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Dotting Your I’s and Crossing Your T’s: Ensuring Proper Payment and Execution

Angela L. Franklin, David B. Hatch, Drafting and Negotiating the Modern Oil and Gas Lease

The most often overlooked facets of drafting and negotiating an oil and gas lease are the details of getting the right individuals to execute the lease and ensuring the lessor is properly paid. After all, an oil and gas lease signed by an individual without authority is generally not valid and not making payments on time or in the correct amounts can have a significant impact on the lease. Although the lease provisions covering these issues are not typically a significant part of the negotiation, understanding their function and what is required by the parties is an important part of the leasing process. II. Required Payments under Oil and Gas Leases A. How It All Began The first commercial well drilled in the United States was under a fixed, long-term lease (i.e., no habendum clause) dated December 30, 1857. This type of lease form proved to be less than ideal. While it gave the lessee (i.e., the operator) a relatively long period of time to develop the leased lands, it did not permit the lessee to maintain the leased lands past its primary term even with actual production. Furthermore, the courts began implying a duty on lessees to develop the leased lands. For the lessor (i.e., the mineral owner), it was less than ideal because the lease payment was usually nominal and the lessor would not begin receiving royalty payments until production was attained.