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The quintessential legal document of the United States oil and gas industry is the oil and gas lease, which is both a contract and a conveyance of property. The oil and gas lease conveys ownership of mineral rights from the mineral owner (the "lessor") to an oil company (the "lessee"). It also serves as a contract because in exchange for the mineral rights, the lessee makes certain promises to the lessor.

The oil and gas lease's name is a misnomer because it is "a unique instrument that fits uneasily into existing legal categories" and is more akin to a deed than it is to a typical real estate lease.

The oil and gas lease is structured very differently than ordinary real-property leases and reflects the realities of the petroleum industry. The leases generally contain the following clauses: granting, habendum, delay-rental ...

History
In the beginning days of the U.S. oil and gas industry, the standard term of length of an oil and gas lease was a long definite term, typically ranging from 10 to 99 years. The modern lease evolved to have primary and secondary terms, with the shorter secondary term being triggered upon the expiration of the primary term if at that time of expiration the lessee was producing payable quantities of oil or gas from the leased land.

In general
The granting clause appears in all oil and gas leases and contains the necessary words conveying a property interest from the lessor to the lessee. It must identify the size of the mineral interest being granted, the type of mineral interest (oil, gas, helium, etc.), and the parcel(s) of land covered by the lease (described in metes and bounds or with the use of the rectangular system, depending on the jurisdiction). Typically, the granting clause is structured as if the lessor owns one-hundred percent of the mineral estate just in case the lessor owns a portion of the estate different than previously thought.

"Mother Hubbard" clause
Like most property conveyances, oil and gas leases contain "Mother Hubbard" clauses which ensure that, if a property description in the granting clause is inaccurate, the lease will still cover the intended property. A standard oil and gas lease "Mother Hubbard" clause is as follows: "'This Lease also covers and includes any and all lands owned or claimed by the Lessor adjacent or contiguous to the land described hereinabove, whether the same be in said survey or surveys or in adjacent surveys, although not included within the boundaries of the land described above.'"Courts do not typically interpret these clauses literally, instead courts enforce the clauses as catch-alls created to ensure the intended property was covered by the lease.

Rights conveyed in the granting clause
The granting clause gives the lessee certain rights, such as the implied right to reasonably use the surface of the lessor's land to find, develop, and produce oil and gas. Therefore, a lessor cannot interrupt the lessee from doing these things, and if the lessor does interrupt the lessee, a court may award lessees damages and/or suspend the running of the oil and gas lease.

Reasonable uses of the surface land can vary but generally include the right to build roads, erect oil and gas production equipment, and the right to conduct seismographic tests. Moreover, the lessee must use the surface land with due regard for the surface owner's interests. If the lessee's use of the surface is for purposes not covered by the lease, the lessee is committing trespass and may be liable to the lessor.

Habendum clause
The habendum clause is standard in most oil and gas leases, in effect, it provides that the lease may be preserved beyond the primary term of the lease (typically ranging from one to ten years) so long as oil or gas is produced in paying quantities at time of expiration of the primary term. According to the Law of Oil and Gas Leases, the standard habendum clause most commonly used in oil and gas leases is the following: "“It is agreed that this lease shall remain in force for a term of  years from this date, and as long thereafter as oil or gas, or either of them, is produced from said lands by the lessee.”"Note that the word "produced" in the standard clause is interpreted by most state courts to mean "produced in paying quantities." Courts differ however as to how they determine whether the oil or gas is being produced in "paying quantities." The majority of states however use a two-step analysis. First, the courts look at the objective revenue and expenses of the oil and/or gas operation, and if there is even a slight profit, the lease can be extended. If the court does not find that the operation is literally profitable, the court will extend the lease if a "reasonable and prudent operator" would continue the lease because of an expected profit.

Delay-rental clause
Delay-rental clauses allow the lessee to extend the primary term of the oil and gas lease for a defined period of time in exchange for compensation. State and federal oil and gas leases require delay-rental clauses but the clauses are becoming less common between private entities and individuals because of the increasing prominence of paid-up leases.

There are two types of delay-rental clauses: the "unless" clause and the "or" clause. The "unless" clause is the more common variety of the delay-rental clause. A typical "unless" delay-rental clause is as follows: "'If operations for drilling are not commenced on said land, or on acreage pooled therewith as above provided for, on or before one year from the date hereof, the Lease shall terminate as to both parties, unless on or before, such anniversary date Lessee shall pay or tender to Lessor [a monetary sum] ... herein called rentals, which shall cover the privilege of deferring commencement of drilling operations for a period of twelve months.'"On the other hand, an "or" clause provides that if a lessee has not commenced drilling within one year of the lease commencing, the lessor must either pay delay rentals or surrender the lease prior to the due date. These clauses are more common in California and Appalachian states.