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Examples of Additional Clauses for Oil and Gas Lease

This page provides some clauses that may be helpful in identifying additional points or topics to address in negotiating a mineral lease or an understanding about surface use/compensation.  These examples were drawn from several references/sources so a few issues are illustrated by more than one example.

As suggested on another page, it may work for a mineral owner to include appropriate statements as an addendum to a mineral lease, or for a surface owner to include in discussing compensation. 

Also as stated on another page, every one of these topics is NOT relevant to all situations.  Mineral and surface owners should use these materials only to identify issues that may be critical to their situation and then address only those critical issues.

These statements/clauses should be modified as necessary with guidance from a knowledgeable attorney.  They are not intended to be used verbatim; they are intended only to raise awareness for mineral and surface owners.

Mineral owner considerations

• This lease is expressly made subject to all prior conveyances, requirements, conditions and covenants of record and is without warranty of title.

• Lessor reserves all rights to grant, lease, mine and produce any minerals from said lands except interests in gas and oil and their constituent products herein leased to Lessee.

• The rights of Lessor and Lessee hereunder may be assigned in whole or in part. Lessee shall provide Lessor with certified copies of all assignments, mortgages and other encumbrances against the leasehold within thirty (30) days from the making thereof, together with mailing addresses for all assignees. In the event that this lease is assigned in fractional parts to more than one assignee, all assignees shall be jointly and severally liable for the proper payment of royalties and interest set forth herein.

• No assignment of the Lessee’s interest will be binding on the Lessor or relieve the assignor of any liability to lessor for breach of any express or implied obligations until lessor is furnished with a certified copy of the assignment.

• This lease shall not be assigned except in its entirety. Lessee agrees to notify Lessor by written notice of any lease assignment within thirty (30) days following such assignment.

• Throughout the lease and this exhibit, Lessee shall also refer to and include any subsidiary or affiliate of Lessee.

• In the event Lessee pays a bonus amount greater than the amount paid to Lessor, for an oil and gas lease in the same section of land as any part of the leased premises are located within twelve (12) months from the date hereof, Lessee agrees to pay to Lessor the difference between the bonus amount already paid per acre, and the amount per acre of the greater bonus paid.

• If during the time of ____ year(s) from the date of this Lease, Lessee enters into or acquires from a third party an oil and gas lease covering a minimum of ____ net mineral acres of the lands located within ____ miles of any portion of the leases premises herein described, which instrument provides for bonuses royalty greater value than the bonuses, rentals or royalties provided for in this Lease, then Lessee shall pay to Lessor such greater value and grant such favorable amounts or payments to Lessor as if same had been incorporated in this Lease at the time of its execution. Lessee shall promptly execute and deliver to Lessor an amendment to this Lease in recordable form to reflect the increase in royalty. Said amounts shall be payable under the more favorable terms as if such terms had been in force from the inception of the Lease.

• Commencement of a well according to the terms of this lease will require that a drilling rig capable of drilling to total depth be on location and drilling on or before expiration of the primary term, and that the drilling of said well be continued with due diligence until completion. Construction of a well location without actual drilling as detailed above will not be deemed commencement of a well.

• In the event this lease is extended by commercial production beyond its primary term, then on such date this lease shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the deepest producing perforations in the well or wells located on the leased premises, or land unitized therewith. If Lessee is in the process of drilling or completing a well at the end of the primary term of this lease, this clause shall become effective upon conclusion of such operations.

• At the end of the primary term, the Lessee will release this lease as to all formations below the base of the deepest producing formation.

• Lessor and lessee expressly agree, notwithstanding anything to the contrary herein, that if this lease be in force and effect at the expiration of the primary term, this lease shall thereupon terminate as to all formations not penetrated by the drilling of a test well or wells on the leased premises or land pooled or consolidated therewith, subject to the completion of any well that is being drilled at the end of the extended primary term.

• Notwithstanding anything to the contrary in this lease, all portions of this lease not included in a drilling unit created by the state oil and gas conservation agency and not producing or upon which drilling operations have not commenced, shall be released at the expiration of the primary term of this lease. Should the unit as established by the conservation agency be changed after the expiration of the primary term, all portions of this lease not included in the newly prescribed drilling unit shall be released.

• Upon expiration of the primary term of this lease, and lands and formations or portions thereof on the leased premises not included in any unit and not producing oil or gas in paying quantities shall automatically revert to Lessor.

• Any wells drilled under this lease will extend the primary term of this lease only as to the lands included in the drilling and spacing units for the producing wells. If no spacing unit has been established, a spacing unit will be deemed to consist of 160 acres. This lease will terminate at the end of the primary term as to all lands outside the spacing units for the producing wells.

• If a well ceases to produce in paying quantities in the secondary term and there are no other wells in the same spacing unit, this lease will terminate as to the lands covered by the drilling and spacing unit for the well.

• Lessee hereby agrees to deliver or cause to be delivered to Lessor, without cost into pipelines, a royalty of [three-sixteenths (3/16)] part of the oil or gas produced from the leased premises and a [three-sixteenths (3/16)] part of all casinghead or drip gas or gasoline or other hydrocarbon substances produced from any well or wells on said premises, or in lieu thereof, pay to Lessor without cost into pipelines the gross proceeds (but not less than gross market value) thereof, as the Lessor may elect.

• Lessor will be paid royalties gross proceeds but not less than gross market value at an established market location on all substances produced and sold or used, including processed liquids and the value of any product, such as tank bottoms, exchanged for the expenses of exploration, production, maintenance or marketing.

• It is agreed by the Lessor and Lessee that where the words "one-eighth (1/8)" appear, it shall read "three-sixteenths (3/16ths)" in each case.  Lessee be payable on gross proceeds but not less than gross market value. Lessee shall not deduct from royalty payments any costs, including without limitation, gathering, compression, dehydration, treating, processing, and transportation, or such other costs to produce gas or oil, and their constituent products, or costs to place such gas or oil in a marketable condition, whether such costs are incurred on or off the leased premises.

• When determining gross proceeds or gross market value, lessee shall not deduct or pay royalties net of any cost of producing, gathering, storing, separating, treating, dehydrating, compressing, transporting, marketing, and otherwise making the oil, gas, and other products produced hereunder ready for sale or use.

• Lessor’s royalty interest will be free of cost into the tanks or into the initial purchaser’s pipeline. Neither Lessee nor its purchaser will deduct any of the following costs from the royalties payable under this lease: drilling, operating, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing. Lessee will reimburse Lessor for any of these costs that are deducted by the purchaser.

• If any gas is processed for the extraction of liquefiable hydrocarbons or other marketable substances by or for Lessee or if Lessee receives any consideration for allowing the gas to be processed, the gross proceeds but not less than gross market value of the extracted products and of the remaining residue gas shall be considered the gross value of the gas sold for the calculation of royalties due; provided however, for royalty calculations, gross value shall not be less than the value of the gas if such gas had not been processed.

• In selling any gas produced from the leased premises, or any lands with which the leased premises may be lawfully pooled or unitized, Lessee shall exercise good faith and use due diligence and prudence to market such gas at the best price and upon the most favorable terms that may be obtainable by Lessee at the time or times such gas is contracted for sale, but in no event less than the price obtained by the operator of the well, or the operator's subsidiary, or any of its affiliates, or less than gross market value.

• Lessor shall have the option to require that payment of any royalty or other revenues as stipulated in this lease be made in kind, which option shall be exercisable at the discretion of the Lessor from time to time by giving Lessee thirty (30) days written notice.

• Lessor may elect in writing to take royalty oil, royalty gas, or both in kind and negotiate his own marketing contracts. Lessee will deliver all royalty gas to Lessor free of cost at the inlet of the initial purchaser’s pipeline.

• Lessor shall be entitled to receive the stated royalty percentage of all moneys received by Lessee which are in any way related to the interest herein leased, including without limitation take-or-pay settlements, contract negotiation bonuses. contract buy downs, and contract buy outs. This royalty shall be due within thirty (30) days after the earlier of Lessee's receipt or credit thereof.

• Lessor’s royalty will include [3/16th] of any consideration received by the Lessee under gas purchase contracts. Lessee upon request will furnish the Lessor with copies of any gas purchase contracts covering the leased premises.

• Lessee agrees that before any gas produced from the land hereby leased, containing liquid hydrocarbons, recoverable in commercial quantities by separator on the lease, is sold, used, or processed in a plant, it will be run through an adequate oil and gas separator of conventional type or other equipment at least as efficient.

• If the Lessor receives less than [$1200.00] in royalties in a calendar year from all wells drilled under the terms of this lease, the Lessor may require the Lessee to release the lease as to all non-producing formations unless Lessee commences operations to enhance production, to recomplete the well or to drill another well within 90 days after it receives written demand from Lessor. Upon completion of these operations with due diligence, Lessee will release the lease as to all non-producing formations unless the operations increase Lessor’s share of royalties to more than [$100.00] per month.

• Lessee agrees that at no time during the life of this lease shall the royalty paid to Lessor for a yearly period commencing with first production from the well, including the value of gas used, computed at the price being paid to Lessor for such gas, be less than $5.00 per acre. Such deficiency, if any, shall be paid to Lessor by Lessee within thirty (30) days after notice and written demand thereof is made by Lessor.

• As part of the consideration for granting this lease, Lessor reserves a lien on the interest conveyed as security payment of royalties due hereunder. Lessee stipulates and agrees that this lien shall continue in effect during the term of the lease and may be enforced and foreclosed by Lessor upon failure by Lessee to pay royalties within ninety (90) days after written notice from Lessor to Lessee that any royalty payments due under the lease have not been paid.

• Lessee shall give Lessor written notice within sixty (60) days after cessation of production.

• Lessee, subject to the other terms of this paragraph, shall file of record in the courthouse a release of the lease covering such nonproducing zones or formations within sixty (60) days following written demand therefore.

• Upon termination, expiration or surrender of this lease in whole or in part, Lessee shall within thirty (30) days file an appropriate release of lease in the County Records and provide Lessor with a certified copy of same.

• Within 90 days after this lease terminates in whole or in part, Lessee will file a release of the lease with the County Clerk and send a certified copy of the release to Lessor.

• If production in paying quantities of oil or gas on the leased premises, after once obtained, shall cease for any cause within sixty (60) days before the expiration of the primary term of this lease or at any time or times thereafter, this lease shall not terminate if the Lessee commences additional drilling or reworking operations within sixty (60) days after such cessation, and this lease shall remain in full force and effect so long as such operations continue in good faith and in a workmanlike manner without interruptions totaling more than sixty (60) days during any one such operation; and if such drilling or reworking operations result in the production of oil or gas in paying quantities, this lease shall remain in full force and effect so long as oil or gas is produced in paying quantities or payment of shut-in gas well royalties are made as hereinbefore provided in the lease.

• Notwithstanding anything to the contrary herein, it is understood and agreed that this lease may not be maintained in force for any one continuous period of time longer than one (1) year after the expiration of the primary term hereof solely by the provisions of the shut-in royalty or habendum clause.

• The Lessee may extend the primary term of this lease by paying shut-in royalties only if no pipeline runs within a reasonable distance of the leased premises and a prudent operator would elect not to build its own gathering line. The payment of shut-in royalties will extend the lease only for 24 months. This lease will terminate unless the Lessee begins selling oil and gas in paying quantities before the expiration of the 24-month period.

• Lessee shall have one (1) year, herein called "shut-in period," from the date of completion of a gas well in which to make pipeline connections for the production or marketing of gas. The shut-in period may be extended for a period not to exceed two (2) additional years, at the option of Lessee. During the shut-in period, Lessee shall pay to Lessor shut-in royalty at the rate of $5.00 per acre per year, which royalty shall be due and payable on the anniversary date of this lease. During the shut-in period, gas shall be deemed as being produced from the leased premises in paying quantities so long as Lessee is paying shut-in royalty as herein provided.

• Lessor shall have the right, at Lessor's sole risk and expense, to monitor the drilling or reworking of any well and the production of oil and gas from the leased premises, including without limitation the right to gauge tanks, to inspect gas meters, and to witness meter tests. Lessor shall have the right to install a separate meter with which to monitor gas production and sales. Other than to enforce the obligations of this lease, Lessor agrees not to disclose well production and test information to any person other than Lessor's counsel, petroleum engineer, accountant, and support staff without the prior written consent of Lessee.

• Lessee agrees to furnish Lessor promptly, on request, a true copy of all of the following information pertaining to the leased premises or land unitized therewith, to wit: all purchase contracts and supplemental agreements or amendments thereto which govern the sale of hydrocarbons produced under the terms of this lease; full, complete and correct records showing volumes produced and values received on gross production; gas balancing agreements and statements; gas purchaser statements; daily drilling and operations reports; core analysis, drill stem tests, well completion, pressure survey, and production analysis reports; all well logs of whatever kind; and copies of any filings made to the state conservation agency or other agencies.

• Lessee upon written request will furnish Lessor with all documents necessary for Lessor to verify whether his royalties have been properly paid. These documents will include, but not be limited to, any title opinions, title curative, gas balancing statements, and monthly volume-allocation statements from first purchasers. Lessee will furnish these documents to Lessor within 30 days after it receives written request.

• Lessee will operate and develop the leased premises as a prudent operator and protect the Lessor from drainage by wells on nearby lands.

• Lessee owes a fiduciary duty to Lessor in accounting for, producing, and selling oil and gas from the leased premises. Lessee will exercise its utmost good faith and fair dealing to obtain the highest market price legally obtainable for oil and gas produced and sold or used from the leased premises.

• Lessee agrees to exercise due diligence to prevent the underground or above ground waste of oil or gas and to avoid the physical waste of gas produced from the leased premises.

• Lessee agrees to indemnify Lessor against all claims, suits, costs, losses, and expenses that may in any manner result from or arise out of the operations conducted pursuant to this instrument.

• Lessee shall indemnify and hold Lessor harmless from any claims, damages, actions, or causes of action from any environmental damage or contamination caused or contributed to by Lessee subsequent to the commencement of this lease.

• Lessee agrees that it will comply with all regulations and statutes of all governmental entities having jurisdiction over compliance with environmental legislation.  Lessee further agrees to accept the leased premises in its "as is" condition. Lessee acknowledges that it has been advised to inspect the property to determine that it is suitable for the purpose intended and to ascertain that no environmental hazards or toxins are now present.

• Lessee or its assigns shall be responsible for the full and proper payment of Lessors' royalty from the date of first production until final depletion. No statute of limitations or other affirmative defense shall be asserted by Lessee or its assigns to prevent the full and proper payment of Lessors' royalty due herein from the date of first production of any well drilled herein until final depletion of that well.

• Unless stated otherwise herein or if state statutes provide for a shorter period to make proper payments, all payments due to Lessor for royalties herein shall be delivered to Lessor within ninety (90) days after the last day of the month for which said royalties were due. In the event that said payments are not received within that 90-day time period, 18% compounded annual interest, calculated from the last day of the month for which said royalties were due, shall be paid to Lessor by Lessee. At Lessor’s option, all payments received shall be applied first to any outstanding interest due on prior late paid royalties, then to any prior outstanding unpaid royalties, and then to any current royalties due. No notations on the remittance statements or provisions in any division order shall amend this provision.

• The terms and conditions hereof shall be considered covenants running with the land covered by this lease and shall be binding upon and enure for the benefit of the respective successors and assigns of the parties hereto. If any of the material terms of this lease shall be violated, this lease shall be subject to judicial forfeiture. Provided, however, that forfeiture shall not be the exclusive remedy, but a suit for damages or specific performance, or both, may be instituted. The prevailing party in any action for breach of the provisions of this lease or breach of duties pursuant to this lease shall be entitled to recover reasonable attorney’s fees, expert witness fees, litigation expense, and court costs.

• Failure to pay for royalties under the terms of this lease or state law or failure to comply with any terms of this Exhibit will result in automatic termination of this lease after the Lessee fails to remedy the breach within 60 days after it receives written notice of the breach. Notice will be given lessee by certified mail.

• Lessor shall have the right to purchase from Lessee gas at the wellhead price from any gas well located on the leased premises, or on any land unitized or pooled therewith, for farming, irrigation, and other agricultural purposes. Such right to purchase gas shall also be subject to the following terms and conditions:

  (a)  Any gas so purchased by Lessor shall be taken at or near the mouth of the well at a point to be designated by Lessee. All equipment necessary for the taking of gas and the measuring of the same shall be furnished by Lessor at his own expense.

  (b)  The method of taking of gas and the point of connection for taking must be such as to not interfere with the operation of the well and must be submitted to Lessee, or his assigns, and accepted by him before gas is taken.

  (c)  Lessee shall bill Lessor monthly, quarterly, semi-annually, or annually, at Lessee's option, for gas so taken by Lessor.

  (d)  Lessee, or his assigns, shall not be liable to Lessor, Lessor's agents, or employees, or any other person with reference to the gas taken, the use thereof, the equipment used, the manner of its use, or anything incident thereto or resulting therefrom. Lessee, or his assigns, shall not be under any obligation to produce gas from any well unless practical or economical to do so.

  (e)  Lessee or his assigns shall at all times have dry land access to and from and around any equipment used by Lessor for taking gas and metering same.

Surface owner considerations

• Lessee shall bury pipelines and utility lines to a depth of not less than sixty (60) inches below the surface. Lessee shall pay Lessor for reasonable damages to all property, real, personal, or mixed, caused by its operations on said land as required by law and also including but specifically not limited to land, growing crops, grass, buildings, livestock, surface, fences, and other improvements and personal property. All slush pits shall be filled and leveled within sixty (60) days after well completion or abandonment unless a longer time therefor is granted by Lessor, at his option.

Lessee further agrees to pay Lessor a reasonable amount, but not less than $_______, for each drill site location on the leased premises. As further consideration hereunder, Lessee agrees to pay to Lessor a minimum of $________ per rod, plus crop damages, for any pipeline installed or constructed on the above land, whether or not connecting to the well on the leased premises.

All damages payable under this paragraph shall be due and payable on or before three (3) months after such damages occur.

• Both parties agree that their intention is to cause as little interference with farming operations on said land as possible, including without limitation, to the operation of pivotal irrigation sprinkler systems or any other irrigation method. Any production equipment, including without limitation pump jacks, hydraulic lifting equipment, or any other equipment necessary to produce any oil or gas well on the above described land shall be recessed to such depth as to permit the present or future use by Lessor of a circular irrigation sprinkler system.

If Lessee shall cause a well to be drilled on this lease during the growing season of whatever crop is planted and if Lessee's or his agent's equipment prohibit the use of any irrigation system on this land during that time the well is being drilled, then Lessee agrees to pay Lessor the net value of the crop produced on that strip of land that could not be watered. The field average shall be used as the maximum producing capability of the land, and the price per unit shall be the cash price at the local elevator in the town nearest to this land as of the first of the normal harvest month for that crop.

• Lessee shall be strictly liable for the replacement cost of any livestock injured or killed by Lessee and Lessee’s agents, invitees, servants, contractors or their subcontractors of any tier, or employees.

• The use of water provided for under this lease is limited to use for drilling operations on the leased premises only. Lessee must not use right fresh water from the above described premises for the purpose of water flooding or injection in any water flooding program in which the leased premises may, for any reason, be pooled or unitized.

• Lessee shall not use surface water from the premises or water from the wells drilled on the premises without the written consent of the Lessor. If written consent is given and a water well is drilled, said well, along with the casing pipe in said well, at Lessor’s option, becomes the property of Lessor upon completion of drilling and completion operations.

• Lessor reserves the right to designate all routes of ingress and egress. Prior to the construction of any roads, pipelines, tank battery installations, or installation of other equipment on the leased premises, Lessee shall consult and agree with the surface owner and tenant as to the location and direction of same. There shall be no oil road surfaces or hard surfacing of any access roads without the written consent of Lessor.

• Lessee shall have the right to lay transmission pipelines, including gathering or collection pipelines from other leases, only with the written consent of and appropriate compensation to Lessor. The parties shall agree in writing as to the location of any lines to be installed on the leased premises for wells drilled under the terms of this lease.

• Lessee shall have the right to use and improve existing roads for ingress and egress to and from the leased premises. Lessee may construct additional roads for ingress and egress only with the written consent of Lessor and only if the existing roads are not reasonably adequate. Lessee agrees not to grade more than one road from existing roads to each location on the leased premises and to confine travel incident to the drilling and production of such well to the single graded road. Lessee agrees to gravel and to maintain and repair all roads used by Lessee in its operations, and Lessor reserves the right to freely use such roads.

• No well on or drilled on the leased premises shall be used as a disposal well (including but not limited to annular injection) nor for injection of any substance as part of an enhanced recovery effort without the written consent of Lessor.

• The installation of any salt water disposal equipment by Lessee in the operation of the lease shall be subject to the written approval of Lessor. Lessee shall not be permitted to use any well drilled on the leased premises as a salt water disposal well without the written consent of Lessor and without compensating Lessor for the use thereof on the basis of a reasonable charge for every barrel (42 US gallons) of disposed salt water. Provided, however, the terms of this paragraph does not apply to the disposal of salt water produced from wells located on the leased premises.

• Lessee may not erect on any part of the leased premises any plant or facility for gasoline extraction or for the processing of gas or petroliferous substances, except the normal and necessary heater treater and separator customarily used. Lessee specifically agrees to build any meter houses, separators, heater treaters, and storage tanks used for the purpose of producing and saving any oil and gas upon the above described premises adjacent to any county, state, or federal road or highway adjoining the above described premises. All storage tanks and tank battery installations shall be installed in any of the four (4) corners of the leased premises to avoid interference with any presently existing or potential irrigation circular sprinkler system. Provided, further, no such installation shall be made closer than [1400] feet to the center of the leased premises.

• Lessee agrees to maintain any well site, storage tank location, or any other area used in its lease operations reasonably free of weeds, but without the use of salt or chemical substances for weed control. Lessee will use reasonable diligence in its operations to cause minimal interference with any cattle operations on said lands.

• Lessee agrees not to cut or go over any fence at any time or in connection with any operations on the leased premises without first obtaining the written consent of the surface owner. Lessee agrees to install a substantial metal gate or cattleguard, whichever shall be designated by the surface owner, in any such cut or opening. Lessee agrees to completely close all gates and properly maintain all gates and cattleguards that Lessee and Lessee’s agents, invitees, servants, contractors or their subcontractors of any tier, or employees may use in Lessee’s operations on the leased premises to prevent the escape of cattle or other livestock.

• Lessee shall, upon request by Lessor, erect and maintain fences around all pits dug on said land, around all wellheads, tanks, separators, compressors, meters and all other surface equipment and hazardous conditions resulting from or in connection with Lessee’s operations. Lessee shall install cattleguards where needed for access and shall maintain fences and gates in a prudent fashion.

• If there is no production in paying quantities found by any operations undertaken by Lessee during the primary term of the lease and if there is an abandonment of said lease, then Lessee shall fill all pits, ponds, remove all structures and reasonably restore the premises to the condition existing at the time the lease was executed. Within six (6) months after the expiration of the lease by its terms, Lessee shall have the obligation to restore, as nearly as practicable, the leased premises to the same condition as received, natural wear and tear and damages by the elements excepted.

• Within a reasonable time, but not to exceed six months after cessation of drilling or reworking operations, Lessee shall level all dumps, fill all pits, remove or rake and dispose of all brush and debris, and put the surface of the land in substantially the same condition as it was before the commencement of operations, regardless of the diminution in value of the property.

• Lessee agrees that after plugging any well drilled on the leased premises, Lessee shall, as near as possible, restore the surface to the original condition and shall plug all wells in compliance with the regulations of the relevant regulatory agencies.

Last updated July 29, 2010

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