This Lease of Oil Rights is used between a lessor and lessee to grant the lessee the
right to drill and explore on lessor's land for the sole purpose of extracting oil. This
document contains the material terms and conditions of the agreement including the
lease term, rental payment, lessee's rights, and an oil royalty. It includes numerous
standard provisions that are commonly included in these types of leases, and may be
customized to fit the particular needs of the contracting parties.
LEASE OF OIL RIGHTS
THIS LEASE OF OIL RIGHTS AGREEMENT (the “Agreement”, is made the
____ day of _____________, 2____ (the “Effective Date”) by and between ______________
(the “Lessor”) and _________________ (the “Lessee”).
THE LESSOR AND THE LESSEE HEREBY ACKNOWLEDGE AND AGREE AS
1. Granting Clause
The Lessor, in consideration of the rent payment of $______________, [specify the
amount of rental for primary term], receipt of which is acknowledged by Lessor, and the
covenants and conditions contained in this lease, hereby grants and leases to the Lessee the right
to drill and explore the lands legally described as ____________________________ and
containing _______ [number of] acres, (the “Lands”) for the sole purpose of extracting, storing,
and removing oil, including but not limited to, the laying of any and all necessary pipes and the
installation of oil tanks.
2. Lease Term
The Lessor leases to the Lessee the Lands for a term of __________ years from and after
the date of this lease and so long thereafter as (a) oil is being produced from the Lands; (b)
drilling operations are being continuously prosecuted on said Lands; or (c) the term is extended
by the agreement of the parties. The lessee shall request an extension for a further term of
______ (___) years upon _____ (___) days’ written notice to the Lessor prior to the expiry of the
[Comment: the lease term, also known as the “habendum clause,” is the provision in
an oil and gas lease that sets the duration of the tenant’s interest in the lease. The purpose
of this clause is to limit and define the estate granted or conveyed.]
This Agreement may be terminated by either the Lessor or the Lessee prior to the expiry
of the Term in the event the said Lands described herein fail to or stop producing oil. In the
event the said Lands fail to or stop producing oil, the Lessor or the Lessee shall provide the other
party with ______ (__) days’ advance written notice of its intention to terminate this Agreement.
In the event such notice is received by a party, the Lessee agrees that it shall remove any and all
of its equipment and storage tanks from the Lands within ______ (___) days.
4. Lessee’s Rights
During the term of this lease, Lessee shall have the right to explore, drill, and mine for
and extract, store, and remove oil from the Lands for the following purposes:
A. To enter and occupy the Lands;
B. To erect, construct, maintain, operate, use, repair, and replace on the Lands
structures, buildings, plants, machinery, casing, instruments, equipments, tanks, houses
for employees, pipe lines, pole lines, power lines, telephone lines, telegraph lines, roads,
and other structures and facilities as may be necessary or convenient;
C. To drill on said Lands for water and use, without charge, any water obtained by its
operations on the Lands;
D. To construct, erect, maintain, use, operate, repair, and replace on the Lands a plant,
with all necessary appurtenances, for the extraction of oil and other products from the
Lands or other land in the vicinity.
5. Oil Royalty
The Lessee agrees that it shall pay to the Lessor Royalties (the “Royalties”) at the rate of
_______ [Instruction: insert a fraction or percentage, e.g. one sixth or one eighth or 12 ½
percent] of the value of all oil produced and removed from the Lands after the customary
adjustments are made for temperature, water, and basic sediment. The value of the oil shall be
the posted available market price in the district in which the Lands is located for oil of like
gravity on the day the oil is removed from the Lands. No royalty shall be due Lessor for or on
account of oil lost through evaporation, leakage, fire, or other casualty before marketing, or when
royalty oil is being taken in kind by Lessor, before delivery.
6. Payment of Royalties
The Royalties which become due and payable to the Lessor by the Lessee shall be paid to
the Lessor on a monthly basis by no later than the ____ day of each and every month; provided
however, that should the amount of royalties due for any month be less than $_________
[Instruction: specify amount, e.g. $50], payment of this amount may be withheld until it equals
$_________ [Instruction: specify amount, e.g. $50], or until the end of the calendar year. All
royalties regardless of amount, shall be fully paid, if not otherwise already paid, at the end of the
calendar year in which they accrue.
7. No Royalty for Own Use
Lessee is not required to account for or pay royalties to Lessor for oil produced and used
by Lessee in its operations under this lease. Any and all oil retrieved and extracted from the
Lands by the Lessee, shall be used by the Lessee for its own use.
8. Development Clause
Should operations for the drilling of a well for oil not be commenced on said Lands on or
before ___________________ [Instruction: state time period or date], this lease shall
terminate as to both parties, unless Lessee shall, on or before the last day of that period, pay or
tender to Lessor the sum of $_________ per acre for each acre of the Lands remaining subject to
this lease as delay rental deferring the commencement of dril