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Area of Mutual Interest Clauses Regarding Oil and Gas Properties: Analysis, Drafting, and Procedure

Dante L. Zarlengo, Proceedings of 28th Annual Rocky Mountain Mineral Law Institute (1982)

This paper addresses issues and areas of dispute that arise relative to provisions commonly found in oil and gas exploration or acquisition agreements colloquially referred to as area of mutual interest clauses. It also discusses drafting and procedural considerations relative to area of mutual interest clauses. These clauses customarily provide that should any party to the agreement acquire an oil and gas interest in a geographic area, the acquiring party must allow the other parties the opportunity to participate in the acquisition of such interests on a cost basis. Stated in reverse, each party grants to the other party the right to acquire a portion of any interest it may subsequently obtain in a specified geographic area. Clauses of similar effect are found in oil and gas and mining leases wherein the lessor agrees that any interest he may own in a specified area is subject to and conveyed in the lease instrument although not specifically described in the legal description.1 Other clauses with similar [838] effect are also commonly found in shooting option leases or selection leases wherein geologic and geographic exploration is conducted for a specified period of time over a large area of land, at the conclusion of which the exploration company selects the areas it wishes to lease.2 It is not the purpose of this paper to discuss the legal and practical issues associated