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Monday, December 9, 2013

oil and gas lease news

In a case of first impression, the Pennsylvania Superior Court held that a lease amendment that requires the lessor to assign 50 percent of its royalty under an oil and gas lease violates Pennsylvania’s Guaranteed Minimum Royalty Act (GMRA). See Southwestern Energy Production Company, et al. v. Forest Resources, LLC, et al., 2013 PA Super 307 (Nov. 27, 2013).
The initial oil and gas lease at issue guaranteed the lessor a one-eighth royalty of all oil “produced and saved from said land” and a one-eighth royalty of the “market value at the well” of all gas sold or used off the premises. The lease was amended and modified by two separate letter agreements and one extension of lease. The last letter agreement noted that the initial lease, as modified, provided “for the industry standard twelve and one-half (12.5%) percent royalty.” However, the letter agreement modified the royalty provision, stating that the lessor would retain 50 percent of such royalty, and assign the remaining 50 percent of the royalty interest to the lessee. The letter agreement explicitly referred to the lessor’s royalty as “a 6.25% royalty interest.”