Assignment Of Overriding Royalty Interest

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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.

It is illustrative to examine how Texas has treated the rule that an ORI carved out of a lease with pooling authority, is subject to the lessee’s authority to pool without further consent of the ORI owner.

This rule was discussed and recognized within power to pool the leased interest.

I’d love to hear your thoughts in the comments below! However, many states look to Texas law for guidance in oil and gas issues, simply due to the vast number of reported oil and gas cases in Texas over the last 100 years. In Texas, the general rule is that a lessee has no power to pool any type of royalty interest without consent of the owner.

Therefore, in order to pool an overriding royalty interest, a working interest owner will need to either (1) obtain consent of the overriding royalty interest owner, or (2) fit into an exception to this general rule.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.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.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 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.Samson, in that case, had proposed a second exception which would empower courts to declare that pooling authority could exist when (a) the relevant transaction is between oil companies or persons active in the industry, and (b) surrounding circumstances reflect an underlying intent of the parties to allow pooling.However, the court rejected this argument, and declined to recognize a new “Industry Custom and Surrounding Circumstances” exception to the general rule.

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