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 the function of an 'after-acquired title' (estoppel by deed) doctrine in the context of oil and gas leases?
Answer: If a lessor later acquires title to land they didn't own at execution, that after-acquired title automatically inures to the benefit of the lessee
Under estoppel by deed, if a grantor (lessor) conveys an interest they don't yet own, any title later acquired by the grantor automatically passes to the grantee/lessee.
In an oil and gas lease, what does 'habendum clause' govern?
Answer: The duration of the lease — defining the primary term and the conditions under which the lease continues into the secondary term
The habendum clause ('to have and to hold') establishes the lease term: a fixed primary term followed by an indefinite secondary term as long as production in paying quantities continues.
What does 'production in paying quantities' (PPQ) generally require?
Answer: That production revenues exceed operating expenses and leave a profit, however small, to a reasonably prudent operator
PPQ is satisfied when production revenues exceed the costs of lifting the oil or gas, yielding some profit to a reasonably prudent operator — even if the well is not highly profitable.
What is a 'retained acreage clause' in an oil and gas lease?
Answer: A clause specifying how much acreage each producing well will hold at the end of the primary term, releasing the remainder
A retained acreage clause specifies the acreage held by each producing well (e.g., one 640-acre unit per well), releasing all non-held acreage when the primary term expires.
Under what circumstances can a lessor claim a lease has terminated due to abandonment?
Answer: When the lessee has ceased all operations and production for a significant period with no intention to resume, demonstrating intent to abandon
Abandonment requires both the physical act of cessation and the intent to relinquish rights, meaning a mere temporary shutdown does not constitute abandonment.
What is the purpose of a 'depth clause' or 'depth severance clause' in an oil and gas lease?
Answer: To limit the lessee's rights to formations above or below a specified depth, or to release the lease as to certain depths
A depth clause restricts the lessee's rights to specific formations or depth intervals, allowing the lessor to lease different depths to different parties or release depths not being developed.
In the context of oil and gas contracts, what is a 'farmout agreement'?
Answer: A contract where the lease owner (farmor) assigns all or part of their working interest to another party (farmee) in exchange for the farmee drilling a well
In a farmout, the farmor retains an overriding royalty or back-in working interest and the farmee earns the assigned interest by drilling and sometimes completing a test well.