The Free Use of Water and Gas Clause

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The Free Use of Water and Gas Clause

 

The typical  industry lease contains the following free use clause:

 

Lessee shall have the use, free from royalty, of water, other than from lessor’s water wells, and of oil and gas produced from said land in all operations hereunder.  Lessee shall have the right at any time to remove all machinery and fixtures placed on said land, including the right to draw and remove casing.  No well shall be drilled nearer than 200 feet to the house or barn now on said land without the consent of the lessor.  Lessee shall pay for damages caused by its operations to growing crops and timber on said land.

 

Free use of water, oil, and gas can be a significant money loss to you or your client.  For example, the royalty on gas used by Exxon from the gas it produced from Mobile Bay amounted to  $31,873,066.   Exxon Corp. v. Dept. of Conservation and Natural Resources, 859  So.2d 1096, 1109 (Ala. 2002) (Houston, dissenting in part).  It is in your or your client’s interest to have no free use of oil or gas.  Frequently oil companies will agree to this.

An example of a limited use of water, gas, and oil clause that oil companies have accepted is:

 

Lessee’s Use of Gas.  Except as provided in this section, Lessee shall have free use of reasonable quantities of gas  from the Leased Premises for all the following operations directly related to the physical production of gas from the Leased Premises pursuant to this Agreement:  the lifting, separating,  dehydrating, dewatering, treating, compressing, and gathering of such gas.  However, the free use of gas consumed or lost in these operations shall not exceed one  percent (1%) of the total gas produced per month.  In the event that this one percent (1%) limit is exceeded in any month, Lessee shall pay the Lessor Production Royalty for all gas used or lost over this one  percent (1%) limit.

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