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THE HABENDUM CLAUSE

The Habendum Clause is the part of the oil & gas lease that defines how long your land will be covered by the lease. A lease is generally effective for a specific period of time (ie. 3 years). This period of time is?called the "primary term." Without additional language, the lease would expire at the end of the primary term even if there is a very successful well producing on the property. To prevent this from happening, additional language is added within the Habendum Clause to insure that the lease will continue in force and effect until the company discontinues their operations. Two typical Habendum Clauses read as follows:

Example #1:

"It is agreed and understood that this lease shall remain in force for a term of three years from the date hereof, hereinafter called the "primary term," and as long thereafter as oil or gas, or either of them is produced from said land."

Example #2:

"It is agreed and understood that this lease shall remain in force for a term of three years from the date hereof, hereinafter called the "primary term," and as long thereafter as operations, as hereinafter defined, are conducted upon said land with no cessation for more than ninety (90) consecutive days."

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In the first example, there would have to be actual production of oil or gas to continue the lease beyond the three year period of the primary term. Absent additional language, once production stopped (even if for only a few days), the lease would terminate.

In the second example, any sort of operations conducted upon the land would be enough to keep the lease in force after the three year period of the primary term. Operations could include production, drilling, testing, repairing, reworking of a well, etc.?? As long as there is some sort of activity occuring with respect to the land at least every 90 days, the lease could remain in effect indefinitely.

While the second example may not seem like a very good choice for the landowner, it is often used because it allows the petroleum company time to correct problems with unsuccessful wells and explore the idea of drilling additional wells. To protect the landowner from being trapped forever under a lease that never seems to bring in any profit, other provisions can be added to the lease that place additional burdens upon the petroleum company if they choose to continue the lease without actual production.






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