How does a extension to a Oil & Gas Lease work. Is price set or renegotiated?
The price depends on several factors. The original lease may have an extension price already stated. If so, then you are bound by that. If not, then whatever the competition is at the time will be important. Personally, I do not allow a lease extension clause in my leases because I do not want to be bound by old clauses and older terms. I would rather have the opportunity to negotiate more favorable terms. But many of us inherited leases that had those sorts of clauses in them.
If a lease includes an option to extend, often the only thing that happens is the lessor gets a check in the mail for the specified bonus sometime before the termination date set by the effective date in the lease and the option term. Nothing to negotiate or that the lessor needs to sign.
If the lease includes an extension option but the termination date passes without the specified bonus being received (and the lease term isn’t being extended by “operations”) a logical step is requesting a notarized release from the lessee that can be recorded in the County deed records to give notice the lease has terminated.
If the lessee wants to amend the original lease, to change the length of the extension or the amount paid they would need to propose those changes before their option expires. The lessor wouldn’t have to accept, and everything would then be subject to negotiation, but if agreement can’t be reached by the expiration date the lessee would still have the right to extend the lease based on the original option provisions.
I agree with M_Barnes on trying to avoid extension options. They’re one sided, only for lessee’s benefit, and if that’s not how things turn out the option won’t be exercised.
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