,

That is the reason I added this discussion .There were thousands of leases done early on that would be affected by the various inconsistent variations .As I said originally it is best to get a qualified attorney but this particular situation is a little different since the entire contract becomes a combination of both documents contents ,and that is why I was interested to see if anyone actually had to prove if the addendum had control to limit the time to only 120 days versus at least 160 taking into account that weekends don't count as business days and there is the mail time back and forth.

In addition most of the group situations have already been signed and the individuals that held out will be dealing one on one with a landman and hopefully an attorney to over see their best interests .

Permalink Reply by Mickgyver on April 13, 2013 at 5:58pm

Hello again Jay ,I tried to edit my last post but something went wrong.

anyway what we thought would be considered as inconsistent ,is the fact that the normal addendum allows a 120 day period to pay or to release the lease which is all up to the lessee as they made the original lease offer and it was up to them to honor it or release the memorandum they had already filed .In many situation this point was the first chance the lessor could get out of the lease to possibly take advantage of another option .

The inconsistent part with the order of payment was thought to be the fact that after the120 days have already past , the landowner has to take it upon themselves to look up the lease numbers and inforrmation to identify the numbers filed in the court ,create a letter and ask the lessee to pay for the bonus they should have already paid .,upon which time after the letter was received the lessee still has another 30 days to either pay or still release the property .

Do you think the two situations are inconsistent with the allowed time frame that a landowner could move on to another company if this was his goal . This is based on the fact that in 120 days a lot of production results could have come out and the area may have attracted other companies . Just a scenario to add to the situation but I am aware of a few  people who were in this position and had to hold out for the extra time because there were no addendum list added to their lease's.

In addition one lessor I know of went through the extra order of payment time and they was told they did not own all of the acres offered in the lease ,they proved they did own all the acres they had offered originally  the company admitted that they made a mistake on their parcel numbers, but they told them they still were not going to pay for the remaining acres they originally offered to lease .

Permalink Reply by Kevin Senich on April 14, 2013 at 10:49am

I would be pleased to read the lease if you would attach it, (or the specific language you feel is conflicted.)  Fang has a good understanding of how these addenda and exhibits work with and against each other, and I agree with his reply.  A court in construing the lease will try to harmonize the provisions.  The additional 30 days might be construed as a right the lessee possesses to cure (under the Order of Payment) the default (as defined in an addendum).

Permalink Reply by Kevin Senich on April 15, 2013 at 1:37am

As I thought about this, I felt obliged to let you know that if the notice provision of the OOP is mandatory (it likely is), you will have to give notice in order to enforce your rights under a 120 day default.  Although the lessee may be technically in default after the 120 days, you cannot demand payment or release unless and until the lessee has had the opportunity to exercise its right to cure.  The OOP puts the burden on you to start that period to cure by giving notice.  If there is no notice, a lessee could argue that the period to cure never started.

As such, I would be very concerned about relying exclusively on the 120 day default provision of the addendum.  If the OOP notice is a condition precedent to your right to release or payment and you do not provide it, the lessee may have no duty to release or pay.  In addition, if this is one of those unscrupulous lessees which has recorded the lease or a memorandum of lease before paying, absent the OOP notice perfecting your right to release, your mineral rights will appear to the world as leased.  It is conceivable in that scenario that an E & P company, needing your land for development, would have to pay the lessee even though the lessee had never paid you a dime.    

 

Permalink Reply by Mickgyver on April 15, 2013 at 8:32am

Hello Yes you may be right ,That would be a bad situation I am awaiting a legal reply to try to find out for sure .

the O.O.P. appeared to be mandatory as I read it ,

I will say  a fried had all of their acres leased, and part of it was not paid for ,no problem with acres that adjoined the same property but company decided just not to pay for them .

He went to sign with another company only to find  his property showed up as still leased as you mentioned with the memorandum.

the issues I first mentioned fall into play as I stated that is why we were discussing it before I posted for a reply

I can't mention names ,but as i read the information I thought the addendum would control because it was in addition to the regular boilerplate lease and order of payment which have been used together previously .

I understand an affidavit of non payment will cure the situation quicker to allow for the leasing of the property that was not paid .

It was just interesting  when it was brought up and I thought there would be some answers on here.

This is an excellent site as there are many on here who have already dealt with many issues ,

I hope other issues can be presented here for various answers to help as we move forward .

all the input has been interesting

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