Extension of primary term of lease

Oil and Gas Leasing Help
1

Hello,

Could you please let me know if this lease language is standard (Texas), or whether this gives too much leeway for the lease to be extended if oil and gas are not being produced?

“It is agreed that the lease shall remain in force for a primary term of three (3) years from this date, and as long thereafter as oil or gas is produced or operations are conducted upon said land, or on lands pooled therewith, in an endeavor to produce oil and/or gas in commercial quantities with no cessation for more than six (6) months. Whenever used in this lease the word “operations” shall refer to any of the following activities performed by Lessee: preparing a location for drilling, drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing a well in search for or in an endeavor to obtain production of oil and/or gas in paying quantities.”

Later in the lease, it states…

“This lease may, at Lessee’s option, be extended as to all or part of the lands covered hereby for an additional primary term of two (2) years commencing on the date that the lease would have expired but for the extension. Lessee may exercise its option by paying or tendering to Lessor an extension payment of $XXX.00 as bonus consideration for the land then covered by the extended lease, said bonus to be paid or tendered to Lessor in the same manner as provided in Paragraph numbered 4 hereof with regard to the payment of shut-in royalties. If Lessee exercises this option, the primary term of this lease shall be considered to be continuous, commencing on the date of the lease and continuing from that date to the end of the extended primary term. Lessee’s option shall expire at expiration of the initial primary term of this lease.”

2

The first paragraph is standard and allows for the normal operations.

Personally, I will not allow the option to extend as I would rather take a chance on market conditions at the end of the primary term of three years. (sometimes it is better, sometimes worse.) The option puts all of the power in the lessee’s hands at that point. I would rather be able to lease to them or another group at the end of the first term if not drilling commenced. Some folks are okay with the extension with double the bonus.

3

It’s often common, but you can usually tell them you don’t want an option to extend and they’ll usually accept that. You may want to do some googling to familiarize yourself with the clauses of an OGL in general if you aren’t using an attorney to negotiate for you. Googling something like: “what is the benefit of including an option to extend in oil and gas lease” will be able to help you a lot in something like this. This clause is friendly to the Lessee.

4

Thank you both for your advice. Much appreciated!