Guide · the owner's primer

Held by production, explained

Why a 1950s lease still binds your minerals, and when it might not.

An oil and gas lease has two lives. The primary term is the fixed period — three years, five years — during which the company may drill or not. The secondary term begins when a well produces, and it lasts "as long thereafter as oil or gas is produced." That phrase, in the lease's habendum clause, is why a lease signed by your grandparents can still cover your minerals today. The lease is held by production — HBP.

What holds it

Production in paying quantities from any well on the leased land, or on a unit that includes it, holds the whole lease unless the lease says otherwise. One old vertical well making a few barrels a month can hold a square mile of minerals that modern horizontal wells would pay a great deal to lease. That is the condition most Permian owners are in.

What can let it go

• Cessation of production. If the well stops and is not restored within the lease's grace period (often 60 or 90 days), the lease may terminate. Shut-in royalty clauses can keep a gas lease alive without production, but only as the clause allows.
• Production not in paying quantities over a reasonable period, judged by whether a prudent operator would keep producing for profit.
• A Pugh clause or depth clause in newer leases releases acreage or depths outside the producing unit at the end of the primary term.
• Release. Operators release leases they no longer want; the release is recorded at the county.

Top leases

A company that believes a lease is about to fail may offer you a top lease: a new lease that takes effect only if and when the old one ends. A fair top lease pays something now and the balance when it takes effect, and it should not bind you to wait forever — Texas courts have struck top leases that violated the rule against perpetuities. Have anyone's top lease read before you sign it.

The plat shows which wells sit on your tract and what they made last year. A tract "held" by a well that reported nothing for twelve months is worth a closer look.