Oil Leasing & Contracts Flashcards
7 cards from real CPL practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Oil Leasing & Contracts flashcards as text
What is a 'shut-in royalty' clause designed to do?
Answer: Maintain a lease in force when a completed well is not producing due to lack of a market or pipeline connection
A shut-in royalty clause keeps the lease alive by substituting a nominal payment when a well capable of production is shut in due to market or operational reasons.
Which document is used to release a specific portion of leased acreage back to the lessor while retaining the remainder?
Answer: Partial release
A partial release (also called a partial surrender) relinquishes the lessee's rights to a defined portion of the leased acreage while the lease continues on the retained acreage.
What is the significance of the 'granting clause' in an oil and gas lease?
Answer: It defines the specific rights conveyed to the lessee, including the right to explore, drill, and produce hydrocarbons
The granting clause is the operative provision that conveys the lessee's rights; its language determines the scope of what the lessee is authorized to do on the leased premises.
Under the 'cessation of production' clause, how long does a lessee typically have to restore production before a lease terminates?
Answer: 60 to 90 days, depending on lease language
Most cessation of production clauses give the lessee 60–90 days to restore production or begin reworking operations before the lease terminates.
What is a 'continuous operations' clause in an oil and gas lease?
Answer: A provision that extends the lease as long as drilling or reworking operations are being conducted without a significant break in activity
A continuous operations clause keeps the lease alive during and after the primary term so long as operations are prosecuted diligently and without unreasonable interruption.
What does 'in gross' mean when applied to royalty payments in an oil and gas lease?
Answer: The royalty is calculated on total production without deducting any post-production costs such as compression or transportation
An 'in gross' or 'at the wellhead' royalty means the lessor receives a fraction of gross production value with no post-production cost deductions.
What is a 'Pugh clause' (also called a Freestone rider) in an oil and gas lease?
Answer: A clause that releases the non-pooled or non-unitized portions of a lease at the end of the primary term even if pooled portions are producing
A Pugh clause prevents the lessee from holding an entire lease through pooled production by releasing acreage or depths not included in a producing unit at the end of the primary term.