Documents You May Encounter While Owning An Interest
This is a written instrument by which title or rights to property or real estate are transferred. Common types of conveyances are oil, gas, and mineral leases, assignments, deeds, and right of way agreements.
Conveyance
A schedule of owners and their decimal ownership share in revenue of a specific well’s production derived from the sale of oil or gas.
Division Order (DO)
An easement allows someone the right to use another’s property for a stated purpose.
Easement
A contract between a mineral owner (lessor) and a company (lessee) that outlines the basic terms of developing said lands or minerals. In an OGL, a lessor grants the lessee the right to explore, drill and produce oil, gas, and other minerals for a specified period of time and as long thereafter as oil, gas or other minerals are being produced in paying quantities.
Common components of OGL’s are described below.
Oil, Gas & Mineral Lease (OGL)
An essential clause, overlapping the habendum clause, which puts an obligation on the developer to drill during the primary term or pay a certain amount of “delay rental” to the lessor in the event drilling is deferred.
Drilling/Delay Rental Clause
An essential clause, generally states the purpose of the lease and description of the specific piece of property being leased by the company (lessee) from the owner of the oil and gas rights (lessor).
Granting Clause
An essential clause, the habendum clause sets the primary and secondary terms of the leaset.
Habendum Clause
An OGL provision that extends the right to operate a lease as long as the property produces a minimum paying quantity of oil or gas (commercial quantity).
Held by Production (HBP)
The cash consideration that is paid by the lessee to the lessor for the execution or ratification of an oil, gas, and mineral lease. Usually based on a per acre payment.
Lease Bonus
A pooling clause typically benefits the lessee in that it provides the uniting of all landowners’ leases into one common pool and utilize one common reservoir. This clause is very important for lessors to pay attention to.
Pooling Clause
The initial period provided in an OGL to develop the property. At the expiration of the primary term, the lease terminates unless production is achieved during the term.
Oil & gas leases have a secondary term known as an extension if producing in paying quantities, drilling, operating and/or paying shut-in royalties.
Primary Term
A clause often added to a lease to limit a lessee from holding non-producing lands or depths beyond the primary term of a lease.
Pugh Clause
The last of essential clauses to an oil and gas lease, defines the lessor’s rights to payment of a share in production.
Royalty Clause
An oil and gas lease which becomes effective only after the expiration (or termination) of an existing lease upon the subject land tract. The bonus consideration is paid upon signing the lease.
Top Lease