What is an Oil & Gas Lease?

In today’s post we’ll be breaking down the Oil & Gas Lease and discussing the elements that make it unique!

We’ll first start off with a quick discussion of mineral rights. In Oklahoma, mineral interest owners have the right to take the oil, gas, and other minerals underlying the tract of land in which they own a mineral interest. Mineral interests are made up of five separate and distinct rights:

1. The right to develop and produce the minerals

2. The right to sell and lease the minerals, also called “executive rights”

3. The right to receive bonus payments

4. The right to receive delay rental payments

5. The right to receive royalty payments (including shut-in royalty payments)

Typically a mineral interest owner does not explore for and develop the oil and gas underlying their land themselves due to the high cost, but instead leases their right to development to an oil and gas company through an Oil & Gas Lease. When an Oil & Gas Lease is executed, the mineral interest owner has the right to receive bonus payments, delay-rental payments, and royalty payments associated with the lease. Bonus payments are made to the mineral interest owner by the oil and gas company upon execution of an Oil & Gas Lease in exchange for the right to develop the minerals. Bonus payments are typically based on a specific amount of money per acre and are paid at the time the mineral interest owner signs the lease. Further discussion of delay-rental payments, royalty payments, and shut-in royalty payments can be found in our upcoming posts.

Although called a lease, an Oil & Gas Lease is far from your traditional lease between landlords and tenants. You can instead think of an Oil & Gas Lease as being both a conveyance and a contract. An Oil & Gas Lease grants the right to develop the minerals to the oil and gas company, similar to a conveyance. However, this conveyance of rights is governed by the terms of the Oil & Gas Lease, similar to that of a contract. Oil & Gas Leases consist of numerous terms and clauses, which we’ll dive into in our next post!