Elemental Principles of the Modern Oil and Gas Lease

Montana Law Review, Sep 2017

Elemental Principles of the Modern Oil and Gas Lease

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Elemental Principles of the Modern Oil and Gas Lease

Elemental Principles of the Modern Oil and Gas Lease Earl A. Brown Jr. 0 0 Thi s Article is brought to you for free and open access by The S cholarly Forum @ Montana Law. It has been accepted for inclusion in Montana Law Review by an authorized editor of The S cholarly Forum @ Montana Law , USA Recommended Citation Earl A. Brown Jr., Elemental Principles of the Modern Oil and Gas Lease, 17 Mont. L. Rev. (1955). Available at: https://scholarship.law.umt.edu/mlr/vol17/iss1/5 Article 5 Follow this and additional works at: https://scholarship.law.umt.edu/mlr Part of the Law Commons Recommended Citation Brown: Elemental Principles of the Modern Oil and Gas Lease Elemental Principles of the Modern Oil and Gas Lease My subject today is certainly all-inclusive and encompasses much of the field of oil and gas law. The limitation of my discussion has been more difficult than the statement of it; lack of time has required the omission of many interesting and fascinating derivative problems arising out of the present-day oil and gas lease and the so-called lessor-lessee relationship created by it. It has also been necessary to omit any discussion of the history and evolution of the lease form, and to limit my remarks to the point that I will only indicate certain elemental principles of the modern oil and gas lease on non-government land. The oil and gas lease represents the agreement between the owner of the land, or the mineral rights and interests therein, and another party called a lessee for the granting of certain rights and interests so that the lessee can drill for and produce oil and gas. Naturally, all oil and gas lease forms do not contain the same words and provisions; likewise, the nature of the interests and the legal relationships so created vary with the laws of the different states. Depending on the jurisdiction, this interest has been held to be "a profit a prendre, a corporeal hereditament, an incorporeal hereditament, an estate in land, not an estate in land, an estate in oil and gas, not an estate in oil and gas, a servitude, a chattel real, real estate, interest in land, not an interest in land, personal property, a freehold, a tenancy at will, property interest, and the relation of landlord and tenant. ' Whatever the legal definition of the interest may be, however, there is not too much practical difference in these interests or rights as between states, and to a large extent, we find that actual operations under standard oil and gas leases do not substantially differ in any of the oil producing states of this country. While the technical wording and phraseology of the lease form are not identical in every instance, experience has demonstrated that it should contain the following parts: (1) The lease must have two parties, a lessor and a lessee, and provide for the payment of a consideration. (2) The lease must be dated and ordinarily provides that it shall remain in force for a definite term of years (called the primary *General Counsel, Mobil Producing Company; Chairman, Oil Committee, American Bar Association; Billings, Montana. '1 SUMME's, THE LAW OF OIL AND GAS, § 152, pp. 372-76 (2nd Ed. 1938). However, without regard to the nature or classification of leasehold interests, it appears that in the event of a sale or assignment of these interests through the mails, such assigned interests may be "securities" within the meaning of that term as defined in the Securities Act of 193.3, 15 U.S.C. 77b(1) (1952), and the seller should file his registration statement with the Securities and Exchange Commission and otherwise comply with the provisions of the Act. See Securities & Exch. Com. v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 Sup. Ct. 120, 88 L.Ed. 88 (1943) ; Wall v. Wagner, 125 F. Supp. 854 (0. D. Neb. 1954) ; Note, 163 A.L.R. 1060 (1940). For a summary of authorities and articles regarding the application of various state Blue Sky! Laws to such transactions, see Discussion Notes, 3 Oil and Gas Reporter 1747 and 4 Oil and Gas Reporter 369. In this connection, North Dakota in 1953 adopted an act requiring oil and gas brokers to register and file a surety bond. N. DAK. REv. CoDE, c. 43-22 (1953 Supp.). term) and as long thereafter as oil or gas is produced from the leased land. (3) The lease must contain a granting clause and a description of the leased land. (4) The lease should contain royalty provisions under which the lessee pays the lessor certain royalties in the event of production. By reason of the increasing importance of natural gas production, it is now also important to provide for the payment of so-called shut-in gas royalties. (5) The lease should contain a provision allowing the lessee to perpetuate the lease by payment of annual rentals during the primary term absent production. (6) The lease should contain provisions defining the rights of assignment and surrender. (7) The lease should contain provisions for drilling or reworking operations on the leased land. (...truncated)


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Earl A. Brown Jr.. Elemental Principles of the Modern Oil and Gas Lease, Montana Law Review, 2018, Volume 17, Issue 1,