5.006 Special Lease Maintenance Clause

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Requirement 5.006

Special Lease Maintenance Clause

 

 Special Maintenance Clause in Tract 2 Leases.  Each of the four oil, gas, and mineral leases dated July 16, 2011, covering Tract 2 contains a special lease maintenance clause.  The special maintenance clause is the first paragraph of Exhibit “A” to each lease and provides:

 

       Notwithstanding any of the foregoing provisions in paragraph four (4) herein or elsewhere to the contrary, if a part of the leased premises is included within a pool or unit, as defined, promulgated, or regulated by the Alabama Oil and Gas Board, drilling operations on or production from the unit (s) premises shall maintain this lease only as to that portion of the leased premises included within such pool or unit; as to that portion of the leased premises not included in such pool or unit, this lease may be maintained during the primary term only by the production of oil, gas or other minerals therefrom or by compliance with the obligations or conditions in lieu of production, as in this lease provided.  As to that portion of the leased premises not included in such pool or unit, after the expiration of the primary term, this lease may be maintained only by production or operations or other provisions herein which pertain to reworking operations, or additional drilling operations at or after the expiration of the primary term.

 

(Emphasis added).  Exhibit “A” provides that in the event of any conflict between the terms of the printed lease form and Exhibit “A,” the provisions of Exhibit “A” shall control.

  The first paragraph of Exhibit “A”  would be consistent  with a customary “paid-up”  lease if it had omitted the exclusion of lease lands located outside the pooled unit.  Exhibit “A” did not do that, however.   Instead,  it allows the lessor to maintain the lease for the remainder of the primary term only by “by the production of oil, gas or other minerals there from or by compliance with the obligations or conditions in lieu of production, as in this lease provided.”   Paragraph Five  of the printed lease form contains “paid-up”  lease language.  It provides, in part: “in consideration of the down cash , lessor agrees that the lessee shall not be obligated except as otherwise provided herein, to commence or continue operations during the primary term.” Further, the “paid-up”  language in paragraph five of the printed form, does not absolutely excuse all primary term operations. Instead, Paragraph 5 of the printed form excuses primary term operations  “except as otherwise provided herein.”

 Each of the leases covering Tract 2 contains the following language in paragraph 6 of the printed lease form dealing with “Operations”:

 

If at any time or times during the primary term operations are conducted on said land and if all operations are discontinued, this lease shall thereafter terminate on its anniversary date next following the one hundred eightieth day after such discontinuance, unless on or before such anniversary date. Lessee, either (1) conducts operations or (2) . If there is no further anniversary date of the primary term, this lease shall terminate at the Inn of such term or on the one hundred eightieth day after discontinuance of all operations, which ever is the later date, unless on such later day either (1) Lessee is conducting operations or (2) . The shut-and well provisions of paragraph 3 or the provision of paragraph 12 are applicable. . . .

 

  We call these provisions of the leases to your attention,  so that you can comply with them in the event you obtain production on  drilling and producing units  consisting of lands pooled with  the lands covered by those leases.

 Requirement:  If you obtain production on any drilling and producing unit formed by pooling any lands covered by any of the above described leases,  you should review the above mentioned lease maintenance revisions and comply with the terms of that provisions.

Copyright 2011 by Edward G, Hawkins. All rights reserved.