How far ahead of a Contract Renewal should we approach an oil company to renegotiate the contract?
Contracts renew in September this year with Continental Resources. Mineral interests in Converse County, Wyoming.
Let’s discuss what you mean by Contract Renewal. As Tennis Daze has pointed out in a separate post, if you have an oil and gas lease providing for a primary term, then if that company or a company to whom they assigned the lease drills and it produces oil & gas, then the lease is extended as long as there is oil & gas produced.
So, if there is production, then the contract (assuming it is an oil and gas lease) is extended. If there is no production, typically the lessee will reach out to extend the lease, or they have the automatic right to extend it without any further negotiation.
I think we need more facts to give a more thorough answer.
It’s an oil and gas lease providing for a primary term. We are currently receiving payment for producing wells.
If there are producing wells on the leased acreage, then there is nothing to negotiate. The initial lease is held (renewed) by the production.
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Perhaps the confusion is not understanding a Habendum Clause:
- Habendum Clause: Sets the duration of the lease, usually defining it as a primary term (e.g., 3 years) followed by a secondary term that lasts as long as there is production in paying quantities.
If the well in question on your lease commenced drilling, and especially producing within what is typically a 3-year primary term, then that lease is now set in stone for the history of that well.
It’s not renegotiated every three years.