habendum clause

Will My Federal Lease Be Extended?

FAQs of Federal Oil and Gas Leases, Federal Lands, Title Issues/Curative, , , , , , ,

Like virtually all modern oil and gas leases, federal leases have a fixed primary term (typically 10 years)[1] and a habendum (i.e., “so long thereafter”) clause.  But understanding the provisions of the Mineral Lands Leasing Act of 1920 (“MLA”) and BLM regulations governing extension of federal oil and gas leases can be tricky.

Production in paying quantities.  Obtaining production is the most obvious means of lease extension – if there is a producing oil or gas well on the leased premises when the primary term expires, the lease is extended for so long as oil or gas is produced in paying quantities.[2]  The term “paying quantities” means production “sufficient to yield a reasonable profit after payment of all the day-to-day costs incurred after the initial drilling and equipping of the well, that is, the costs of operating the well, including workovers and maintenance, rendering the oil or gas marketable, and transporting and marketing that product.”[3]

However, it isn’t necessary for there to be actual production from a federal lease for it to be extended beyond the primary term; rather, the lease will be extended indefinitely if there is a well “capable of producing oil or gas in paying quantities” on the leased premises.[4]  BLM determines whether a well meets this requirement.  The well must be physically in a condition to produce by “flipping a switch” with little or no additional work.  For example, a shut-in well qualifies as capable of producing in paying quantities, but a well in which the casing has been set and cemented but not perforated does not qualify.[5]  The IBLA also has upheld lease termination when equipment required for production was not on site.[6]

This extension has its limitations, since the MLA grants BLM the authority to order the lessee to begin production within a period of not less than 60 days from receipt of notice from that agency.[7]  Failure to commence actual production within the time allowed by BLM results in termination of the lease.[8]  And because federal leases are not paid-up leases, the lessee also must pay annual rentals on or before each anniversary date of the lease until oil or gas in paying quantities actually is produced from the lease.

Drilling over primary term.  If the lessee is engaged in drilling operations at the expiration of the primary term of the lease,[9] the lease term will be extended for an additional two years if certain requirements are met.[10]  Actual drilling operations that penetrate the earth are required.  Mere site preparation, or even moving a rig on site, is not enough to obtain extension of a federal lease by drilling.[11]  The operations must be conducted under an approved application for permit to drill (“APD”).  Also, to get the drilling over extension, the lessee must have paid rentals on or before the lease anniversary date.

After commencing drilling operations, the lessee must diligently conduct such operations in a bona fide effort to drill and complete the well as a producer.  The standard is that of a reasonably prudent operator, and drilling operations must be conducted in a manner that “anyone seriously looking for oil or gas can be expected to make in that particular area, given the existing knowledge of geologic and other pertinent facts.”[12]  Notably, the drilling over extension relates only to the primary term, and it is not available if the lease was previously extended for another reason.  Nonetheless, the drilling over extension can apply if the lease was suspended (see below), since that results in tolling the lease term.

Commencement of additional drilling operations.  If production in paying quantities ceases on a federal lease in its extended term, the lessee must commence reworking operations or drilling operations for a new well within 60 days or the lease will terminate.  Because the MLA itself provides that the 60-day period to commence drilling or reworking operations begins running “after cessation of production,”[13] the safest course is to commence operations within that period.  BLM regulations, on the other hand, provide that the 60-day period does not begin until receipt of notice from BLM that the lease is not capable of production in paying quantities.[14]  As with drilling over the primary term, once commenced, continuous operations in the extended term also must be conducted with reasonable diligence.[15]

Assign part of the lease.  If the lessee assigns 100% record title (and operating rights) in a portion of a federal lease, such assignment will cause a segregation of the assigned lands into a separate lease.  Such segregation potentially can extend a federal lease in different ways.  First, if a discovery of oil or gas in paying quantities later is made on any portion of the original leased lands, both the base lease and the segregated lease will continue for the longer of the primary term of the base lease or for two years after the date of discovery.[16]  Interestingly, there is no requirement to complete a well – a discovery can be proved by other evidence.[17]  However, a well eventually must be completed as capable of producing in paying quantities in order to qualify.  As with other extensions, rental payments are still required until there is a discovery.  Second, if the base lease is in an extended term due to production (actual or allocated) or by payment of compensatory royalties, the undeveloped portion will continue for two years from the effective date of the assignment and so long thereafter as oil or gas are produced in paying quantities.[18]

Pay compensatory royalty.  If the leased premises are determined by BLM to be subject to significant drainage from a well on neighboring lands and the lessee enters into a compensatory royalty agreement with BLM and pays a compensatory royalty for the drainage, such payment will extend the lease for the period in which the compensatory royalties are paid plus one year thereafter.[19]  As a practical matter, BLM typically will not enter into a compensatory royalty agreement if it believes the lessee can drill an offset well.  The lessee also must pay rentals.

Unit-related extensions.  If consent of the necessary parties is obtained and approval is obtained from BLM (which includes a public interest determination), the lessee may commit a federal lease to a federal exploratory unit, which can affect lease extension.  A federal lease is not extended automatically through commitment to a unit agreement alone.  However, production of oil or gas in paying quantities anywhere in the unit area will maintain a committed federal lease so long as the lease remains committed to the unit.[20]  Production from a well that meets the paying quantities test on a lease basis but which is not sufficient to establish a unit well and form a participating area (often called a “Yates well”) nonetheless will extend the leases committed to the unit.[21]  Also, the drilling over extension discussed above will extend a federal lease when actual drilling over the end of the primary term occurs on any lease committed to the unit.  Until a well capable of production in paying quantities is drilled on the lease or a participating area is established and production is allocated to the lease, the lessee must continue paying rentals.

Commitment of a federal lease to a unit with lands both inside and outside of the unit area will cause the lands outside of the unit area to be segregated into a separate lease.  The uncommitted lands will be extended for the term of the original lease, but for not less than two years from the effective date of the commitment to the unit.[22]  Similarly, when all of the leased lands in a federal lease committed to a unit are eliminated from the unit by termination or contraction of the unit, the lease will be extended for the term of the original lease, but for not less than two years from the effective date of the elimination.[23]  However, in both cases, there is no extension if the public interest requirement is not met.  The public interest requirement is met “if the unit operator commences actual drilling operations and thereafter diligently prosecutes such operations in accordance with the terms of said [unit] agreement.”[24]

Partial commitment and elimination from a unit can result in some lease extension complexities.  In particular, if a federal lease is producing beyond its primary term when it is partially committed to a unit (and thus the non-committed land is segregated), the segregated portion that does not have a producing well will remain in effect for so long as production in paying quantities continues from the existing well(s) on the other portion, regardless of which portion is committed to the unit.[25]  This typically is referred to as “associated production.”  But if the lease is still in its primary term (even if the lease is producing), the non-producing portion will not receive the benefit of the existing production after segregation.  Instead, it will remain in effect for the rest of its fixed term or two years, whichever is longer.

Additionally, a producing lease fully eliminated from a unit will receive a fixed term equal to the later of two years from the effective date of elimination or its original primary term, even though the lease is producing in an extended term at the time of elimination.[26]  This means that if the lease subsequently is partially committed another federal unit it would not receive any “associated production” as discussed above.  There are many nuances and interesting results when a federal lease has been committed to and eliminated from multiple units.  Thus, the facts and relevant law should be reviewed carefully to determine whether a lease in this situation has been properly extended.

Communitization agreement related extensions.  Commitment of lands in a federal lease to a communitization agreement is the federal equivalent of pooling.  A communitization agreement generally must conform to an existing state spacing pattern or commission order and it must be approved by BLM.[27]  Unlike unitization, commitment of part of the lands in a federal lease to a communitization agreement does not result in segregation, and thus the segregation extension mentioned above does not apply.

Similar to federal units, if any portion of a federal lease is committed to a communitization agreement, the entire lease will be extended by production in paying quantities or by the completion of a well capable of producing in paying quantities on any communitized land.[28]  In addition, actual drilling operations over the primary term of a federal lease anywhere on the communitized lands will extend the lease for two years.[29]  BLM’s approval of the communitization agreement need not be obtained prior to the end of the primary term in order to obtain the lease extension benefits, but the agreement must be signed by all necessary parties and filed with BLM prior to lease expiration.[30]  Finally, if a communitization agreement is terminated, so long as the public interest requirement was met, the eliminated federal lease will receive an extension of the remainder of its primary term or two years, whichever is longer.[31]

Suspensions.  The MLA also provides for another means of keeping a federal lease alive that technically results in tolling of the lease term and adding the period of suspension to it.[32]  The MLA gives BLM the authority to grant two types of suspension of an entire federal oil and gas lease following receipt of a timely application from all record title holders (or the unit operator with respect to all leases committed to a federal unit) showing why such relief is necessary.  First, BLM may grant suspensions of both operations and production “in the interest of conservation” (known as a Section 39 suspension).[33] Section 39 suspensions are intended to provide extraordinary relief when a lessee is denied beneficial use of its lease.[34]  For example, BLM might grant a Section 39 suspension to allow time for the reviews required by environmental statutes such as NEPA and the Endangered Species Act.  BLM also has identified many situations in which a Section 39 suspension is not warranted – a significant one being when an APD is submitted incomplete or untimely.  A Section 39 suspension terminates if the lessee undertakes activity such as road construction, site preparation or drilling. Rentals and minimum royalty payments are suspended under a Section 39 suspension.

Second, BLM may grant suspension of operations only or a suspension of production only when the lessee is prevented from operating on or producing from the lease, despite the exercise of due care and diligence, by reason of force majeure (known as a Section 17 suspension).[35]  BLM may only grant Section 17 suspension after operations on the lease have commenced and production has been obtained.[36]

[1] Competitive federal leases issued between 1988 and 1992 have five-year primary terms, and some older leases with 20-year terms subject to renewal remain in effect.

[2] 30 U.S.C. § 226(e); 43 C.F.R. § 3107.2-1.

[3] Abe M. & George Kalaf, 134 IBLA 133, 138, GFS(O&G) 3 (1995).

[4] 43 C.F.R. §3107.2-3.

[5] See Coronado Oil Co., 164 IBLA 309, 323, GFS(O&G) 10 (2005).

[6] Int’l Metals & Petroleum Corp., 158 IBLA 15, 22-23, GFS(O&G) 1 (2003).

[7] 30 U.S.C. §226(i); 43 C.F.R. § 3107.2-3.

[8] Id.

[9] The primary term expires at midnight on the day immediately preceding the lease anniversary.

[10] 43 C.F.R. § 3107.1.

[11] Estelle Wolf, et al., 37 IBLA 195, GFS(O&G) 157 (1978).

[12] 43 C.F.R. § 3107.1.

[13] 30 U.S.C. § 226(i).

[14] 43 C.F.R. § 3107.2-2. The IBLA long has held that written notice from BLM is not required when a lease ceases producing in paying quantities and, thus, the 60-days to drill starts running upon cessation of production. While the federal district court overturned the IBLA on this point in Coronado Oil Co. v. DOI, 415 F. Supp.2d 1339, 1348 (D. Wyo. 2006), that decision is narrowly construed by the IBLA.  See e.g., Atchee CBM, LLC, 183 IBLA 389, 406-08, GFS(O&G) 6 (2013).

[15] 43 C.F.R. §§ 3107.2-2 and -3.

[16] 43 C.F.R. § 3107.5-1.

[17] See Joseph I. O’Neill, Jr., 1 IBLA 56, 62 (1970), GFS(O&G) 2 (1970).

[18] 43 C.F.R. § 3107.5-3.  However, a lease in its extended terms dated prior to September 2, 1960 may be in an extended term for any reason and still be eligible for the two-year extension.

[19] 43 C.F.R. § 3107.9-1.

[20] 30 U.S.C. § 226(m).

[21] Yates Petroleum Corp., 67 IBLA 246, 252-53, GFS (O&G) 251 (1982).  A “unit paying well” sufficient to justify the formation of a participating area requires sufficient production to repay not only the operating costs, but also the costs of drilling and completing the well with a reasonable profit.  43 C.F.R. § 3186.1.

[22] 43 C.F.R. § 3107.3-2.

[23] 43 C.F.R. § 3107.4.  If only a portion of the leased lands in a federal lease committed to a unit are eliminated, the lease is not segregated and there is no extension, but the all of the leased lands will continue in effect for so long as any of the leased lands remain committed to the unit.  Continental Oil Co., 70 I.D. 473, 474, GFS(O&G) 50-1964-19 (1963).

[24] 43 C.F.R. § 3183.4(b).

[25] Celsius Energy Co., Southland Royalty Co., 99 IBLA 53, GFS(O&G) 82 (1987).

[26] Id.

[27] 43 C.F.R. § 3105.2-3.

[28] 30 U.S.C. § 226(m); 43 C.F.R. § 3107.2-3.

[29] 43 C.F.R. § 3107.1.

[30] 43 C.F.R. § 3105.2-3(a).

[31] 43 C.F.R. § 3107.4.

[32] 43 C.F.R. § 3103.4-4(b).

[33] 30 U.S.C. § 209; 43 C.F.R. § 3103.4-4(a).

[34] See Savoy Energy, L.P., 178 IBLA 313, 323, GFS(O&G) 1 (2010).

[35] 30 U.S.C. § 226(i); 43 C.F.R. § 3103.4-4(a).

[36] See Savoy Energy, L.P., supra, at 325.

What Are the Types of Federal Oil and Gas Leases?

FAQs of Federal Oil and Gas Leases, Federal Lands, Lease Provisions, , , , , , , ,

An Introduction to Federal Oil and Gas Leasing

The federal government is responsible for oil and gas leasing under three different types of land: onshore public lands, offshore public lands, and tribal lands.  For purposes of this series, we will focus on onshore public lands and, more specifically, those under the jurisdiction of the Bureau of Land Management (“BLM”).  Below is a brief history of federal oil and gas leasing, a summary of the most common types of oil and gas leases administered by the BLM (renewal / exchange leases, public domain leases, and right-of-way leases), and a basic outline of the federal oil and gas leasing process today.

History of federal leasing.  Prior to the Mineral Leasing Act of 1920 (“MLA”), the development of oil and gas on public lands was done by making a placer location under the General Mining Act of 1872.  Since the MLA was passed, oil and gas on public lands has been developed by leasing.  Specifically, the MLA originally authorized the issuance of competitive leases for lands within a known geologic structure (“KGS”) of a producing oil or gas field and prospecting permits for lands not within a KGS, until the Act of August 21, 1935, which replaced prospecting permits with non-competitive leases.  Although the MLA was amended numerous times, the basic framework remained the same from 1935 to 1987, when the Federal Onshore Oil and Gas Leasing Reform Act (“FOOGLRA”) was passed.  In addition to the numerous amendments to the MLA and FOOGLRA, Congress also passed additional laws affecting oil and gas development, including the Multiple Mineral Development Act of 1954, the National Environmental Policy Act of 1969, the Federal Land Policy and Management Act of 1976, the Federal Oil and Gas Royalty Management Act of 1982, and the Energy Policy Act of 1992.

Renewal and exchange leases.  Renewal and exchange leases are generally found only in very old oil and gas fields.  As discussed above, under the original MLA, the BLM issued oil and gas prospecting permits for lands not within a KGS.  Upon a valuable discovery of oil or gas, the permittee became entitled to obtain a lease on the greater of 160 acres or 1/4th of the permit area and a preferential right to lease the remainder of the permit area.  Under the MLA, such earned leases, as well as competitive leases issued before 1935, had 20-year fixed terms with no Habendum clause (i.e., no “and so long thereafter” language), but the lessee had a preferential right to a “renewal lease” for a fixed successive period of 10 years.  Renewal leases were subject to certain requirements, such as a limitation on existing overriding royalty interests of 5%.  There is no limit on the amount of times a renewal lease could be renewed, although a 1990 amendment to the MLA now provides that a renewal lease renewed after November 15, 1990 will continue for 20 years and so long thereafter.  Due to the uncertainty of operating under a fixed term lease, subsequent amendments to the MLA also authorized the lessee of any 20-year lease (including renewals of such leases) or any lease issued before August 8, 1946 to exchange the lease for an “exchange lease” with the customary Habendum clause.  Because they involve oil and gas leases issued prior to 1946, there are few active renewal and exchange leases today.

Public domain leases.  Public domain leases are the most common federal oil and gas leases.  They cover lands or mineral deposits owned by the United States that were never granted to the state, patented into fee ownership, or disposed of under any public land law (there are certain exceptions, such as lands incorporated by cities, towns, or villages, lands in national parks, monuments, or reserves, or lands in wilderness areas or wilderness study areas).  They can also cover acquired lands – lands patented into fee ownership and subsequently reacquired by the federal government – if consented to by the surface managing agency.  Public domain leases are authorized under the MLA.  However, because of the numerous amendments to the MLA, the history and terms of such leases vary significantly.  For example, the primary term, rentals, and royalties depend on several factors, including: whether the lease was issued competitively or non-competitively, the period of time in which the lease was issued, and the period in time in which the rental or royalty was required.  As a result, it is important to review the lease to confirm the terms of a public domain lease.  Where the original grant of the lease has been lost or destroyed, a review and understanding of the history of the MLA and applicable regulations becomes necessary.  Because most oil and gas leases issued today are public domain leases, we discuss current leasing of public domain lands in the final section of this article below.

Right-of-way leases.  The lands under federal rights-of-way, not subject to an oil and gas lease at the time the right-of-way was issued, may only be leased under the Right-of-Way Leasing Act of 1930 (the ROW Act).  Although the ROW Act appears to include all rights-of-way, the BLM typically only issues right-of-way leases under railroads and reservoirs.  Under the ROW Act, the right-of-way owner is the only party that may lease the lands, but an owner or lessee of the oil and gas rights in the adjoining lands may submit a compensatory royalty bid and the BLM will issue either a right-of-way lease to the right-of-way owner or a compensatory royalty agreement to the adjoining owner or lessee, whichever is the most advantageous to the United States.  Because of the limited instances where lands fall under this category, right-of-way leases are less common than public domain leases.

Oil and gas leasing today.  The MLA, as amended, and FOOGLRA still govern the leasing of public domain lands for oil and gas today.  Such leasing is accomplished as follows:

  • Lands available for oil and gas leasing are nominated
  • The BLM selects tracts to be included in an upcoming lease sale
  • Notice of the lease sale is made
  • The BLM considers any protests filed and makes a final list of included tracts
  • The lease sale is held and the tracts are offered for oral bidding
  • The BLM issues a lease on each tract to the highest qualified bidder

In the event any tract does not receive any bids or the minimum acceptable bid, the tract becomes available to be leased non-competitively for a period of two years following the lease sale to the first qualified applicant.  The current lease terms for both newly issued competitive and non-competitive oil and gas leases are a primary term of 10 years, a royalty interest of 12.5%, and rentals of $1.50 per acre for the first five years, then $2 per acre thereafter.  After a discovery on the leased lands, a minimum royalty of not less than the annual rental is due in lieu of the annual rental.

The Habendum Clause – ‘Til Production Ceases Do Us Part

Fee Lease 101 Series, Lease Provisions, , , ,

The habendum clause is a fundamental provision of oil and gas leases. This clause (also called the term clause) sets forth the time period that the rights granted to the lessee under the lease are extended—i.e. how long the lease will be active.1

Basics

An habendum clause in an oil and gas lease typically contains two separate terms, the primary term and the secondary term. The primary term is a fixed period of time during which the lessee has the option, but not the obligation, to pay delay rentals and/or explore for and produce oil and gas. No actual production is necessary to keep the lease active during the primary term. Ten years used to be a common primary term; however, shorter primary terms (e.g. 1 to 5 years) are often seen in areas with proven fields or anticipated drilling.2 As with other lease terms, its length can be negotiated by the lessor and lessee; the relative bargaining power between the parties and the amount of bonus a lessee is willing to pay are important in determining term length.3

At the expiration of the primary term, the lease terminates as a matter of law unless production4 is achieved during the primary term. The time period under the secondary term is indefinite—so long as lease substances are produced, the lease remains in effect. While many leases expire at the end of the primary term without production, if production is achieved, it is not uncommon for oil and gas leases to be held by production for many years.

In having both a primary and secondary term, the interests of both lessors and lessees are represented. The fixed primary term protects lessors from having their mineral interests endlessly tied up without production and encourages development on the land. If production is not achieved by the lessee within the primary term, the lease terminates (unless otherwise extended, such as by other lease terms) and the lessor is free to re-lease his or her mineral interests. Conversely, if production is achieved, the lessee’s risk in expending substantial sums to develop the land is rewarded by extending the lease so long as production continues.5

Formulation

Although there are numerous variations of habendum clauses, a typical habendum clause will read substantially as follows:

[T]his 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.6

Additionally, the phrase “produced in paying quantities” or “produced in commercial quantities” is commonly included in the clause, along with phrases allowing for production to come from lands pooled or unitized with the leased lands.7

Meaning of “Produced”

As noted above, the typical habendum clause requires that oil or gas be “produced” from the leased land to extend the lease beyond its primary term. In most states, “produced” means exactly that—oil or gas must actually be produced from the leased land. A minority of states, including Oklahoma and West Virginia, hold that discovery of oil or gas is sufficient—no production is actually necessary—to extend the lease beyond its primary term, although the well must be completed and capable of production, and the lessee must make diligent efforts to market.8 Another minority of states, including Montana and Wyoming, appear to differentiate between oil and gas, with the discovery of gas being sufficient to extend the lease beyond the primary term, while actual production for oil is necessary to extend.9 The distinction arises because oil can be produced and stored economically while gas generally cannot be stored economically above the ground.10

Some habendum clauses include language that the lease will be extended “so long as oil or gas is capable of being produced in paying quantities.” In such instances, actual production is not necessary to extend the lease beyond its primary term, but may require a well that can be turned “on” to produce in paying quantities without the addition of extra equipment or repair.11

Once the lease is extended into the secondary term, if production ceases the lease automatically terminates (unless otherwise extended by a different provision in the lease).12 However, courts have held that it is not required that production be entirely continuous throughout the extended term to hold the lease. Courts recognize that production may temporarily cease due to repairs, breakdowns, and reworking operations.13 Where the lease is silent, and cessation in production is litigated, the burden of proof rests on the lessee to show that the cessation was for a reasonable reason and for a reasonable amount of time. Courts vary in what constitutes a reasonable amount of time.14 For example, one court held that a four-year cessation in production was “temporary,” while another court held that a six-month cessation was “permanent.” To provide more certainty in the face of inconsistent court rulings, modern oil and gas leases often include a “cessation of production” clause that specifies when production must be continued after cessation for the lease to not terminate.15

Meaning of “Produced in Paying Quantities”

A question that frequently arises when construing an habendum clause is how much production is necessary—i.e. is any amount of production sufficient to hold the lease, or must the production reach a certain level? As noted above, modern oil and gas leases commonly include the qualification that production be in “paying” or “commercial” quantities. For leases that only state “production” is required, courts generally have construed the clause to include this qualification. Thus, regardless of whether the lease includes the qualification “in paying quantities,” the term “produced” typically means “produced in paying quantities.”16

The question then becomes what constitutes “produced in paying quantities.” The Kansas Court of Appeals stated the general rule:

[T]he phrase “in paying quantities” as used in an oil and gas lease habendum clause means production of quantities of oil or gas sufficient to yield a profit to the lessee over operating expenses, even though the drilling costs or equipping costs are never recovered, and even though the undertaking as a whole may thus result in a loss to the lessee.17

Put simply, a lease is considered “producing in paying quantities” if production revenue is greater than operating expenses.

In determining production revenue, any royalty paid to the lessor is excluded, although any payment to overriding royalty owners generally are included as revenue.18 For operating expenses, any direct costs to operate, such as labor costs, electricity for pumping units, taxes (but not income taxes) payable by the working interest owner(s), and day-to-day maintenance cost are included.19 There is some dispute among courts whether depreciation and overhead costs should be included as operating expenses.20 Initial expenditures, such as the costs of drilling, equipping, and completing are not included as operating expenses.21 Such analysis makes economic sense—after these initial expenditures, an operator will continue to operate so long as the production on a lease is marginally profitable in order to recover as much of these costs as possible.22

It is important to have a reasonable time period when evaluating production revenues against operating expenses. Leases may operate negatively in the short-term, but profitably in the long-term. One source notes that in almost every instance, a time period of at least a year was used by the courts to evaluate profitability, and frequently a time period of eighteen months to three years was used.23 In times of distressed market conditions, courts have used longer time periods or have assessed whether the lease would have been profitable under normal market conditions.24

Conclusion

An understanding of the habendum clause is crucial when negotiating a lease or when evaluating whether a lease has been held by production past its primary term. As you do so, keep in mind that other lease provisions not discussed in this article may also affect lease duration, such as shut-in royalty, pooling, unitization, Pugh, continuous operations, delay rental, and cessation of production clauses, among others. Additionally, be aware that the law varies from jurisdiction to jurisdiction, and may be different from the general principles discussed in this article.

1See PEC Minerals LP v. Chevron U.S.A., Inc., 439 F. App’x 413, 416 (5th Cir. 2011).
2John S. Lowe, Oil and Gas Law in a Nutshell (6th ed. 2014).
3Id.
4Or a lease provision that serves as a substitution for actual production such as continuous drilling operations or payment of shut-in royalty.
5Lowe, supra note 2.
63 Patrick H. Martin & Bruce M. Kramer, Williams & Meyers, Oil and Gas Law § 603.3 (2014).
7Id.
8See McVicker v. Horn, 322 P.2d 410 (Okla. 1958); Eastern Oil Co. v. Coulehan, 64 S.E. 836 ( W. Va. 1909).
9See Severson v. Barstow, 63 P.2d 1022 (Mont. 1936); Pryor Mt. Oil & Gas Co. v. Cross, 222 P. 570 (1924).
10See 2 Eugene Kuntz, A Treatise on the Law of Oil and Gas § 26.6 (rev. ed. 2014). See also Lowe, supra note 2.
11Martin & Kramer, supra note 6.
12See Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex. 2002).
13Martin & Kramer, supra note 6, at § 604.4.
14Id.
15Id. See also Dave Hatch, Potential Pitfalls of Continuous Drilling Provisions in HBP Fee Leases (Apr. 10, 2014), available at: http://www.hollandhart.com/pitfalls-of-continuous-drilling-provisions-in-hbp-fee-leases/.
161 Earl A. Brown, Earl A. Brown, Jr., & Lawrence T. Gillaspia, The Law of Oil and Gas Leases § 5.03 (2d ed. 2014).
17Avien Corp. v. First National Oil, Inc., 79 P.3d 223, 230 (Kan. Ct. App. 2003); see also Maralex Res., Inc. v. Gilbreath, 76 P.3d 626, 630 (N.M. 2003) (“To satisfy the habendum clause production must be in ‘paying quantities,’ such that the income generated from oil and gas production exceeds the operating costs.”).
18Lowe, supra note 2.
19Id. See also Martin & Kramer, supra note 6, at § 604.6(b).
20Martin & Kramer, supra note 6, at § 604.6(b).
21Kuntz, supra note 10, at § 26.7.
22Martin & Kramer, supra note 6, at § 604.6(b).
23Lowe, supra note 2.
24Id. See also Kuntz, supra note 10, at § 26.7.