Lease Negotiation & Administration Flashcards
7 cards from real CMM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Lease Negotiation & Administration flashcards as text
A mineral lease contains a 'Pugh clause.' What is the primary effect of this provision?
Answer: It segregates non-producing acreage from the lease at the end of the primary term
A Pugh clause segregates non-producing or undrilled acreage so that holding one tract by production does not hold the entire lease.
During lease negotiations, a landowner insists on a 'no-deductions' royalty clause. What does this protect against?
Answer: Post-production costs such as gathering, compression, and transportation being deducted from the royalty base
A no-deductions clause ensures the lessor receives royalties based on gross wellhead value without any post-production cost deductions.
Which lease clause obligates the lessee to develop the property with the diligence of a prudent operator regardless of profitability?
Answer: Implied covenant of reasonable development
The implied covenant of reasonable development requires the lessee to develop the lease as a reasonably prudent operator would under similar conditions.
A lease provides a 90-day shut-in royalty provision. Production ceases on January 1. If no shut-in royalty is paid by what date will the lease most likely terminate?
Answer: April 1
The lease would terminate on April 1 if the 90-day period expires without payment, as 90 days from January 1 ends on April 1.
What is 'top leasing' in the context of mineral lease negotiation?
Answer: Obtaining a new lease on property already subject to an existing lease, effective upon expiration of the existing lease
Top leasing involves securing a new lease on acreage covered by a currently valid lease, which becomes effective when the underlying lease expires.
A lessor demands a 'continuous development clause' during negotiation. What obligation does this impose on the lessee?
Answer: Drilling successive wells within a specified time after completing each prior well
A continuous development clause requires the lessee to begin drilling the next well within a set period after completing the previous well to hold acreage.
Under a standard oil and gas lease, when does the lessee's obligation to pay delay rentals typically cease?
Answer: When production is established in paying quantities
Delay rentals are required only until production in paying quantities is established, after which the production itself holds the lease.
How this page was made: written with AI tools. We have not yet matched this exam's facts to an official source, so confirm fees, dates and rules with the exam body. Not reviewed by a subject-matter expert. Editorial policy