CMM Lease Negotiation & Administration 2

Question 1

A mineral lease contains a 'Pugh clause.' What is the primary effect of this provision?

Accepted Answer

It segregates non-producing acreage from the lease at the end of the primary term

Answer

A Pugh clause segregates non-producing or undrilled acreage so that holding one tract by production does not hold the entire lease.

Question 2

During lease negotiations, a landowner insists on a 'no-deductions' royalty clause. What does this protect against?

Accepted Answer

Post-production costs such as gathering, compression, and transportation being deducted from the royalty base

Answer

A no-deductions clause ensures the lessor receives royalties based on gross wellhead value without any post-production cost deductions.

Question 3

Which lease clause obligates the lessee to develop the property with the diligence of a prudent operator regardless of profitability?

Accepted Answer

Implied covenant of reasonable development

Answer

The implied covenant of reasonable development requires the lessee to develop the lease as a reasonably prudent operator would under similar conditions.

Question 4

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?

Accepted Answer

April 1

Answer

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.

Question 5

What is 'top leasing' in the context of mineral lease negotiation?

Accepted Answer

Obtaining a new lease on property already subject to an existing lease, effective upon expiration of the existing lease

Answer

Top leasing involves securing a new lease on acreage covered by a currently valid lease, which becomes effective when the underlying lease expires.

(CMM) Certified Mineral Manager Practice Test

(CMM) Certified Mineral Manager Practice Test

CMM Lease Negotiation & Administration 2