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10 Cards in this Set
- Front
- Back
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Unless Lease |
- Terminates at the end of the first year unless drilling comences or delay rental is paid - Options: (1) drill (2) pay to delay (3) let lease terminate - Traditionally the most popular lease, today paid up is more favored |
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Paid Up Lease |
- Lessee pays the costs of the entire primary term upfront - The duration of the primary term is stated in K - Often contains option of renewal by payment of second upfront fee/bonus before the end of the primary term |
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Or Lease |
- Lessee must either drill or pay delay rental during each year of the primary term, before the anniversary date - Paymentof delay rental is a contractual obligation that can be enforced if there is no drilling during the primary term - No option for lapse of lease |
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Purpose of the lease: two goals |
(1) Lessee wants the right to develop without having an obligation to develop (2) If production is obtained, lessee wants the lease to last as long as it is profitable |
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Nature of a lease |
- In TX, lease is more like a deed to a fee simple determinable estate - In some states, more like an easement or license |
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What should lessor negotiate for? |
- Bonus - Royalty - Delay rental - Duration of Primary Term - Rights and obligations of the O&G Co. |
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Bonus |
- Based on acreage - Paid upfront - Amount depends on several factors, including bonuses paid in the area and expectation of successful drilling |
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Royalty |
- % of gross production - In TX, owner must pay share of production costs - 1/5 is standard but not a set amount |
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Delay rental |
- Can be a high amount, but is not the most significant bargaining chip - Lessee can avoid payment by drilling or letting lease lapse in some circumstances |
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Duration |
- Shorter is better for the lessor, pushes lessee to drill/pay/move on - 2-3 years typical |
