8. Royalty Litigation Settlements

Royalty Litigation Settlements

With the increase in litigation between royalty owners and producers, we have seen an increase in concern by Buyers of E&P assets that the obligations imposed on Sellers by virtue of these settlement agreements will "run with the assets." Any such settlement agreements should be reviewed by Buyer's counsel early on in negotiations in order to determine if the obligations therein would, in fact, impose obligations on the Buyer (as a successor in interest to the assets). As these agreements may describe particular payment methodologies with regard to the distribution of production proceeds to royalty interest holders, Buyers will need ample time to evaluate these requirements in order to determine their impact on the economic feasibility of the transaction, given the Seller's valuation of the assets. Additionally, the parties should consider setting forth in the PSA the allocation of risks and obligations between the Buyer and Seller relating to these settlements.

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