Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension of Primary Term of Lease An Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension of Primary Term of Lease is a legal document used in the state of Arkansas to extend the primary term of an oil and gas lease by paying an upfront sum of money. This amendment offers the lessee an opportunity to secure additional time to explore and produce oil and gas reserves on the leased property beyond the initial primary term. The primary term of an oil and gas lease typically spans a fixed duration, during which the lessee must commence drilling operations or undertake certain activities specified in the lease agreement to hold the lease. However, lessees often require more time to evaluate the property or secure the necessary resources to conduct exploration and production activities. The Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension of Primary Term of Lease serves this purpose. The amendment provides an attractive option for lessees as it allows them to extend the primary term by making a one-time payment. This payment, referred to as a paid-up extension bonus, grants the lessee additional time without the obligation of undertaking drilling operations during the extended term, thereby reducing financial risks and providing flexibility. Keywords: Arkansas, Amendment to Oil and Gas Lease, Paid-Up Extension, Primary Term, Lease Agreement, Exploration, Production, Lessee, Lessee, Lease Property, Exploration Activities, Paid-Up Extension Bonus, Drilling Operations, Financial Risks, Extension Term. Different Types of Arkansas Amendments to Oil and Gas Lease for Paid-Up Extension of Primary Term of Lease: 1. Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension with Adjusted Royalty Rates: This type of amendment allows the lessee to not only extend the primary term but also negotiate and modify the royalty rates specified in the original lease agreement. The lessee can secure an extended period for exploration and production while having the opportunity to optimize their financial return through adjusted royalty rates. 2. Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension with Stipulations: This amendment includes additional stipulations beyond the extension of the primary term. The lessee and lessor might agree upon specific conditions, such as the implementation of certain environmental or conservation measures during the extended term, ensuring responsible and sustainable oil and gas operations. 3. Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension with Enhanced Surface Protection: In cases where the leased property is close to residential areas, protected wildlife habitats, or other sensitive areas, this type of amendment can be utilized. It allows the lessee to extend the primary term while committing to additional measures to minimize impacts on the surface, such as enhanced land reclamation practices or specific limitations on surface disturbances. These various amendments offer flexibility to lessees while enabling them to take advantage of extended timeframes for conducting operations, adjusting royalty rates, including specific stipulations, or providing enhanced surface protection in certain cases.
Arkansas Amendment to Oil and Gas Lease for Paid-Up Extension of Primary Term of Lease
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FAQ
The point of a retained-acreage provision is to be able to seek a new opportunity to lease unworked land to a different lessee, one who might do something productive with it. A Pugh clause is a negotiated provision in favor of the lessor. Pugh clauses modify pooling/unitization rights.
A clause in an oil & gas lease that provides that if the leased land is later owned by separate parties, such as in a sale of part of the property, the lessee can continue to operate, develop, and treat the lease as a whole and pay royalties to each owner based on its percentage of ownership of the entire area.
Returning to our example, a properly drafted Horizontal Pugh Clause would not only terminate the lease as to the 180 non-pooled acres but also as to all horizons and strata below the deepest depth drilled, i.e., 7800 feet. In other words, the entire lease would terminate as to all horizons and strata below 7800 feet.
A common industry standard for primary term is three to five years, although depending on circumstances, terms of less than three years are not uncommon. This window of time is intended to allow a Lessee to explore for mineral resources before the leased mineral rights transfer back to the mineral owner.
The rule followed is generally known as the Strohacker Doctrine, named for the case of Missouri Pacific Railroad Co. v. Strohacker,s in which the Arkansas Supreme Court affirmed a chan- cery court decision that reservations of "coal and mineral deposits" in 1892 and 1893 deeds did not reserve the oil and gas.
A Pugh Clause is enforced to ensure that a lessee can be prevented from declaring all lands under an oil and gas lease as being held by production. This remains true even when production only takes place on a fraction of the property.
in clause (or shutin royalty clause) traditionally allows the lessee to maintain the lease by making shutin payments on a well capable of producing oil or gas in paying quantities where the oil or gas cannot be marketed, whether due to a lack of pipeline connection or otherwise.
With a Pugh Clause, if they don't have that other 50 acres pooled into a unit within that five-year term, then they have to pay you to extend the undeveloped 50 acres for five more years. Without a Pugh Clause, they could say those 50 acres are HBP and they wouldn't have to pay you.
