What is an Oil and Gas Lease?
Much of our practice has been devoted to representing landowners on issues involving oil and gas leases. In the next several articles I will discuss some key concepts that may help make more sense of this challenging field.
So, what is an oil and gas lease? It is a written document (must be in writing) that allows an oil and gas producer to withdraw and market oil, natural gas and other “hydrocarbons” (oil and gas related chemicals) from under your land.
An oil and gas lease has two aspects: (1) It is a contract. (2) It is a legal interest in your land. The tension between contract and land interest is the intersection at which issues between landowners and producers meet.
Why? Because contracts are easier to forfeit or void than land interests. For example, if you are renting an apartment to someone and they fail to pay rent, they have broken the rental contract and no longer have the right to live in the apartment. Sounds simple, right? Many landowners think that the same law should apply to producers who don’t pay royalties. Failure to pay royalties is a breach of the contract and the landowner should not be bound by the contract.
However, under producer-friendly Ohio law, this example does not apply to oil and gas leases. Because “the law abhors a forfeiture of a land interest,” many courts have held that a landowner’s remedy for failure to pay royalties is not forfeiture of the lease, but payment of back royalty. This is like giving your renter the chance to pay back rent and still keep the lease, regardless of whether you want to continue renting to him!
This is a prime example where the law and common sense do not match up!
We, along with other landowner advocates, devote our efforts to balancing the scales for the landowner. If you have oil and gas related questions, please contact us.
By Thomas D. White, Senior Partner, White Law Office