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Beyond the Standard Lease Form Selected Oil & Gas Lease Issues

Richard D. Watt, Development Issues & Conflicts in Modern Gas and Oil Plays (2004)

Having explained my background, I intend to discuss my view of the most difficult issues that I see in lease negotiations between sophisticated parties -- the real “deal-breakers.” In doing this, I will ignore the business points, like how much bonus or how much royalty, but will recognize that these certainly push the negotiations. I will also omit mention of many lease clauses, recognizing that all of the clauses are important, but I want to focus on what I view as the most difficult issues to resolve, both in coming to an agreement, and drafting language that fully and completely expresses that agreement.

Obviously, my choice of topics is subjective. Some of my choices are predictable enough -- for example, the royalty clause, while others may seem less obvious -- like the assignment clause -- but for me hold special importance, as will be explained.

In discussing these, I will rely primarily on Texas law, because that is my background, but will sometimes comment on the law of other jurisdictions, when I understand it, and believe it helpful.

Finally, with that said, it should be obvious that the importance and weight given to these issues should be proportional to the importance and economic potential of the proposed lease. Said shortly, a lease from a mineral owner who owns no surface covering an undivided 1/10th mineral interest under a 10 acre