We are beginning to notice a disturbing trend. Oil and gas leases, like all leases, have an end. These leases, however, have two different terms: the primary term, which is a fixed period in which to begin production. Then, the secondary term, which is indefinite. The secondary term begins when oil or gas starts to produce, and then as long as oil or gas is profitably produced.
If there is no oil or gas production within the primary term, the lease expires. (Absent satisfaction of specific “savings clauses.”) Leases are beginning to expire. Put differently, lessees have not drilled within the time limit set in the lease.
Watch: Has my oil and gas lease expired?
Some lessees are trying to falsely extend the leases. How?
Some landowners are getting “renewal” checks in the mail, equal to their original delay rental. The check often has a notation as a “renewal” of lease. The problem is that the lease itself never allowed an automatic renewal. The lessee is trying to trick the landowner into believing that the lease extends. Worse yet, the lessee refuses to file a release of the lease with the recorder’s office, clouding the landowner’s title and inhibiting the ability to get a new lease.
Some leases do allow for automatic renewal by paying the delay rental again. However, the rental must be paid before the lease expires. We have seen lessees attempt to send renewal checks long after the expiration date. Then, they again refuse to release the lease at the recorder’s office.
Faced with expiring leases, some lessees have been attempting to “pool” the lease into a production unit, thereby holding the entire lease. Yet, they often do not follow the lease requirements regarding inclusion in a pooled unit, nor has the lessee obtained production from the pooled unit. The “pooling” is designed only to extend the lease.
The bottom line is that courts typically will construe an oil and gas lease exactly as written. If the lessee can establish that it followed the letter of the lease to extend it, it will extend. If not, the lease should terminate.
If you believe that your oil and gas lease is being wrongfully extended, please call us at 740-374-5346. Click here to contact us.