Definitions:
Cash Bonus – An up-front one time payment paid upon signing the lease or
prior to commencement of drilling the well.
Primary Term – The number of years that a lease is in effect before drilling
occurs. This is usually no more than two (2) years.
Secondary Term – The length of a lease after a well is drilled, usually lasts
as long as the well produces a commercial quantity.
Pooling or unification – A provision that allows the lessor’s land to be
combined with adjoining lands to form a drilling unit.
Delay Rental – Annual rental payments paid to the lessor after the first year
of the primary term, usually on a per acre basis.
Royalty – The share of production from your property. In a lease, this is
referred as a fraction, usually 1/8 of the value of the oil and/or gas produced
and sold.
Shut-in Royalty – Payment in lieu of a production royalty. Paid when a well
is “shut-in” (capable of production, but no producing), for maintenance or
other reasons.
Termination – Occurs when the primary term expires or when economic
production ceases during the secondary term.
Free Gas – An annual allocation of gas to the lessor for domestic heating
purposes. This is commonly 200,000 cubic feet or more per year and goes
to the person upon whose land the well is located.
Directional Drilling – Drilling that is not directly vertical. The drilling direction
changes to horizontal drilling to better locate the oil and/or gas product.
Seeking Legal Counsel:
All prospective
landowners considering the
installation of an oil and gas well are essentially
leasing their mineral rights to a producer. A lease
maps out the terms and conditions which solidify
the partnership between the landowner, or
lessor, and the producer, or lessee. A lease is a
legal and binding document that, if executed
wisely, will protect the property and landowner for
the life of the well. Contacting an attorney
experienced
in oil
and gas well
lease
agreements will ensure that the languag