Article Index

Basic Description of Oil and Gas

How Gas Leases differ from Oil Leases

How Royalties are Calculated

Mineral Rights in Oil and Gas Lease

Oil and Gas Lease Negotiation

Oil and Gas Lease Terms

Oil and Gas Royalties

Description of Oil Lease

Oil Lease Sale

Oil and Gas Pooling

Oil and Gas Lease Terms Defined

The oil lease terms and gas lease terms cited on this page are commonly used in lease negotiations and agreements.

Absolute ownership

The theory that minerals such as oil and gas are fully owned in place before they are extracted and reduced to possession. Title to oil and gas may be lost by legitimate drainage and by the rule of capture.

Abstract company

A private company in the business of preparing abstracts of title and performing related services.

Acreage contribution

Acreage owned in the vicinity of a test being drilled by another party and contributed to the driller of the well in return for information obtained by drilling.

Adverse possession

A method of asserting and gaining title to property against other claimants, including the record owner. The claim through adverse possession must include certain acts, as required by statute, over an uninterrupted interval of time. It is also open, notorious, and hostile.

Assignment clause

A clause in any legal instrument that allows either party to the contract to assign all or part of his/her interest to others.

Authority for expenditure

An estimate of costs prepared by a lease operator and sent to non-operators for their approval before work begins. This estimate is normally used in connection with well drilling operations.

Bonus consideration

A cash payment by the lessee for the extraction of an oil and gas lease by the mineral owner, usually given in dollars per acre. Sometimes an oil payment or royalty is reserved as a bonus by the lessor.

Habendum clause

In an oil and gas lease, this clause fixes the duration of the lessee's interest in both a primary and secondary term. It is also refereed to as a term clause.

Joint operating agreement

A contract in which two or more co-owners of the operating rights in a tract of land join together to share costs of exploration and possible development.

Joint venture

A business undertaking in which the parties in the agreement share control, profit, losses, and liability.


A legal document executed between a landholder who is the lessor and a company or individual who is the lessee that grants the right to exploit the premises for minerals. It is also the land or area where the production wells, stock tanks, separators, and other production equipment are located.

Lease purchase agreement

An agreement between companies for the purchase by one company of a block of the other companies' leases.

Mineral owner

Owner of the rights and interests in a mineral estate, such as oil and gas, where interests in a landed estate have been severed.

Net revenue interest

The portion of oil and gas production money paid after all operating and development costs are paid.

Offset well

A well drilled on a tract of land next to another owner's tract on which there is a producing well.

Oil payment

A non-operating interest in oil and gas for one or more leases. It provides to the owner a fractional share of the oil and gas produced that are free of the costs of production. It terminates when a specified dollar amount or volume of production has occurred.

Paid-up lease

An oil and gas lease that is paid up through the primary term. It is part of the when the lease is first acquired.

Production payment

A cost free percentage of the working interest that ends when a specified amount of money or number of barrels has been reached.


The part of the oil, gas, and minerals or their cash value paid by the lessee to the lessor based on a percentage of the gross production from the property free and clear of all costs except taxes.

Royalty clause

The clause that established the percentage of production paid to the lessor.

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