$1.00 Per Year Clause

I own a small mineral interest in Roger Mills County, Oklahoma that is available for lease. I have received an offer but the company ( Apache) will not lease unless I leave the $1.00 per year clause in the contract which basically gives them a lifetime lease and I don't want to do that. Anyone know a way around that situation.

Don’t do it we r locked in one and its bad try and find different leasing company

If Apache is interested in it, there may be someone else come along that is, too. If they get serious about drilling, they can always ask for pooling.

I would not accept that condition.

Dear Mr. Sanderson,

There are some truths in what you are saying, but the key is the lease form itself. If what you are referring to is the shut in royalty provision, the $1.00 per acre per year is a standard provision allowing the operator to shut in a GAS well for lack of a market or other conditions.

Most companies will take a modification of the clause to limit the duration to a total of two years in the cumlative after the primary term.

There are implied covenants pertaining to an oil and gas lease as the implied duty to market. By them paying a dollar per acre per year, they must do that without sales. No company in their right mind will hold off sales if they did not have to.

There were instances in the 80's and last 2000's where the natural gas was not put on the market because the price was just too low. A higher price of course benefits the royalty owner as well. To a greater degree than the oil company since they have no sunk funds in the well.

To answer your question, is there a way around the problem? Yes. A better, more comprehensive shut in royalty provision. This should not be a deal killer for anybody.

Best

Buddy Cotten

I have working interests in R.M. county. Been working their off and on for 35 years. What kind of offer did Apache make? They are pretty active in the county and are currently drilling two wells, just completed one couple of months ago. What is Apache's offer? I will beat their offer, I know I can beat their $1/year, say $10. If you desire and have her number you a reference in the county.

At any rate, I will say Apache is a very good operator!



John E. Broyles said:

I have working interests in R.M. county. Been working their off and on for 35 years. What kind of offer did Apache make? They are pretty active in the county and are currently drilling two wells, just completed one couple of months ago. What is Apache's offer? I will beat their offer, I know I can beat their $1/year, say $10. If you desire and have her number you a reference in the county.

At any rate, I will say Apache is a very good operator!

Yes, tell them to strike this clause. When they say no, go to 2 years. Ask them for a solution. They will work with you-anyone should.

$1.00 per acre shut in royalty clause will not grant a "lifetime lease." Shut-in royalty is a substitute royalty payment when there cannot be royalty due to production for the stated period - but in order to be a substitute royalty there must be a well capable of producing in paying quantities on the property. Open a valve or turn on a switch and it will produce. Without that well capable of producing, shut-in royalty is not a valid method of holding a lease. (Don't get me wrong, operators will try it. But it is not the proper interpretation.) Shut-ins are really for when there is no access to the gas pipeline (curtailments).

Conversely, in Oklahoma, a lease will not terminate for failure to pay the shut in royalty unless the lease specifically states that the failure will result in termination. All royalty (shut-in or regular royalty) is considered a covenant of the contract, not a condition. This means that you can sue them for money damages for failure to pay, but violation of the payment promise does not violate the habendum clause to terminate the lease. You are right back to whether there is a well capable of producing in paying quantities on the property.

I won't advise you on your contract, but just know you are misinterpreting Oklahoma law.

PLEASE NOTE - this discussion does not apply to other states. This is specific to Oklahoma.

Also consider that Oklahoma has force pooling in the event that you do not enter into a lease and the operator decides to drill.

Sometime I prefer to get force pooled. The companies only get one year, no shut in clause and you get the highest price/highest extra royalty paid per acre there in the section. You might have to get an affidavit from someone who has leased at the high price and go to the corporation comm. and testify what you want and request to use the affidavit as evidence of the higher price.

Thank you for your question. My reply is that your interpretation of the clause is most likely incorrect.

If you like, post the entire wording, so that an accurate reply may be given. Otherwise, I may end up sounding like a North Dakota Supreme Court law clerk. It would just be speculative on my part.

You may be referring to a shut-in royalty clause, but unless you post the clause in its entirety, the one which troubles you, any reply that I give you will just be conjecture and speculation.

Never stopped you before. Or do you mean this paticular case is not "clear as glass"?

Dave Quincy said:

Thank you for your question. My reply is that your interpretation of the clause is most likely incorrect.

If you like, post the entire wording, so that an accurate reply may be given. Otherwise, I may end up sounding like a North Dakota Supreme Court law clerk. It would just be speculative on my part.

You may be referring to a shut-in royalty clause, but unless you post the clause in its entirety, the one which troubles you, any reply that I give you will just be conjecture and speculation.

With your shining example, I have decided to mend my ways.

So, Larry what did you do?