Having represented both lessors and lessees, the principals of MMC recognize the importance of the oil and gas lease as a contract creating and governing the rights of the lessee to explore for, develop, and produce the mineral owner’s lands. It is an agreement that may only be in effect for a period of time limited to the primary term provided for in the lease, or may last for what seems like forever. (It is not uncommon to see oil and gas leases entered into in the 1940s and 1950s or before, still in existence.)
In entering into a lease transaction, the lessor and lessee are approaching the transaction with different objectives in mind. The lessor is interested in acquiring as much bonus and royalty as possible. If the lessor is the owner of the surface of the lands to be covered by the lease, the lessor may be interested in limiting the lessee’s use of the surface. The lessee is interested in limiting its obligations to the lessor, and have the lease contain terms that are as broad as possible. In most instances, these differing positions will reach acceptable middle ground, and a lease will be entered into by the parties.
The lessee will typically present a “standard form” lease for the lessor’s consideration. This “standard form” will contain similar royalty payment, pooling, shut-in royalty, warranty, and granting provisions found in most leases, but in truth there is no such thing as a “standard form.”
There is the old story (reported to be true) about the “Producers-88” lease form. So the story goes, an Operator/Lessee/“Producer” was purchasing leases and had a form of lease he had developed and wanted to continue to use. He went to a print shop to have the form duplicated. The printer, needing to give the printing job a name, so it could be cataloged among all his other printing orders, assigned the name “Producers-88” to the job, and actually printed that job name in the upper left-hand corner of the lease form. Thus was created the “Producers-88” lease form.
Not every Producer used the same printer, but, so it’s told, many farmers would only sign a “Producers-88” form of lease. As a result, major and independent oil companies and landmen had their own forms of leases printed, many of which were similar in content, but all of which had “Producers-88” printed in the upper left-hand corner. So much for the standard lease form.
The pre-printed form of lease typically presented to a mineral owner has what have become basic terms and provisions, with spaces for inserting the date, the name of the lessor and lessee, the description of the lands, the duration of the primary term, the amount (fraction or percentage) of royalty, the name of the depository bank for the payment of rentals, and the amount of rentals (if it is not a paid-up lease).
The basic terms offered by lessees have not changed significantly over the years, but lessors demands for changes to those terms have increased.
As lessors have become more knowledgeable, it is not uncommon for lessors to attach “special provisions” or “additions” to the lessee’s pre-printed lease form. These additions usually begin with the phrase: “Notwithstanding anything herein to the contrary,” after which follows provisions that modify or completely change some terms contained in the pre-printed lease form.
Some lessors (usually institutions, or commercial trusts, and sophisticated owners with substantial interests) have developed their own form of lease. These forms usually limit the basic terms offered by a lessee, and specifically address matters of concern to the lessor; i.e., surface use, continuous development, etc.
Some individual lessors have also developed their own “special” lease form consisting of a collection of lease terms they heard were appropriate. Some lessors have developed a multi-page collection of addendums, effectively replacing the lease form submitted by a lessee.
At the risk of offending or annoying this group, it is believed this approach to lease negotiations is almost counter-productive. Many of the lease forms appear to be what the lessor believes to be a collection of what are deemed to be “good” provisions. The problem with this collection of provisions approach is there is usually a lack of consistency (resulting in inconsistency) and a lack of continuity in the lease. In some instances the lease, as a whole just doesn’t make sense. Lessors seem to compile these forms of leases without understanding or appreciating what each provision means, or is intended to accomplish.
These unwieldy lease forms are matched by the lessor that accepts any lessee’s form and attaches a multipage addendum to the lease containing “special provisions,” which in effect replace most, if not all of the provisions in the printed lease form to which the addendum is attached. If that is the intent, the lessor’s interest would be better served in preparing a complete lease form so there is no misunderstanding between the lessor and lessee as to the exact terms acceptable to lessor. The content of multiple provision addendums often create conflicts or inconsistencies with other lease provisions.
There is no single form of lease that meets all landowners specific needs. On a case-by-case basis, a lease can be prepared to accomplish that objective.
