Savings and Termination Clauses of the Oil and Gas Lease
August 30th, 2010
8:00 am - 4:00 pm
Oklahoma City, Oklahoma
This Course is Accredited for 6.5 AAPL Credits
August 30th, 2010
8:00 am - 4:00 pm
Oklahoma City, Oklahoma
This Course is Accredited for 6.5 AAPL Credits
Course Information
We are living in an age of horizontal and vertical Pugh clauses, a great deal of horizontal drilling and increasing regulations. What is the impact of all this on the lessees’s desire to keep the lease alive? In this class, students will focus on the savings and termination clauses of the oil and gas lease. A lease automatically terminates upon the lessee's failure to discover gas or oil within the primary term or to produce oil or gas within that period if the lease so states. The lease may provide that the lessee must begin actual drilling operations by a specified date or it will be null and void, or it may provide that the lessee's failure to commence a second well on the leasehold premises within the time specified in the lease or the lessee's failure to continue production without interruption will terminate the lease. Oil and gas leases may also be terminated as a result of the lessee's failure to timely pay annual rentals to the lessors as required under the terms of the leases. Students will learn to appreciate the various savings and termination clauses that must be understood in order to properly administer the leasehold interests. Such clauses include Force Majeure, shut-in royalty clauses, dry hole clauses, cessation of production clauses, the continuous operations clause and judicial ascertainment clause. Numerous implied covenants of the oil and gas lease can lead to termination in addition to termination clauses like the delay rental clause which is part of an “unless” lease when there is failure to pay delay rentals to the right person in the right amount by the proper date. Students will better understand all the hoopla concerning such clauses, the use of “paid up leases” and the fact that forfeiture of oil and gas leases for breach of an implied covenant is not favored by the law. Students will also better understand the classic argument that the lease has not terminated, after the primary term has elapses due to the argument that the well is “producing in paying quantities." Students will better understand what “producing in paying quantities” really means. They will also be able to explain how it is that the dry hole clause, which usually gives the lessee a chance to save the lease by commencing a new well within 60 or 90 days, may be held to be unavailable as a device giving the lessee more time, if it is so worded as to be inapplicable after discovery of oil or gas in paying quantities. They will understand how it is that, similarly, a cessation-reworking operations clause may be held to be inapplicable as a saving device if it is found that production in paying quantities was not achieved. Finally, they will understand the situation where whether a lessee who has lost the rest of his lease for one reason or another, is allowed to retain the wells already brought in and producing, may well depend upon whether such wells are producing in paying quantities. Then too, the lease may also contain a clause requiring the lessee to drill to a specified depth unless oil or gas is discovered or found at a lesser depth in paying quantities.
This program has been accredited for 6.5 RL/RPL continuing education credit(s), 6.5 CPL recertification credits(s).
