The Primary and Secondary Terms

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The Primary and Secondary Terms

         The typical  industry lease contains the following type of leasing clause:

Unless sooner terminated or longer kept in force under other provisions hereof, this lease shall remain in force for a term of ten (10) years from the date hereof, hereinafter called “primary term”, and as long thereafter as operations, as hereinafter defined, are conducted upon said land with no cessation for more than ninety (90) consecutive days.

 

 Although most industry printed lease forms provide for primary terms of ten years, the typical primary term in Alabama is five years.  You should negotiate the shortest primary term that you can get.  By shortening the primary term, you force the oil company either to drill on your property within the primary term or to renew the lease and to pay another bonus.  You usually can bargain for a three year primary term.  To get an one year primary term or an eighteen month primary term, you will need extreme bargaining clout.  Otherwise, you will kill the deal because, unless the oil company intends to drill on the leased premises immediately, a primary term shorter than three years does not give the oil company any time cushion for its development plans.

 

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