Federal Royalties: Who Must Pay?

Part I is an overview of the common law of landlord/tenant as it has been adapted to the unique arena of oil and gas leases4 and, in particular, to the issue of direct liability to the lessor for the royalty payment. Part II is an attempt to analyze federal royalty liability in common law terms. In this regard, the paper primarily addresses leases issued under the Minerals Lands Leasing Act of 1920, as amended (MLLA).5 Part III is devoted to a discussion of the impact of FOGRMA and, in particular, the advent of “payor” liability.

PART I: COMMON LAW PRINCIPLES OF LIABILITY FOR ROYALTY PAYMENT

Discussion of common law principles is important for two reasons. First, although we are talking about federal leases, federal courts borrow heavily from traditional common law principles in developing the federal common law necessary to interpret federal statutes and fill the inevitable gaps.6 Second, there can be no doubt that Congress borrowed heavily from the private leasing system when enacting the MLLA and [2A-3] instituting a new leasing system for federal lands.7 We can therefore expect the federal courts to continue to draw upon the common law if and when they are called upon to address the questions we address here.

A. Effect of a Complete Assignment.

1. Continuing Liability of the Assignor.

A lease is at once a contract and a grant o