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Acquiring Operating Rights From a Lessee

Leo N. Smith, Mining Agreements (1979)

The initial lease agreement or exploration and option agreement between a landowner and a mineral developer may, prior to its fruition, become the subject of any number of assignments, reassignments, subleases, farm-out agreements and other arrangements by which the original lessee or optionee and its successors in interest attempt to obtain and retain differing types of interests in the property or in production from the property described in the initial agreement. This paper will consider distinctions between types of transfers and cite examples which, it is hoped, may be useful in reviewing and drafting the document by which a lessee or optionee transfers operating and other rights to a third party, who in turn assumes some or all of the obligations imposed upon the lessee or optionee by the terms of the original agreement. For purposes of simplicity, the examples are in the context of a lease agreement, operating rights under which are to be transferred by the initial lessee to a third party transferee. In instances where multiple transactions devolve from an initial lease, a separate analysis is necessary for each transaction commencing with the initial lease and proceeding in order to the present transaction, not unlike the order in which a chain of title is examined.

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