Hello. I am attempting to assist my aging mother who has a stake in mineral rights in Caddo county section 28, township 9N, range 9W. The lease contract states: the primary lease is for a duration of 3 year from(date) and as long thereafter as oil or gas or other substances covered are herby produced in paying quantities from the leased premises or land pooled therewith, subject to other terms of the lease… This supposedly has gone through an O and G attorney. This kinda sounds like a forever lease? The party wanting to lease is Red Ball Express.
That is a fairly standard lease term. Yes, these can last forever. If there is leverage (large amounts of acreage) you may be able to negotiate terms that define paying quantities as a certain dollar amount of royalties per year.
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A lease will always last for the duration of production. Imagine a Company spending millions of dollars to drill a well and not be able to produce it all. Ain’t gonna happen. This is known as “Held by Production” or HBP.
If three years go by, and they haven’t established production then the lease expires.
Depending on the size of your lease, you might be able to negotiate a “Pugh Clause” which only enables the Company to HBP the portion of the lease that is actually producing.
Josh, if you’re hoping to limit the term to a number of years after the primary term (which is three years), the company will never agree to it. The reason the o&g attorney didn’t flag it is because no company would take a lease that limited the term.
Thanks for the info, and helping a newbie.
I am sure the lease went through the company’s attorney, however, if you want to protect your mom, it would be wise to get your own oil & gas attorney to look at the lease. Most draft leases are not in the favor of the mineral owner and need some significant edits. The biggest issue that will cost her a lot of money is if the lease allows post production costs. There are several other clauses that need to be either added or deleted. A few hundred dollars invested at the beginning can save thousands down the line.