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Bad Moon Rising--The Continuing Liability of an Assignee After Assignment

David Patton, Proceedings of 53rd Annual Rocky Mountain Mineral Law Institute (2007)

Some would suggest that a year ago another bad moon went on the rise in the Supreme Court of Texas, when it addressed the continuing liability of a lessee after assignment of its interest in an oil and gas lease and a related operating agreement in Seagull Energy E&P, Inc. v. Eland Energy, Inc.2 Of course, whether it is a bad or good moon depends upon one's vantage point. Many in the oil and gas industry will find themselves on both sides of the argument.
A broad, expansive application of the Seagull decision could have far-reaching consequences to the oil and gas industry--some justified and some unwanted. The analysis below suggests, how- [31-3] ever, that many parties to leases and related agreements desire a more constrained result than the extension of a most liberal reading of the case. Although more artful drafting of future instruments may minimize the impact of the case, negative consequences may also be avoided by a reasoned approach by other courts in interpreting existing agreements under Seagull.
[2] Custom and Practice of Lease Assignments
Record setting high prices for oil and gas have spawned a frenzy of recent activity in the oil patch. At the heart of every commercial transaction involving oil and gas properties is the oil, gas, and mineral lease. Whether a deal involves the sale of a single lease for a few hundred dollars or the sale of a package