Energy

Steptoe & Johnson PLLC: Producer Requirements Change for Expired Oil and Gas Leases

By Gary Slagel and Holly Christie

The “Recording of Surrender Documents from Oil and Natural Gas Lease Act,” will take effect as Act 152, December 21, 2014.  Spurred by increasing concerns around title cloud issues caused by unreleased leases, the Act requires oil and gas producers to deliver surrender documents to landowners upon the expiration of oil and gas leases.  If the producer fails to deliver timely notice, the landowner is empowered by the statute to serve a “Notice of Termination” on the lessee.  Failure of the lessee to respond with a challenge within 30 days of receipt of this notice permits the lessor to record an “Affidavit of Termination, Expiration or Cancellation” with the County Recorder’s office.

While the framework of Act 152 is similar to existing provisions in other states, there are several salient differences.  The amount of time allotted a producer to respond to notice is dramatically cut.  Additionally, Act 152 does not require an explanation of the cause of forfeiture, or a back reference to the lease of record.  This information is particularly relevant when notice is given as a pre-emptive challenge to a lease that a producer would wish to defend.  More importantly, Act 152 lacks crucial detail as to the effect of a recorded Affidavit of Termination  which leaves operators and landowners alike in doubt as to its ultimate bearing on record title.

How It Affects You:

  • Duty to Release Leases:  Producers are now responsible for closely monitoring expiration of the terms of their leases and drafting, notifying and delivering surrender documents to lessors on any lease that does not continue to be held by production.  
  • Notice of Termination:  If producers fail to identify a lease held by production and properly challenge a Notice of Termination, they risk the lessor filing an Affidavit of Termination against the lease.

Unanswered Questions: Producers need to prepare statutorily compliant release, response and supporting documents, as well as a carefully crafted protocol to assure a minimization of lost leases and associated liability as this bill takes effect.  Qualified legal assistance may be necessary to draft these documents and address novel situations as they arise in the relationship between lessor, lessee and assigned parties.

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