How To Extend An Oil and Gas Lease?
One of the issues facing oil and gas business owners is how to extend their leases in a timely manner. While it is not uncommon for oil and gas lease terms to last as little as one month to as long as ten years, the average term of an oil and gas lease is around three years.
How does a lease expire?
Most leases last for around three years in the initial term. However, some may last up to ten years, depending on the terms. The termination of the original lease can occur during the primary term if no production or operations take place during that time. In this case, the estate would revert to the lessor.
How to Terminate the Contract
In most cases within the United States, it is not necessary to obtain a release of the lease from the lessee to terminate the contract. However, it is strongly recommended to avoid conflict or possibly having to defend your position in court. When you terminate a lease, you should always get this in writing and have the transaction recorded in county records to give notice that the contract is no longer in effect.
More About Delay Rentals
A delay rental clause provides the terms that allow you to terminate the lease at the end of each year during the primary term unless the person to whom you leased the land commences operations or production.
Alternatively, you can require in the clause that the lessor pays a delay rental which extends the lease for another year. The idea behind this practice is to keep the oil and gas lease not only in force but productive so that you are not wasting any time. This type of arrangement is usually worked out as dollars per acre.
Extending the Primary Term
Lessees may request an option to extend the primary term, or you can volunteer to do so of your own accord. This type of clause allows the lessee to make an additional payment to the lessor before the end of the first three years( or however long the term is for) and can prove to be more profitable for the lessor if the lessee is not yet productive. This option may help the lessee to obtain their lease on the property while paying up the fees for the lease ahead to compensate the landowner.
When it comes to handling extensions for oil and gas leases, it is vital that you get everything in writing. By keeping an active paper trail on every transaction involved between the lessee and the lessor the easier to maintain a clear understanding between all parties.
Additionally, you should keep up with the local ordinances in your immediate area to make sure you are following any new zoning regulations ore real estate issues that might arise.
Finally, when it comes to legal issues regarding your lease, it is all about what is in the contract. Like anything that involves legal terminology or clauses, it needs to be written carefully and checked over by a seasoned attorney.
Taking great care before jumping into an oil and gas lease, it is best to seek the assistance of the experts. Majr Resources is here to help. Give us a call today for a free consultation.