Important Sections to be Noted in an Oil Lease

By | November 4, 2011

Oil lease is an agreement between the land owner (lessor) and the oil or gas companies (lessee). This agreement enables the lessee to acquire the mineral rights of a particular land to get access to the property and the minerals beneath it. This agreement generally occurs between both the parties once they come to an understanding on different terms and policies and the royalties offered by the lessee. If the deal between them becomes finalized then they will write an agreement on the discussed matters. There are few clauses in the agreement which are important to be observed so that the deal becomes worthy and clear.

Date Clause: It is important to check the date clause which shows the time till which the deal is effective. However, it represents the primary term of the lease, after which the lease can either be extended or can be discontinued depending upon the interests of the lessee and the lessor.

Parties Section:  The parties section of the contract includes all the parties which are involved in the agreement. By observing this the land owner can have better idea about whom he/she is doing business with.
Granting Clause: Another important section is the granting clause, which clearly tells the purpose of the lease, the rights the lessee and till how long these rights are in force. This includes provisions such as drilling, delay rental, pooling and so on.

Royalty Clause: The most useful section and the clause which should be read and observed by every lessor. This clause contains the percentage or share of production which is offered by the lessee during the time of discussion. Make sure that the same number is present.

Pooling Clause: This clause tells the landlord the rights of the lessee to combine adjacent wells or leases to form a larger single production unit. If the lessor is not interested in this pooling contract you can object them after observing this clause.

Damage Clause: This clause tells the lessees liabilities in case of damage to the lessors property and any other damages.

These are few clauses which every lessor should know before signing the agreement so that he/she can have a clear picture in what they are involved in.