The Delay Rental Clause

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The Delay Rental Clause

The typical  industry lease contains the following delay rental clause:

This is a PAID-UP LEASE.  In consideration of the down cash payment, Lessor agrees that Lessee shall not be obligated except as otherwise provided herein, to commence or continue any operations during the primary term.  Whenever used in this lease the word “operations” shall mean operations for and any of the following: drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing of a well in search for or in an endeavor to obtain production of oil, gas, sulphur or other minerals, excavating a mine, production of oil, gas, sulphur or other mineral, whether or not in paying quantities.

 

 Oil companies prefer to work with paid up leases and to avoid delay rental obligations.  Normally, in today’s environment, you will not be able to negotiate delay rentals. Normally, in today’s environment, you normally will not be able to negotiate delay rentals.  Only if you have onerous minimum drilling commitments will a delay rental be possible in today’s market.

 

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