This Lease of Oil Rights is used between a lessor and lessee to grant the lessee the right to drill and explore on lessor's land for the sole purpose of extracting oil. This document contains the material terms and conditions of the agreement including the lease term, rental payment, lessee's rights, and an oil royalty. It includes numerous standard provisions that are commonly included in these types of leases, and may be customized to fit the particular needs of the contracting parties.
This Lease of Oil Rights is used between a lessor and lessee to grant the lessee the right to drill and explore on lessor's land for the sole purpose of extracting oil. This document contains the material terms and conditions of the agreement including the lease term, rental payment, lessee's rights, and an oil royalty. It includes numerous standard provisions that are commonly included in these types of leases, and may be customized to fit the particular needs of the contracting parties. LEASE OF OIL RIGHTS THIS LEASE OF OIL RIGHTS AGREEMENT (the “Agreement”, is made the ____ day of _____________, 2____ (the “Effective Date”) by and between ______________ (the “Lessor”) and _________________ (the “Lessee”). THE LESSOR AND THE LESSEE HEREBY ACKNOWLEDGE AND AGREE AS FOLLOWS: 1. Granting Clause The Lessor, in consideration of the rent payment of $______________, [specify the amount of rental for primary term], receipt of which is acknowledged by Lessor, and the covenants and conditions contained in this lease, hereby grants and leases to the Lessee the right to drill and explore the lands legally described as ____________________________ and containing _______ [number of] acres, (the “Lands”) for the sole purpose of extracting, storing, and removing oil, including but not limited to, the laying of any and all necessary pipes and the installation of oil tanks. 2. Lease Term The Lessor leases to the Lessee the Lands for a term of __________ years from and after the date of this lease and so long thereafter as (a) oil is being produced from the Lands; (b) drilling operations are being continuously prosecuted on said Lands; or (c) the term is extended by the agreement of the parties. The lessee shall request an extension for a further term of ______ (___) years upon _____ (___) days’ written notice to the Lessor prior to the expiry of the lease term. [Comment: the lease term, also known as the “habendum clause,” is the provision in an oil and gas lease that sets the duration of the tenant’s interest in the lease. The purpose of this clause is to limit and define the estate granted or conveyed.] 3. Termination This Agreement may be terminated by either the Lessor or the Lessee prior to the expiry of the Term in the event the said Lands described herein fail to or stop producing oil. In the event the said Lands fail to or stop producing oil, the Lessor or the Lessee shall provide the other party with ______ (__) days’ advance written notice of its intention to terminate this Agreement. In the event such notice is received by a party, the Lessee agrees that it shall remove any and all of its equipment and storage tanks from the Lands within ______ (___) days. 4. Lessee’s Rights During the term of this lease, Lessee shall have the right to explore, drill, and mine for and extract, store, and remove oil from the Lands for the following purposes: A. To enter and occupy the Lands; B. To erect, construct, maintain, operate, use, repair, and replace on the Lands structures, buildings, plants, machinery, casing, instruments, equipments, tanks, houses for employees, pipe lines, pole lines, power lines, telephone lines, telegraph lines, roads, and other structures and facilities as may be necessary or convenient; C. To drill on said Lands for water and use, without charge, any water obtained by its operations on the Lands; D. To construct, erect, maintain, use, operate, repair, and replace on the Lands a plant, with all necessary appurtenances, for the extraction of oil and other products from the Lands or other land in the vicinity. 5. Oil Royalty The Lessee agrees that it shall pay to the Lessor Royalties (the “Royalties”) at the rate of _______ [Instruction: insert a fraction or percentage, e.g. one sixth or one eighth or 12 ½ percent] of the value of all oil produced and removed from the Lands after the customary adjustments are made for temperature, water, and basic sediment. The value of the oil shall be the posted available market price in the district in which the Lands is located for oil of like gravity on the day the oil is removed from the Lands. No royalty shall be due Lessor for or on account of oil lost through evaporation, leakage, fire, or other casualty before marketing, or when royalty oil is being taken in kind by Lessor, before delivery. 6. Payment of Royalties The Royalties which become due and payable to the Lessor by the Lessee shall be paid to the Lessor on a monthly basis by no later than the ____ day of each and every month; provided however, that should the amount of royalties due for any month be less than $_________ [Instruction: specify amount, e.g. $50], payment of this amount may be withheld until it equals $_________ [Instruction: specify amount, e.g. $50], or until the end of the calendar year. All royalties regardless of amount, shall be fully paid, if not otherwise already paid, at the end of the calendar year in which they accrue. 7. No Royalty for Own Use Lessee is not required to account for or pay royalties to Lessor for oil produced and used by Lessee in its operations under this lease. Any and all oil retrieved and extracted from the Lands by the Lessee, shall be used by the Lessee for its own use. 8. Development Clause Should operations for the drilling of a well for oil not be commenced on said Lands on or before ___________________ [Instruction: state time period or date], this lease shall terminate as to both parties, unless Lessee shall, on or before the last day of that period, pay or tender to Lessor the sum of $_________ per acre for each acre of the Lands remaining subject to this lease as delay rental deferring the commencement of drilling operations on the Lands for an additional __________ month period. In like manner, the commencement of drilling operations on said Lands may be further deferred for additional _______ month periods by Lessee making or tendering a like payment to Lessor on or before the last day of each successive ________ month period. 9. Oil Development Should oil be produced in paying quantities by any well drilled by Lessee on the Lands, Lessee shall continue to drill additional wells on the Lands as rapidly as can be done with one drilling rig working with reasonable diligence until as many wells have drilled on the Lands as equal the number of acres held under this lease divided by _______ [Instruction: insert number]. Thereafter, all drilling obligations of the Lessee on the Lands shall be deemed fully performed. [Comment and Instruction: the following paragraph, entitled the “Dry-Hole Clause,” is an alternative lease provision used when a completed well does not produce oil or gas, or at least. It allows the operator reasonable time to determine whether the well will produce oil in paying quantities.] 10. Dry-Hole Clause Should Lessee, before the discovery of oil in paying quantities on the Lands, drill a well on said Lands to a depth of at least ______ feet and the well be a dry hole, as that term is commonly understood in the petroleum industry, this lease shall terminate, unless within ________ days, Lessee either commences the drilling of another well on the Lands or resumes the payment of rent to Lessor in the manner specified in Paragraph 1 (“Granting Clause”) of this lease. 11. Offset Wells Should oil be discovered in paying quantities by means of any well drilled on property adjoining the Lands and within ________ feet of the exterior boundary of the Lands, Lessee shall offset this well by commencing the drilling of an offset well on the Lands provided both of the following conditions are met: (a) Oil in paying quantities is produced by the adjoining well for longer than a 30-day production test period; and (b) The drilling obligations of Lessee expressed in Paragraph 9 (“Oil Development”) have not been fully performed. 12. Conduct of Operations All operations to be performed by Lessee on said Lands in accordance with this lease shall be performed by Lessee at Lessee’s own cost and expense. Further, Lessee hereby agrees that it shall at all times throughout the term of this Agreement, use all of its reasonable best efforts to ensure the oil retrieved and extracted from said Lands does not contaminate any abutting or adjacent land to said Lands and shall exercise and have in place all necessary safety precautions. The Lessee further agrees that it shall store and maintain any and all oil retrieved and extracted from the Lands in proper oil storage tanks. 13. Suspension Clause Drilling and production operations under this lease may be suspended by Lessee during any period the price offered generally in the vicinity of said Lands to producers for oil of the quality produced from said Lands is _________ [Instruction: insert number] cents or less per barrel at the well. Furthermore, the obligations of the Lessee under this lease shall be suspended during any period Lessee is prevented from performing these obligations, in whole or in part, by strikes, lockouts, actions of the elements, other matters or conditions beyond the control of Lessee, or the statutes, rules or regulations of any governmental agency, be it federal, state, municipal, or otherwise. 14. Taxes Lessee shall pay taxes on any improvements placed or oil stored by it on said Lands and ______________ [Instruction: insert a fraction or percent] of the taxes levied and assessed on the petroleum mineral rights on said Lands. Lessor shall pay all taxes levied or assessed against said Lands and _____________________ [Instruction: insert a fraction or percent] of the taxes levied and assessed against the petroleum mineral rights in said Lands. Should any state, federal or local government levy a license or tax on the oil produced under this lease or on Lessee’s right to conduct operations under this lessee, Lessee shall pay ______________ [Instruction: insert a fraction or percent] and Lessor shall pay ____________ [Instruction: insert a fraction or percent] of this license or tax. 15. Surface Use Lessor shall have the right to use the surface of the Lands, and all of it, for agriculture and any purposes that do not interfere with Lessee’s rights under this lease. 16. Default Clause Should Lessee default in the payment of any rent or royalty due under this lease or in the performance of any other obligation imposed on it by this lease, and this default is not corrected within ______ [Instruction: insert number] days after written notice of the default has been served on Lessee by Lessor, then Lessor may terminate this lease and all rights of Lessee in and to the Lands, under this lease, shall cease. However, if any oil well has been drilled or is being drilled on the Lands by Lessee and Lessee is not in default in connection with this well, Lessee’s right to this well and to one acre surrounding the well, together with Lessee’s right to any rights- of-way necessary for egress and ingress to the well, shall not be affected by the default or terminated by the Lessor. 17. Surrender of Land Lessee, either before or after discovery of oil on the Lands, at any time, and from time to time, may surrender all or any part of the Lands to Lessor, or its successors in interest, by executing and delivering to Lessor, or its successors in interest, an instrument of surrender particularly describing the portion surrendered and recording and acknowledged copy of the surrender instrument in the office of the County Recorder of the county in which the Lands are located. On surrender by Lessee of all or any part of the Lands, Lessee’s obligations under this lease to the Lands so surrendered shall cease, and full title to the surrendered Lands shall vest, free and clear of this lease, in Lessor, or its successor’s in interest; provided, however, that Lessor shall not drill any oil or gas wells on any Lands surrendered in accordance with this Paragraph within ______ [Instruction: insert number] feet of any well drilled by Lessee on any other portion of the Lands. 18. Assignments The rights of Lessor and Lessee hereunder may be assigned in whole or part. However, no assignments by Lessor or Lessee shall be binding unless written notice of the assignment was given. 19. Notice Any notice required or permitted to be given hereunder shall be in writing and shall be effectively given if (i) delivered personally, (ii) sent by prepaid courier service or registered mail, or (iii) sent prepaid by telecopier or other similar means of electronic communication (confirmed on the same or following day by prepaid mail) addressed, in the case of notice to the Lessor as follows: and in the case of the Lessee as follows: Any notice so given shall be deemed conclusively to have been given and received when so personally delivered or sent by telecopier or other electronic communication, or on the second day following the sending thereof by courier, or on the sixth day following the sending thereof by registered mail. Any party hereto or other mentioned above may change any particulars of its address for notice by notice to the other in the manner aforesaid. 20. Entire Agreement This Agreement constitutes the entire agreement between the Lessor and the Lessee and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof. Each party to this agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this agreement shall be valid or binding. 21. Counterparts: This Agreement may be executed in several counterparts, and in that event, each counterpart shall be deemed to be a complete original and be enforceable without reference to any other counterpart. All counterparts taken together shall constitute one and the same document. 22. Modifications: Any modification of this agreement will be effective only if it is in writing and signed by the party to be charged. This Agreement shall be read with all changes in gender, number and grammar as may be required by context. 23. No Strict Construction: The language contained herein shall be deemed to be that approved by all parties hereto and no rule of strict construction shall be applied against any party hereto. 24. Attorneys’ Fees and Costs If any legal action is necessary to enforce or interpret the terms of this agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. This provision shall be construed as applicable to the entire contract. 25. Waiver Either party’s failure to enforce any provision or provisions of this Lease Agreement shall not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Lease Agreement. The rights granted the parties herein are cumulative and the waiver by a party of any single remedy shall not constitute a waiver of such party’s right to assert all other legal remedies available to him or her under the circumstances. 26. Binding on Heirs This Agreement shall be binding on and ensure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. 27. Severability Each provision of this Agreement is intended to be severable. If any provision hereof is illegal or invalid, such illegality or invalidity shall not affect the validity of the remainder hereof. 28. Arbitration The Lessor and the Lessee hereby agree that any disputes or disagreements respecting the negotiation, performance or interpretation of this Agreement or the transaction to which this Agreement relates, or respecting any claims arising under or in relation to this Agreement or the transaction to which this Agreement relates, shall be resolved as follows: (a) the parties shall attempt to resolve any dispute or claim by dealing with each other directly; (b) in the event that the parties cannot resolve the dispute or claim within thirty (30) days after the dispute is raised or the claim is made, then each party shall, within thirty (30) days thereafter, appoint an arbitrator, and the two arbitrators so appointed will, within thirty (30) days after their appointment, agree upon the appointment of a third arbitrator. If one party fails to appoint an arbitrator within the thirty (30) day time limit as outlined above, then that party shall be deemed to have forfeited its right to appoint an arbitrator, and the arbitrator appointed by the other party shall appoint one other arbitrator, and both of those arbitrators shall agree upon the appointment of a third arbitrator. Once all three arbitrators have been appointed, the Claim or dispute shall be presented by the parties to the three arbitrators at the earliest time or times designated by the three arbitrators, and the three arbitrators shall resolve the dispute on the basis of a majority decision. Such decision of the arbitrators shall be final and binding on the parties, and the parties shall have no further right of appeal to any other party, body, authority or court. 29. Governing Law, Jurisdiction, and Venue This Agreement shall be interpreted in accordance with the laws of the State of _______________________. 30. Voluntary Agreement Each of the parties hereto acknowledges that they have had the opportunity to and have been advised to obtain independent legal advice prior to entering into this Agreement. Each of the parties hereto acknowledges having obtained such legal advice and acknowledges having read and understood each and every provision of this Agreement as it affects them respectively. Lessor and Lessee further represent and agree that each has reviewed all aspects of this agreement has carefully read and fully understands all provisions of this agreement, and is voluntarily entering into this Agreement. IN WITNESS WHEREOF this Agreement has been duly executed by the Lessor and the Lessee as of the day and year first written above. (LESSOR) Per Name: Title: I have authority to bind the Company. (LESSEE) Per Name: Title: I have authority to bind the Company.
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