OIL AND NATURAL GAS MINERAL LEASE
(FOR OWNER OF
(i)MINERAL ESTATE OR
(ii)MINERAL AND SURFACE ESTATE)
USERS GUIDE
- CHECK THE APPROPRIATE BOX
PAID UP LEASE*Yes [___] No [___]
- INSERT EFFECTIVE DATE
THIS OIL AND NATURAL GAS MINERALLEASE (hereinafter referred to as the ‘Lease’) is made this ______day of ______, 20____, (the “Effective Date”) by and between:
- INSERT LESSOR (LAND, MINERAL OR ROYATLY OWNER NAME AND ADDRESS)
______, having an address at ______, hereinafter collectively, if more than one person or entity,referred to as “Lessor”
- INSERT LESSEE (OIL COMPANY NAME AND ADDRESS)
and______, having an address at ______, hereinafter collectively, if more than one person or entity, referred to as “Lessee”.
- MODIFY DEFINITION OF LEASED HYDROCARBONS IF MINERALS OTHER THAN OIL, GAS, OR CONDENSATE ARE TO BE LEASED
x. “Leased Hydrocarbons”means those underground mineral hydrocarbons leased to the Lessee from the Lessor in accordance with the terms and conditions of this Lease and shall only include the Oil and Gas hydrocarbons and condensate whose molecules are predominately composed of hydrogen and carbon atoms, and naturally associated incidental by-product compounds naturally occurring therein inclusive of “oil”, “crude oil”, “condensate”, “methane”, “methane gas”, “shale gas”, and “natural gas”, “ethane”, “ethane gas”, “LPG”, “propane”, “butane”, “natural gas liquids” or “NGLs” and incidental or by-product sulfur, produced exclusively through a well bore, and by no other means (such as, but not limited to: surface or subsurface mining, open pit mining, excavation or other non-well bore exploration and production processes), and for the avoidance of doubt, Leased Hydrocarbons SHALL NO INCLUDE and not an exhaustive list: coalbed methane gas, lignite, coal, peat, uranium, oil sands, tar sands, bitumen, gravel, sand, water, copper, caliche, bentonite, sulfur (except as an incidental by-product of the production of the Leased Hydrocarbons), fresh water, helium, carbon dioxide, thorium or other fissionable material, and all ores including metallic ores, all of which are reserved to Lessor;
6.STRIKE OUT THIS CLAUSE IF NOT APPLICABLE OTHERWISE INSERT FORMATION NAME
(Strike through this clause if not applicable) Notwithstanding any term or condition to the contrary, this Lease shall include, Lessor’s or Lessor’s authorized representatives reservation of the right to explore, develop, produce and market Leased Hydrocarbons related to formations below the base of the ______formation identified in the description of the Leased Premises together with the rights of ingress and egress to and from the Leased Premises or lands pooled or unitized therewith as may be reasonably necessary to conduct such operations, including without limitation, geophysical operations, the drilling of wells, and the construction and use of roads, canals, pipelines, tanks, water wells, disposal wells, injection wells, pits, electric and telephone lines, power stations and other facilities deemed necessary by Lessor to explore, discover, produce, store, treat, and transport Oil or Gas. This reservation of rights shall specifically include the right to penetrate and drill through the shallow formations otherwise contained in the Leased Premises to which this Lease is in effect and not otherwise terminated or expired. All of the rights retained by Lessor and the rights granted the Lessee herein shall be exercised in such manner that neither shall unduly interfere with the operations of the other upon the Leased Premises.
7.INSERT COUNTY/PARISH, STATE AND OTHER DESCRIPTION OF LEASED PROPERTY, INCLUDE NUMBER OF ACRES LEASED AND ANY FRACTION
3.LEASED PREMISES: The Leased Premises are located, all or part, in the County/Parish of ______, in the State of ______, in the [district/township of ______] and described as follows:
[Provide legal description of Leased Premises: metes and bounds; township; plat description; longitude/latitude; or other description customarily used in the locale of interest, or if only the rights to the mineral estate is owned by Lessor, such additional description of such subsurface mineral interest right that may be applicable.]
and described for the purposes of this Lease as containing ______(acres), whether actually more or less–
8. STRIKE THROUGH RELEVEANT WORD IF MOTHER HUBBARD CLAUSE IS INCLUDED OR EXCLUDED (USUALLY LESSOR WANTS IT EXCLUDED)
[MOTHER HUBBARD CLAUSE: STRIKE THROUGH ONE OF THEFOLLOWING ELECTIONS THAT DOES NOT APPLY]……
INCLUDING / EXCLUDING all contiguous or appurtenant lands owned by or in which Lessor has an interest, inclusive of, but not limited to, strips and gores, streets, easements, highways and alleyways adjacent thereto.
9.INSERT NUMBER OF MONTHS AND DATE OF BEGINNING AND END OF PRIMARY TERM. TYPICALLY A THREE YEAR TERM, FIVE MAXIMUM
4.LEASE PRIMARY TERM; This Lease shall remain in force for a period of (i) ______months, beginning on the ______day of ______, 20____ and ending on the ______day of ______, 20__, such term period herein referred to as the “Primary Term”,
10.STRIKE THROUGH BELOW OPTION ONE OR TWO THAT DOES NOT APPLY. LESSOR TYPICALLY PREFERS OPTION TWO
TOP LEASE OPTIONS – (Select either Option, One or Two beloe, by striking through the Option that does not apply or striking through both options if neither apply.)
Option One (Pre-emption Right): If, at any time within the Primary Term of this Lease or any extension of such PrimaryTerm as otherwise permitted by the terms of this Lease, Lessor receives any offer, acceptable to Lessor, to grant an additional oil and natural Gas mineral lease for Leased Hydrocarbons (hereinafter referred to as a ‘Top Lease’) covering all or part of the Leased Premises, Lessee shall have the continuing option, by matching on the same offered terms and conditions any such offer, to acquire such Top Lease. Any offer acceptable to Lessor must be in writing and must set forth the potential third party lessee’s name, bonus consideration and royalty consideration to be paid for such lease, and include a copy of the lease form to be utilized reflecting all pertinent, material and relevant terms and conditions of the Top Lease. Lessee shall have fifteen (15) days after receipt from Lessor of a complete copy of any such offer capable of acceptance by Lessorto advise Lessor in writing of its election to enter into an oil and naturalGasmineral lease with Lessor on equivalent terms and conditions of the offered Top Lease, however, in any event, Lessor is not obligated to enter into any Top Lease with a third party or Lessee. If Lessee fails to notify Lessor within the aforesaid fifteen (15) day of its election to meet any such bona fide offer, Lessor shall at any time thereafter, have the right to accept said offer. However, if after Lessee rejects or deemed to have rejected the offer, such third party offer is subsequently modified in such a way for the third party thatmaterially improves the benefits and rights to be enjoyed by the potential third party lessee, and such beneficial material modification is capable of acceptance by Lessor, as a condition precedent of Lessor accepting the modified offer, Lessor shall be obligated to reoffer the modified offer to Lessee in accordance with the same preceding process.
Option Two (Right of First Refusal): If, at any time within the Primary Term of this Lease or any extension of such Primary Term as otherwise permitted by the terms of this Lease, Lessor receives any offer, acceptable to Lessor, to grant an additional oil and natural Gas mineral lease for Leased Hydrocarbons (hereinafter referred to as a ‘Top Lease’) covering all or part of the Leased Premises, Lessee shall have the continuing right and option, upon written notice from Lessor to Lessee, for Lessee to be given the right to propose terms for a Top Lease, but Lessor shall not be obligated to disclose the terms of the proposed third party Top Lease offer. Any offer from Lessee acceptable to Lessor must be in writing and must set forth all relevant terms inclusive of bonus consideration and royalty consideration to be paid for such lease, and include a copy of the lease form to be utilized reflecting all pertinent, material and relevant terms and conditions of the Top Lease. Lessee shall have fifteen (15) days after receipt from Lessor notice for Lessee to submit a written Top Lease offer to Lessor, however, in any event, Lessor is not obligated to enter into any Top Lease with a third party lessee or Lessee, nor obligated to accept either Lessee’s or the third party lessee Top Lease offer. If Lessee fails to submit to Lessor within the aforesaid fifteen (15) day a Top Lease offer or make a Top Lease offer, Lessor shall at any time thereafter, have the right to accept or reject any offer, either from Lessee or the third party lessee.
11.INSERT DRILLING FORMATION OBJECTIVE THAT OIL COMPANY MUST DRILL TO (OR SIMILAR OBLIGAITION SUCH AS A DEPTH; FAILURE TO DO THIS MEANS THE OIL COMPANY CAN LIMIT ITS DRILLING TO LOW COST WELLS AND NOT PROPERLY TEST THE LEASE); INSERT A PERFORMANCE FAILURE FEE IF OIL COMPANY FAILS TO PERFORM (AMOUNT IS VARIABLE, $50,000 TO $2,000,000?, NEGOTIABLE)
5.PRIMARY TERM DRILLING OBLIGATION. Lessee is obligated to commence, or cause to be commenced, drilling operations, on a well (the “Test Well”) under the terms of this Lease during the Primary Term and on or before twenty four (24) months from the Effective Date of this Lease. The Test Well must be drilled in a good and workmanlike manner to a depth sufficient to adequately test for the presence of Leased Hydrocarbons in the ______formation. Failure by Lessee to drill the Test Well as required herein shall result in at Lessor’s exclusive option to either (i) demand that Lessee be obligated to pay to Lessor as liquidated damages the cash lump sum of $______, which sum will be paid to Lessor within 15 days of receipt of written notice by Lessor or (ii) terminate this Lease. In any event, if Lessee does not commence any drilling operations during the PrimaryTerm, this Lease shall automatically terminate at the end of the Primary Term, notwithstanding Lessor’s option right to be paid the above liquidated damages, which if such option is elected by Lessor, shall not be reimbursed to Lessee.
12.STRIKE THROUGH OPTION ONE OR TWO BELOW THAT DOES NOT APPLY; AND INSERT RELEVANT DATES AND TERMS (TYPICALLY LIMITED TO NO MORE THAN 2 YEARS MAXIMUM; LESSOR GENERALLY PREFERS OPTION TWO; IF OPTION ONE INSERT DOLLARS PER ACRE EXTENSION FEE; SHOULD BE NO LESS THAN ORIGINAL BONUS OR PAID UP FEE AND TYPICALLY SHOULD BE HIGHER).
6LEASE EXTENSION TERM.
Lessee has the option right to extend the Primary Termfor [strike through the below Option One or Two Clause that does not apply]:
Option One: An additional period of ______months beginning on the _____day of ______, 20___(being one day after the end of the Primary Term) and ending on the ______day of ______, 20____, herein after referred to as the “Extension Term”subject to (i) Lessee paying Lessor, at any time within the Primary Term, proportionate to Lessor’s ______percentage(____%) ownership in the Lease (which is deemed to be one hundred percent, 100%, unless otherwise specified), an “Extension Payment” equal in alump sum cash amount to the compensation received by Lessor for this [Paid Up, if applicable] Lease, plus ______Dollars ($______) per acre and fraction thereof of the Leased Premises, and(ii) by commencing the drilling operations of an Exploration Test Well to test for the presence of Leased Hydrocarbonsto a minimum depth of ______feet from the surface or test the ______geologic formation), within the first three hundred and sixty five (365) days of the Extension Term on the Leased Premises or on lands unitized or pooled in a common production unit, with the Leased Premises.
Option Two: An additional period of ______months beginning on the _____day of ______, 20___(being one day after the end of the Primary Term)and ending on the ______day of ______, 20____, herein after referred to as the “Extension Term” by timely exercising an option right of first refusal by offering in writing and to pay Lessor, at any time within the Primary Term, proportionate to Lessor’s ______percentage (____%) ownership in the Lease (which is deemed to be one hundred percent, 100%, unless otherwise specified), an “Extension Payment” comprised of a lump sum cash bonus payment, new offered delay rental payment terms and new offered royalty terms plus offer to commit to commencement of drilling operations of at least one Exploration Test Well to test for the presence of Leased Hydrocarbons to a minimum depth of ______feet from the surface or test the ______geologic formation), within the first three hundred and sixty five (365) days of the Extension Term on the Leased Premises or on lands unitized or pooled in a common production unit, with the Leased Premises. Within thirty (30) days of receipt of such written Extension Payment offer, Lessor shall either (i) accept such offer, (ii) reject the offer or (iii) lease (hereinafter referred to as the “Extension Lease”) all or any part of the Leased Premises to a lessee other than the Lessee.
13.INSERT SHUT IN ROYALTY FEE; $100 PER YEAR PER ACRE IS INSERTED, BUT IS NEGOTIABLE; ASSESS LOCAL PRACTICE; SHUT IN RIGHT IN ANY EVENT LIMITED TO TWO YEARS.
8SHUT-IN WELLS AND SHUT-IN ROYALTY.(i) If at any time or from time to time there shall be any well or wells on any part or parts of the Leased Premises then in force and effect capable of producing Gas and/or condensate in Paying Quantities but from whichGas and/or condensate are not produced because of the lack of a market and/or pipeline system available to transport Gas and/or condensate to a market, provided Lessee continues to use best endeavors to establish or cause to be established such market and/or pipeline system, Lessee may at its option pay in cash to Lessor as aShut In Royalty payment a sum equal to[$100.00] per year for each acre or fraction thereof of the Leased Premises included in the pooled or unitized unit on which each such well shall be situated or, if no pooled or unitized Gas unit designated shall have been made, then on the number of acres which Lessee would be entitled to retain around such Gas well under the Offset Obligations (as defined in Clause 9) of this Lease, in the event of partial termination. The first such yearly payment shall be made to Lessor within ninety (90) days after the well was shut-in and succeeding payments shall be made annually thereafter on or before the day of the month upon which such well was shut-in; such payments shall be made in the depository bank designated in writing by Lessor to Lessee provided unless otherwise directed by Lessor; and while suchShut In Royalty is paid as above provided, this Lease, insofar as it covers such Gas well and the acreage for which such payment is made, shall, subject to the other terms and provisions hereof, remain in force and effect as though such well were producing Gas and/or condensate in Paying Quantities, provided that the payment of Shut In Royalty payment for Gasas to one such unit shall have no effect upon the continuance of this Lease as to any other pool or unitized unit or units. It is expressly provided, however, that after the expiration of the Primary Term, Lessee shall not have the right to continue this Lease in force as to any Gas unit by payment of Shut In Royalty payment for any single period of more than the greater of one (1) year or two (2) year in the aggregate after the end of the Primary Term plus any applicable Extension Term.
14.INSERT MINIUMUM SHUT IN ROYALTY AND NORMAL ROYALTY PAYMENT; $300 PER ACRE IS ASSUMED BUT IS NEGOTIABLE; CHECK LOCAL PRACTICE; MAY WISH TO HAVE SUBSTANTIALLY HIGHER.
(iii) If during any year (commencing with the anniversary date of this Lease) while this Lease is in force, Leased Hydrocarbons shall be produced from any well on the Leased Premises, there has not been paid or accrued hereunder to Lessor at least the sum of [$300.00] per acre during that anniversary year for each acre and fraction thereof, subject to this Lease at the commencement of such year, by way of Shut In Royalty payment and/or Royalties paid or then accrued, Lessee shall, within thirty (30) days after the end of such Lease year, pay or tender to Lessor, as Minimum Annual Royalty, the difference between the amount per acre so paid or accrued during such Lease year for Shut In Royalty plus Royalty and said sum of [$300.00] per acre. The payment of Minimum Annual Royalty provided for in this section of the Lease shall not be in lieu of actual production of Leased Hydrocarbons in Paying Quantities and Lessee shall not be entitled to continue this Lease in force by payment of such Minimum Annual Royalty if, in fact, the actual production of Leased Hydrocarbons is not in Paying Quantities. It is provided, however, that nothing in this clause contained shall be construed as preventing or delaying the termination of this Lease under Lessee’s right to partially surrender all or any part of the Leased Premises, nor as impairing Lessee's continuing obligation to reasonably develop the Leased Premises after the discovery of Leased Hydrocarbons thereon in Paying Quantities, nor as in any manner impairing Lessee's continuing obligations to protect the Leased Premises from drainage by wells on adjoining or adjacent lands.
15.INSERT PROPORTIONATE PAYMENT OF LESSOR IF LESS THAN 100% (TYPICALLY IS 100%) UNLESS MINERALS ARE OWNED BY MORE THAN ONE PARTY AND IN THAT CASE INSERT APPROPRIATE INTEREST. BE SURE AND CALCULATE THE CORRECT PROPORTION. (INTEREST SHOULD BE BASED ON 100% OR WHAT IS CALLED 8/8THS INTEREST; EXAMPLE – A 25% INTEREST OF 100% IS 25%, A 25% OF 50% IS 12.5%)