Oil and Gas Leasing Information

Oil and Gas Leasing Information

Preliminary Thoughts

  • There is no “model” lease that has been approved by the state of Ohio
  • Consult with an experienced attorney -- terms of a lease are negotiable

Summary of Clauses You Are Likely to Find in Your Lease

  • Right to explore, develop, and produce (Granting Clause)
    • Authorizes drilling equipment on our property, unless a non-drilling lease is negotiated
    • Includes list of minerals to be developed
    • May also include list of minerals not to be developed: for example, gravel and sand
    • Authorizes Installation of ingress/egress drives, power lines, pipelines, tanks, fencing, compressor stations, and related items, unless limited by lease terms
  • Lease term (Habendum Clause): primary and secondary
    • Length of primary term (typically five years with right to renew for five)
    • Secondary term: initiated by operations or production; end of term often indefinite
    • May contain an automatic termination or forfeiture for failure to develop or abide by lease terms
  • Financial terms (Royalty Clause)
    • Royalty terms (varies between 12.5% and 20% plus)
    • Gross vs. net (deduction for post-production costs)
    • Shut-in royalties (amount and conditions may vary widely)
    • Free gas or payment in lieu if well is on lessor’s property
    • May contain a right to audit
  • Surface and subsurface provisions
    • Legal description of premises
    • Leases may be limited to subsurface activities
    • Location of well(s), tanks, power lines, pipelines (depth), compressor stations, fencing and gates, ingress/egress driveways, and related items -- minimum distances to a dwelling and other buildings may be specified
    • Removal of timber can be limited or compensated for
    • Crop damage can be compensated for
    • Withdrawal of water can be limited or compensated for
    • May specify requirements for restoration and repair of surface disturbance (standards)
  • Unitization or pooling rights
    • Your property may be included with other property to form a drilling unit
    • Pugh clause: release of acreage and formations not included in drilling unit

Additional Matters You May Want Your Lease to Address

  • Require bonus payment to be paid (up-front)
  • Have well water tested by an independent laboratory: both before and after drilling
  • Define when drilling operations “commence”
  • Define when a well is “completed”
  • Horizontal severance clause:  If the premises may contain several producing formations at varying depths, lease each strata separately
  • No hazardous materials
  • No gas storage
  • No storage pits
  • No injection well(s)
  • Removal of equipment upon completion of drilling related activities
  • Maintenance of driveways, tanks, fencing, gates and other equipment and structures
  • Insurance coverage: workers comp and employer’s liability, commercial general liability and umbrella liability, business auto, and environmental liability -- coverage to include the landowner
  • Indemnification provision
  • Assignment rights (notice and consent)
  • If there is a mortgage on premises: check with your lender
  • Taxes:  Ad Valorem, property, CAUV, Forestry, and Conservation Reserve Program.  Check with your tax advisor on applicable items plus income tax relating to bonus and royalty payments
  • Ensure that the executed lease is recorded with the County Recorder’s office
  • Legal disputes: how and where to be addressed


Prepared by Geauga County Planning Commission, January 2012

Note:  The foregoing is not meant to constitute or represent legal advice.  Please consult with an experienced attorney before entering into a lease on your property.