» How does an oil and gas lease work?

How does an oil and gas lease work?

An oil and gas lease is a complicated document. From a legal standpoint, it is considered to create a “fee simple determinable.” Generally speaking, during the “primary term” of the lease, the oil company has the right to explore for and produce oil and gas from your property. If the oil company is successful and there is production from your property at the end of the primary term (or extensions as provided in the lease), then the oil company will usually have the continuing right to drill for and produce oil and gas from your property as long as production continues, or as long as it initiates drilling activities within a sufficient time of production ceasing. The oil company will normally pay a “bonus” to you for signing the lease and, if production occurs, the oil company will pay you a royalty on the production. There are an enormous number of other considerations and clauses in a lease, but these are some of the lease basics.

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