Termination of Oil & Gas Leases for Lack of Production: Evaluating Habendum Clauses and Protecting Lease Interests

Calculating Paying Quantities, Assessing Lease Duration, Leveraging Savings Clause

Recording of a 90-minute CLE webinar with Q&A


Conducted on Wednesday, November 11, 2015

Recorded event now available

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Program Materials

This CLE webinar will provide guidance to energy counsel on termination clauses in oil and gas leases. The panel will discuss what constitutes “production” necessary to perpetuate the lease beyond the primary term. The panel will also examine other provisions that should be considered when evaluating whether a lease is held past its primary term and offer best practices for handling potential termination of an oil and gas lease.

Description

One of the consequences of the recent sharp drop in oil and gas prices is the impact on lease interests for exploration and production and their lenders. To avoid termination of an oil and gas lease, the lessee must produce oil and/or gas in paying quantities.

The habendum clause is fundamental in oil and gas leases as it sets the duration of the lease, defining the fixed primary term and secondary term. Absence of oil and gas production in sufficient quantities could preclude extension of the lease into the secondary term, and states take different approaches to determining whether there are paying quantities.

Energy counsel must fully grasp and leverage the terms of the habendum clause when first negotiating leases and in assessing whether a lease has been held by production past its primary term. Counsel must also keep in mind that other lease provisions, such as shut in royalty and force majeure, will affect this assessment.

Listen as our authoritative panel of practitioners discusses termination clauses in oil and gas leases. The panel will examine how courts are treating termination clauses in oil and gas leases and will discuss what constitutes “production” necessary to perpetuate the lease beyond the primary term. The panel will also address shut-in royalty clauses and offer best practices for handling potential termination of an oil and gas lease.

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Outline

  1. Termination clauses in oil and gas transactions
    1. Production
    2. Calculating paying quantities
  2. Court treatment of termination clauses
  3. Assessing whether lease is held past primary term
    1. Savings clause
    2. Shut-in royalty clauses
    3. Force majeure clauses
    4. Continuous operations
    5. Cessation of production or operations

Benefits

The panel will review these and other key issues:

  • How are paying quantities calculated? How are states defining “paying quantities” differently?
  • How are courts treating termination clauses?
  • What considerations should counsel keep in mind when evaluating if the lease is held past its primary term?

Faculty

David L. Ganje
David L. Ganje

Moderator
Ganje Law Offices

Mr. Ganje's practice focuses on environmental law, natural resources law, energy law, commercial...  |  Read More

David R. Little
David R. Little

Shareholder
Bjork Lindley Little

Mr. Little focuses his practice on complex oil and gas and regulatory disputes involving, among other things,...  |  Read More

Eric Huddleston
Eric Huddleston

Elias Books Brown & Nelson

Mr. Huddleston's practice primarily involves handling oil and gas and property law litigation but also focuses on...  |  Read More

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