Contract Law for Land Professionals Flashcards

A lease's 'habendum clause' reads 'for a term of five years and as long thereafter as oil or gas is produced.' If production ceases for 90 days due to a pipeline dispute, what is the likely consequence?

Answer: The lease may terminate unless a savings clause such as a cessation of production clause applies

A cessation of production beyond what is temporary can trigger lease termination under the habendum clause unless the lease contains a cessation-of-production savings clause.

Which of the following best describes 'contract novation' in the context of oil and gas assignments?

Answer: The original obligor is released and a new party is substituted with the obligee's consent

Novation substitutes a new party for an original party with all parties' consent, releasing the original party from further obligation.

A landman is reviewing a farmout agreement. Which provision addresses what the farmee must do to earn an assignment of an interest in the acreage?

Answer: Earning clause (or earn-in obligation)

The earning clause specifies the drilling or other obligations the farmee must fulfill to earn a transfer of an interest from the farmor.

Under the parol evidence rule, when may extrinsic evidence be admitted to interpret an oil and gas contract?

Answer: To resolve ambiguity in the contract's language or to show fraud, mistake, or illegality

The parol evidence rule bars extrinsic evidence to contradict an integrated written agreement but allows it to clarify ambiguous terms or to prove defenses such as fraud or mutual mistake.

What is the significance of a 'Mother Hubbard clause' (or anaconda clause) in an oil and gas lease?

Answer: It captures small strips or tracts adjacent to the described land that the lessor may own

The Mother Hubbard clause picks up small adjacent tracts owned by the lessor that may not be precisely described in the lease's legal description, preventing gaps in coverage.

In contract law, 'anticipatory repudiation' occurs when:

Answer: A party clearly indicates before the performance date that it will not perform its contractual obligations

Anticipatory repudiation is a party's unequivocal statement or action before performance is due indicating that it will breach the contract, entitling the non-breaching party to treat the contract as breached immediately.

An oil and gas lease assigns a 3/16 royalty to the lessor. The lessee proposes to pool the tract into a 640-acre unit. After pooling, the lessor's royalty interest in the unit's production will be:

Answer: 3/16 multiplied by the fraction of the unit represented by the leased tract

Upon pooling, the lessor's royalty is typically reduced proportionately: the lease royalty fraction is multiplied by the ratio of leased acres to total unit acres.