The oil and gas lease is a legally binding contract between the mineral
owner (Lessor) and an individual or company (Lessee), which allows for the
exploration and extraction of the minerals covered under the lease. The lease
determines the rights and duties of each party with respect to exploration,
drilling, and the removal of oil or gas, among others.
1) Granting Clause 1 This Lease Agreement (the “Lease”) is made and entered into this _____ day of __________, (the “Effective Date”) 3) Royalty Clause
between ____________________ as Lessor, and ____________________ as Lessee.
The granting clause is the part of the lease where The royalty clause is the income portion of the
you, as the mineral owner, grant to the oil and gas In consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt of which is lease paid when the lessee extends the lease into
acknowledged, and of the covenants and agreements contained in this Lease, on the part of Lessee paid, kept,
company the specific right to come onto your land and performed, grants, demised, leases, and lets to the Lessee, for the sole and only purpose of exploring by the secondary term. Most often the royalty will
and explore for oil and gas. geophysical and other methods, mining and operating for oil (including but not limited to distillate and range from a 1/8th interest to a 1/4th interest, but it
condensate), gas (including casinghead gas, coal bed gas, coal seam gas, helium and all other constituents),
and for laying pipelines and building tanks, powers, stations, and structures, to produce, save, and take care is also important what underlying basis your share
The granting clause addresses at least three fac- of those products, all that certain tract of land, together with any reversionary rights in it, situated in __________ is calculated from. The lessor’s share in production
County, Arkansas, and described as follows:
tors that determine the rights granted: can be based on several different forms of the
> The rights given to use the land; [Legal Description of Property] lessee’s realization of income. One of the most
> The substances covered under the lease; and widely litigated issues of the oil and gas industry
and containing _____ acres, more or less, together with, and to the same extent as if specifically described, all
> What land and what interests are subject lands owned or claimed by Lessor which are adjacent, contiguous to, or from a part of the lands particularly over the past three decades is the meaning of
described above, including all oil, gas, and their constituents underlying lakes, rivers, streams, roads, ease-
to the lease. “market value” in lease royalty clauses.
ments, and rights-of-way which traverse or adjoin any of these lands. All of the lands that are subject of this
Lease are referred to as the “lands” or the “lease premises.”
In today’s market, an up-front cash bonus per acre
is paid by the oil and gas company for the right to
come onto your land and explore for oil and gas.
Most recent cash bonuses have ranged from $150
2 This Lease shall remain in force for a term of five (5) years from the date above (the “Primary 4) Pooling Clause
Term”) and as long thereafter as oil or gas, or either of them, is produced in paying quantities
to $300 per acre, depending on a myriad of factors. Because a common resevoir of oil or gas is usually
from the lands or from lands pooled therewith.
contiguous beneath multiple landowners’ properties,
land is often “pooled” so that extraction can occur
more efficiently. The pooling clause of the oil and
gas lease generally provides that active production
As to royalty, Lessee covenants and agrees to deliver to the credit of Lessor the equal
_____% part (the “Royalty Fraction”) of the market value for the gas sold, used off the anywhere in the pool satisfies the habendum
2) Habendum Clause lease premises, or used in the manufacture of products from the gas, the payments to
be made monthly.
clause as to the leased premises as a whole.
The habendum clause defines the “primary” and
“secondary” terms of the lease. The “primary”
term is the period in which the lessee has the right
to come onto the land and explore for oil and gas. Lessee is granted the right at any time and from time to time to pool or unitize 4
The “secondary” term provides that the lease will the Lease and lands or any portion or portions of the Lease and lands. In the
event a portion of the land hereby leased is pooled or unitized with other
5) Pugh Clause
remain in effect if a successful well is drilled during lands so as to form a pooled unit or units, operations on or production from In 1983, the Arkansas legislature specifically narrowed
the primary term of the lease and production has such unit or units will maintain this Lease in force. the impact of the pooling clause by adopting a
occurred. Thereafter, the lease is maintained by
5 version of the Pugh clause by statute. The Pugh clause
“production” or “production in paying quantities” expressly severs the leased premises horizontally
Ark. Code Ann. § 15-73-201. Production Extension.
as outlined in the habendum clause. between pooled and nonproducing or unexplored
The term of an oil and gas or oil or gas lease extended by production in quantities in lands in one sec- lands.
tion or pooling unit in which there is production shall not be extended in lands in sections or pooling
units under the lease where there has been no production or exploration.
This section shall not apply when drilling operation have commenced on any part of lands in sections
or pooling units under the lease within one year after the expiration of the primary term, or within one
year after the completion of a well on any part of lands in sections or pooling units under the lease.
The provisions of this section shall apply to all oil and gas or oil or gas leases entered into on and after
July 4, 1983.
Casinghead Gas means any gas or vapor, or Controlled Oil Field means any common source Flowing Well means a well from which oil or
both gas and vapor, indigenous to an oil stratum of supply of crude oil discovered after January 1, gas flows naturally without pumping or other
and produced from such stratum with oil. 1937, or any field discovered prior to January 1, means of artificial lift.
1937, provided any pool therein has been discov-
Combination Well means a well productive of ered after January 1, 1937. Gas means the natural gas obtained from gas or
both oil and gas in commercial quantities from combination wells regardless of its chemical
the same common source of supply, which has Controlled Gas Field means any common analysis.
sufficient natural gas pressure to cause the source of supply of natural gas discovered after
gas to enter a pipe line carrying more than January 1, 1937, or any field discovered prior to Gas Well means (1) a well which produces nat-
atmospheric pressure. January 1, 1937, provided any pool therein has ural gas only; (2) any well capable of producing
been discovered after January 1, 1937. gas in commercial quantities and also produc-
Common Source of Supply means (1) the geo- ing oil from the same common source of supply
graphical area or horizon definitely separated Controlled Production means the production of but not in commercial quantities; (3) any well
from any other such area or horizon and which oil or gas, or both oil and gas, from a controlled classed as a gas well by the Arkansas Oil and
contains, or from competent evidence appears oil or gas field. Gas Commission for any reason; or (4) a well that
to contain, a common accumulation of oil or gas contains no liquid hydrocarbons in the reservoir.
or both; or (2) any oil or gas field or part thereof Cubic Foot of Gas means the volume of gas con-
which comprises and includes any area which is tained in one cubic foot of space at the standard Oil means crude oil or petroleum.
under laid, or which from geological or other pressure base and the standard temperature
scientific data or experiments or from drilling base. The standard pressure base is 14.65 Oil Well means any well capable of producing
operations or other evidence appears to be pounds per square inch absolute and the stan- oil in paying quantities not a gas well.
under laid by a common pool or accumulation of dard temperature base is 60° Fahrenheit.
oil or gas, or both oil and gas. Pool means an underground reservoir containing
Field means the general area which is underlaid, a common accumulation of crude petroleum oil
Conservation means conserving, preserving, or appears to be underlaid, by at least one pool; or natural gas, or both. Each zone of a general
guarding, or protecting the oil and gas resources “field” includes the underground reservoir or structure, which is completely separated from
of the state by obtaining the maximum efficiency reservoirs containing crude petroleum oil or nat- any other zone in the structure, is covered by
with minimum waste in the production, trans- ural gas, or both. The words “field” and “pool” the term “Pool” as used herein.
portation, processing, refining, treating, and mean the same thing when only one underground
marketing of the non-renewable oil and gas reservoir is involved; however, “field” unlike Production Interest means the right to a speci-
resources of the state. “pool,” may relate to two or more pools. fied part of production.
O U R AT T O R N E Y S
MARK MURPHEY HENRY is MICHAEL SEAN BRISTER NATHAN PRICE CHANEY is a KALEB KYLE HENNIGH STEPHEN CHARLES
a registered patent attor- holds a Master of Laws in registered patent attorney. holds a Master of Laws in PARKER, JR. obtained his
ney who holds a Master Agricultural Law. Sean Nathan obtained his J.D. Agricultural Law. Kaleb J.D. from the University
of Laws in Agricultural obtained his J.D. from from Washington & Lee obtained his J.D. from of Arkansas and has a
Law. Mark obtained his the University of University and has a B.S. the University of B.S. in Chemical
J.D. with honors from the Arkansas and has a B.S. in Computer Systems Oklahoma and has a B.S. Engineering. He is
University of Arkansas in Agronomy. He is Engineering. He is in Agricultural Science licensed to practice in
and has a B.A. in Biology. licensed to practice in licensed to practice in and Natural Resources. Arkansas.
He is licensed to practice Arkansas. Arkansas and the Federal He is licensed to practice
in Arkansas, Missouri, Circuit Court of Appeals. in Oklahoma.
Oklahoma, the Supreme
Court of the United
States, the Eighth Circuit,
and the Federal Circuit
Court of Appeals.
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DISCLAIMER This brochure is intended for informational purposes only, and to provide a general guide to understanding some of the many complex issues involving the legal
rights of surface and mineral owners in Arkansas. This brochure should not be substituted for the counsel of an attorney in seeking advice concerning your specific rights as
a surface or mineral owner relative to oil and gas leasing or development on your property.