Directed to the general practitioner, this PowerPoint is a high level overview of how to negotiate a fair oil and gas lease for your clients. For the written materials, visit my website: http://lisamcmanus616.wix.com/lisamcmanusesq

1. Negotiating a Fair Oil & Gas Lease
for Your Client
Lisa C. McManus, Attorney at Law
lisa.mcmanus@mcmanuslaw.net | 814.781.1319

2. Evolution of the Oil and Gas Lease
To have and to hold for
a term of five years and
for so long thereafter
as oil or gas are
produced.
This Lease shall remain in force for a primary term of FIVE (5)
years from 12:00 AM. April 23, 2010 (effective date) to 11:59
P.M. April 22, 2015 (last day of primary term) and shall continue
beyond the primary term as to the entirety of the Leasehold if
any of the following is satisfied: (i) operations are conducted on
the Leasehold or lands pooled/unitized therewith in search of
oil, gas, or their constituents, or (ii) a well deemed by Lessee to
be capable of production is located on the Leasehold or lands
pooled/unitized therewith, or (iii) oil or gas or their constituents
are produced from the Leasehold or lands pooled/unitized
therewith, or (iv) if the Leasehold or lands pooled/unitized
therewith is used for the underground storage of gas or for the
protection of stored gas, or (v) if prescribed payments are made
or (vi) if Lessee's operations are delayed, postponed or
interrupted as a result of any coal, stone or other mining or
mining related operation under any existing and effective lease,
permit or authorization covering such operations on the leased
premises or on other lands affecting the leased premises, such
delay will automatically extend the primary or secondary term
of this oil and gas lease without additional compensation or
performance by Lessee for a period of time equal to any such
delay, postponement or interruption.
vs.

3. Initial Considerations
• The Lessee’s Reputation
• The Leasing Landscape
• Developing a Rapport with the Lessee
• Early Agreement as to Key Terms

4. Commonly Negotiated Lease Terms
• Leasing Clause. Include only oil & gas and their
constituents
• Description. Evaluate application of Mother Hubbard
clause
• Bonus. Inclusion of actual consideration
• Extension of Primary Term. Right to renew/first refusal
• Delay Rentals. Paid-up Lease v. Delay Rentals
• Shut-In. Time limitations
• Warranty. No general warranty!
• Limitation of Forfeiture. Not prohibition of forfeiture
• Implied Covenants. Watch for conflicting language

5. The Term of the Lease
• As long as operations are conducted
• Commencement of operations
• Presence of well deemed by Lessee to be capable of production
• Oil or gas or their constituents are produced
 Commercially paying quantities
• Storage of gas
• Operations/production/storage on lands that are pooled/unitized
• Prescribed payments are made

6. Royalties
• Initial rate
• GMRA
• Post-production costs
– Those paid to the operator’s affiliate/subsidiary
– Those paid to third-parties in arms’ length,
commercially reasonable transactions
• Skirting the GMRA
• Show me the money

7. Pooling, Unitization, and Pugh Clauses
• Pooling generally refers to integration of smaller tracts of land to
obtain a drilling permit to comply with the state’s spacing rules –
applies only to drilling penetrating Onondaga
• Unitization refers to the consolidation of fee or leasehold interests
covering a common source of oil or gas in order to most efficiently
extract the oil and gas
• Pugh Clause v. Unitization Limitations (e.g., 50%)
• Depth v. Acreage Unitization Limitations

8. Surface Use
Provisions regarding surface use often include the following:
a. setback requirements
b. consent to the location of pipelines and drill pads
c. burial depth of pipelines
d. compensation for damage to growing crops, pastures, and timber;
erosion of soil; fences, barns, and other structures; water pollution
e. road construction
f. reclamation
Remember that the dominant
tenement has the right to access its
oil & gas estate even if injury to the
surface/servient tenement occurs
provided the use is reasonable and
necessary

9. Questions?

10. Questions?