This request comes up often in Division Order work. Usually, the royalty reserved in the lease has been split apart, sold and resold several times since the lease was taken, and the copy of the unrecorded lease has been lost from transaction to transaction. Now, a new owner of royalty under the lease is asking for a copy of the unrecorded lease.
When a lease in its entirety is recorded in the courthouse, it should be no problem to provide the new owner with a copy of it from Company files. It is a public document, and while the new owner is also able to obtain a copy from the courthouse (at his expense), the Company providing a copy to him is a goodwill gesture. You never know when the Company landman may need something from this owner in the future, and if the new owner remembers only that the Company refused this simply request, the landman might not get what he’s asking from this new owner, or the price for it might go up. Bad.
But if the document filed of record is only a Memorandum of Oil and Gas Lease, what then? The new owner probably already has a copy of the Memorandum, but knows he needs a copy of the unrecorded lease referenced in the Memorandum. The previous owner didn’t have a copy of the unrecorded, full lease agreement to give the new owner. Should the Company provide a copy of the unrecorded lease to the new owner?
Some companies have a policy of “no.” Others have a policy of “yes,” provided the identity of the owner is verified as being the new owner (at a minimum). The remaining few companies in the industry don’t have a policy, and leave it up to the Analyst. Let’s take a quick look at each of these policies and their impact on the Division Order Analyst.
The companies with the “no” policy face two very real consequences. First, this new owner likely will slam the door in the Company’s face should it ever need to ask the new owner for anything legally required in the future (like a pipeline easement or a lease amendment in order to proceed with operations the Company wants to undertake. Second, depending on the size of the interest or how deep the pockets of the new owner are, the new owner could pursue a court order compelling the Company to provide the copy to the new owner. Such a court order would cost the Company thousands of dollars just to answer the petition. And, it’s likely the Company could lose in the end.
The companies with the “yes” policy usually have restrictions and requirements qualifying that “yes.” The Analyst is only the messenger, and doesn’t deserve to get thrown under the bus after complying with the “yes” policy if anything goes wrong. Wrong how, you ask?
First, the policy usually requires the requester to prove they are entitled to a copy of the unrecorded lease. Next, many of the companies with a “yes” policy typically require a signed statement of indemnification releasing the Company of any liability if the only copy the Company has, and provides, turns out to be altered or otherwise defective. If the new owner obtains a copy of the full lease from another source later, and the two copies don’t match, a lawsuit could result. If the new owner relies on the copy provided by the Company, to his detriment, there could be high-dollar damages.
So, for the Analyst working for a company that doesn’t have a policy and leaves it to the Analyst’s judgment, caveat emptor. There could be a bus coming around the corner.
