Elemental Principles of the Modern Oil and Gas Lease
Elemental Principles of the Modern Oil and Gas Lease
Earl A. Brown Jr. 0
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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
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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.
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