An oil lease is essentially an agreement between parties to allow a Lessee (the oil and gas company and their production crew) to have access to the property and minerals (oil and gas) on the property of the Lessor. The lease agreement is a legal contract of terms. It contains certain elements, which confirm all the terms of the agreement.
The lease must be dated and the lease also sets the time that the lease is effective. It establishes the primary term of the lease. The date clause is an essential.
The parties section of the lease lists the names of all parties who are bound to the lease.
In the consideration section of the lease it gives the legal terms and ensures that the lease is legally enforceable by all parties.
The use of the property and the purpose for the leasing are in the granting clause. This clause states what rights the lessee has and what is the property subject to the lease.
An important part of the lease is the Lessee rights and how long these rights are in force. There may be other provisions including drilling, delay rental, pooling, shut-in royalty, and continuous drilling clauses among others.
Of great importance to the landowner, the Lessor, is the royalty clause. This clause states the percentage or share of production proceeds that the Lessor receives and how the royalty is received.
The Lessee is given rights in the drilling and delay rental clause. This allows the Lessee to defer immediate use of the property if the Lessee completes the obligation within a period of time and pays delay rental.
In case of a dry hole is drilled in the primary term and other stated problems, the dry hole, cessation, and continuous drilling clause is in the lease.
The pooling clause in the lease establishes rights of the Lessee to combine leases and form a larger single drilling production unit.
In the Surrender clause the sets forth the rights of the Lessee and other provisions if the Lessee surrenders the lease.
The Lessees liabilities in case of damage to the property is stated in the damage clause.
If either the Lessor or the Lessee, the parties to the lease, need or want to transfer the rights to the property or change ownership, the assignment clause gives this right after giving notice to the Lessee, especially if the landowner transfer interest in the property.
In the force majeure clause, the lease is subject to state and national laws. It gives the Lessee freedom from non-performance implied or specified in the lease.
The landowner in the warranty clause states that the landowner owns and guarantees the title of the land in the lease and states the rights of the Lessee if the landowner defaults on taxes, mortgages, and other obligations.