Held-By-Production Clause

Understanding the Significance of a Held-By-Production Clause

Delving into Held-By-Production Clauses

Exploring the Basics

A held-by-production clause, often found in oil, natural gas, and mineral property leases, grants lessees the right to continue drilling activities on the property as long as it remains economically productive. This article aims to dissect the intricacies of held-by-production clauses, shedding light on their functionality, implications, and significance in the energy and mining sectors.

Unraveling the Mechanism Behind Held-By-Production Clauses

Operational Dynamics

Held-by-production clauses serve as a strategic tool for energy companies, allowing them to extend their lease agreements beyond the initial term without the need for renegotiation. By operating under a secondary term, companies can capitalize on the entire economic lifespan of an oil or gas field, resulting in substantial cost savings, especially in regions witnessing a surge in oil and gas production.

The Habendum Clause

Defining Legal Terms

Also known as the habendum clause, the held-by-production provision typically comprises two distinct terms: the primary term and the secondary term. While the primary term has a predetermined duration, the secondary term remains indefinite, contingent upon the continuous production of oil and gas. This legal framework provides clarity and stability to lease agreements in the energy sector.

Mineral Rights Lease

Navigating Land Ownership

In the context of mineral rights leases, the held-by-production clause grants oil companies access to mineral reserves on land beyond the original lease term. This arrangement has become particularly contentious amid the shale oil boom, where landowners may find themselves at odds with oil and gas companies over lease extensions and control of leasehold properties.

Fact Check:

1. Held-by-production clauses offer significant cost-saving benefits to energy companies, particularly in regions experiencing heightened oil and gas production.
2. These clauses are also referred to as "habendum" clauses in legal terminology.
3. The use of held-by-production clauses surged following the success of horizontal, hydraulic fracturing wells in regions like Washington County, Pennsylvania.

Examining Real-life Examples

Illustrative Cases

The adoption of held-by-production clauses witnessed a notable upsurge after Range Resources' groundbreaking success with hydraulic fracturing wells in Washington County, Pennsylvania, in 2007. This success spurred a competitive leasing frenzy, leading to skyrocketing lease prices and prompting companies to secure their investments through held-by-production clauses.