Additional protective clauses


#1

I normally include a Pugh Clause, No Deductions Clause, Shut-In Clause, and a Depth Clause in an Exhibit to all my leases. Am I missing anything else?

As for the Depth Clause, I use:
Depth Clause: This Oil and Gas Lease shall terminate at the end of the primary term or upon the terms of any extension to same which may be caused by the provisions contained herein, as to all depths below the stratigraphic equivalent of 100’ below the deepest depth penetrated by the deepest well commenced during the primary terms of this lease or any extension thereof on lands covered hereby or land pooled or spaced therewith.

Is this adequate?

Thanks, Travis


#2

For the depth clause, you want deepest depth “producing”, not “penetrated”. Penetrated can possibly hold hundreds to thousands of feet deeper than you want and add other reservoirs (that they may not be producing).
Make sure your no deductions clause does not include “enhanced” language.
You need a commencement of drilling clause.


#3

Thanks! Do you have a commencement of drilling clause example?


#4

COMMENCEMENT OF WELL: Commencement of any well according to the term of this lease shall require that a drilling rig capable of drilling such well to the projected total depth for such well be on location and drilling on or before the expiration of the primary term or any other applicable time period hereunder and that the drilling of and other operations on such well be continued with due diligence in a reasonable, prudent manner until completion of such well in one or more formations. Construction of a well location or road or any other physical activity on the Leased Premises, or on any lands pooled, communitized or unitized therewith, without actual drilling operations being conducted with a drilling rig capable of drilling such well to the projected total depth of such well shall not be deemed commencement of a well under this lease.

This is the one I frequently use. Note: I am not giving legal advice.


#5

Thanks so much for the info!


#6

What language does your no deductions clause use? Is the royalty sometimes higher on enhancements as long as the Lessor is receiving the same amount for the product as the Lessee?


#7

My clause says no deductions with some fancy legal language. The problem with the “enhanced” deductions clause is that even if they start out possibly paying a wee bit more/mcf in the beginning, they tend to increase over time and in some cases can completely erase any royalties over time.