This should be an easy answer, but the devil is in the details of the oil and gas lease itself.
Many oil and gas leases have two terms -- a primary term and a secondary term.
The primary term is defined in an oil and gas lease generally in the following language;
"2. This is a paid up lease and subject to the other provisions herein contained, this lease shall be for a term ending three (3) years from the date hereof (called “primary term”) and as long thereafter as oil, gas or other mineral is produced from said land or land with which said land is pooled hereunder."
So, in this case, the primary term of the lease should expire 3 years from the date of the lease. For this example, let's say that the lease date is April 1, 2016. The lease 'should' expire April 1, 2019. Or does it always?
No.
For example, suppose that a well is commenced prior to the expiration of the primary term and continues its drilling through the end of the primary term. There is language for that in the customary lease form, to wit:
"5. If at the expiration of the primary term, oil, gas, or other mineral is not being produced on said land, or from the land pooled therewith, but Lessee is then engaged in drilling or reworking operations thereon, or shall have completed a dry hole thereon within 90 days prior to the end of the primary term, the lease shall remain in force so long as operations on said well or for drilling or reworking of any additional well are prosecuted with no cessation of more than 90 consecutive days, and if they result in the production of oil, gas or other mineral, so long thereafter as oil, gas or other mineral is produced from said land, or from land pooled therewith. If, after the expiration of the primary term of this lease and after oil, gas, or other mineral is produced from said land, or from land pooled therewith, the production thereof should cease from any cause, this lease shall not terminate if Lessee commences operations for drilling or reworking within 60 days after the cessation of such production, but shall remain in force and effect so long as such operations are prosecuted with no cessation of more than 60 consecutive days, and if they result in the production of oil, gas, or other mineral, so long thereafter as oil, gas, or other mineral is produced from said land, or from land pooled therewith."
So, given that language, a Lessee can drill as many dry holes as he wishes -- even after the expiration of the primary term, as long as it has conducted its operations in accordance with the provisions of (in this case) paragraph 5.
How about it operations are not conducted on the lands described in the lease? The Lessee can form a pooled unit or units covering the leased premises with other lands and the net effect (in Texas) is a cross conveyance of minerals in the lease and the unit is treated as if it were one big lease. SO, you can have no operations on your land, but is still maintained without production because of unit operations. A customary clause might look something like this; to wit:
".... In the event of operations for drilling on or production of oil or gas from any part of a pooled unit which includes all or a portion of the land covered by this lease, regardless of whether such operations for drilling were commenced or such production was secured before or after the execution of this instrument or the instrument designating the pooled unit, such operations for drilling on or production of oil or gas from land covered by this lease whether or not the well or wells be located on the premises covered by this lease and in such event operations for drilling shall be deemed to have been commenced on said land within the meaning of paragraph 5 of this lease; and the entire acreage constituting such unit or units, as to oil and gas, or either of them, as herein provided, shall be treated for all purposes, except the payment of royalties on production from the pooled unit, as if the same were included in this lease."
Our last general way to extend the primary term is the condition where production was established before or after the expiration of the primary term and the lease has been thrown into the secondary term. The customary lease form has language to handle that eventuality as well. For example, a typical cessation of production clause might look something like this:
"If, after the expiration of the primary term of this lease and after oil, gas, or other mineral is produced from said land, or from land pooled therewith, the production thereof should cease from any cause, this lease shall not terminate if Lessee commences operations for drilling or reworking within 60 days after the cessation of such production, but shall remain in force and effect so long as such operations are prosecuted with no cessation of more than 60 consecutive days, and if they result in the production of oil, gas, or other mineral, so long thereafter as oil, gas, or other mineral is produced from said land, or from land pooled therewith."
So, when does the lease expire? It can be pretty complicated. To further muddy the waters, there is a big difference between drilling operations, actual drilling and operations for drilling. Operations for drilling could be as insignificant as staking a well location, as long as the operations are conducted in a reasonable and prudent manner.
THIS IS A GREAT REASON TO HAVE A BROAD DISCLAIMER OF WARRANTY IN A LEASE FORM. MAYBE THE EXISTING LEASE HAS EXPIRED -- MAYBE IT HAS NOT.
Good luck on all of this. This is a somewhat complex subject and just not everybody understands the intricacies of when does a lease expire.
Best wishes,
Buddy Cotten