Definition
The Held-By-Production clause is a provision in oil and natural gas property leases that allows the lessee (often an energy company) to extend their rights to drill and produce from a property beyond the initial lease term as long as they are producing a minimum economic amount of oil or gas. Essentially, if the well is still producing (even if at a snails-pace), the lessee can keep the lease alive—kind of like that one friend who won’t leave your house after the party ends.
Held-By-Production vs Habendum Clause
| Feature | Held-By-Production | Habendum Clause |
|---|---|---|
| Purpose | Allows lease extension while producing | Describes the duration of oil and gas rights |
| Trigger | Production of oil or gas at economic levels | Initial lease terms |
| Common in | Energy companies’ leases | Various mineral property leases |
| Outcome if not met | Lease terminates if production ceases | Lease can expire without production |
Example
If Company A has a lease on a property with a Held-By-Production clause and drills a well that produces a trickle of gas, even if it isn’t enough to make a significant profit, they can keep drilling indefinitely. Why? Because that well is still humming away, keeping the lights on – literally! The clause keeps them in business, rather than losing the rights to the land after the lease expires.
Related Terms
- Production Minimums: The minimum amount of oil or gas that must be produced to keep the lease alive under a Held-By-Production clause.
- Lease Term: The duration for which the lease agreement is enforced, typically comes with lots of legal jargon.
- Non-Producing Leases: Leases where no significant oil or gas is extracted, which might warrant a swift exit of rights!
How a Held-By-Production Clause Works
graph TD;
A[Lease Agreement] -- "Includes: Held-By-Production Clause" --> B[Lessee Can Operate the Property];
B -- "Conditioned on Economic Production" --> C[Drill, Baby, Drill!];
C -- "Producing Oil or Gas?" --> D{Yes/No};
D --|Yes| E[Lease is Extended];
D --|No| F[Lease Terminates];
Humorous Insights and Fun Facts
They say, “A gallon of gas is like a good friend – sometimes it’s necessary and always worth the price!” 🎉 Did you know that many energy companies would rather keep pouring money into a slow well than lose rights to that ‘gold mine’? They’re kind of like that friend milking their coffee in case there’s another round of conversation.
Historical Fact: The Held-By-Production clause has roots that date back over a century, originating during the oil booms of the early 20th century. These clauses have helped bring boomtowns to life and keep stragglers afloat!
Frequently Asked Questions
Q: What happens if production declines below the economic threshold?
A: Unfortunately, if the production dips below the required amount, it could be lights out for your lease with the lease ending unless they can sweet-talk their way into a lease renewal.
Q: Are there standard definitions for ’economic’ production?
A: Ah, that’s a million-dollar question! The definition of ’economic’ can vary – it’s often based on fluctuating market prices, production costs, and the type of resources involved.
Q: Can other clauses override the Held-By-Production clause?
A: Absolutely! Other agreements or local regulations might kick in and snuff out those dreams of endless drilling. Always read the fine print or hire an accountant who doesn’t need glasses!
Suggested Reading & Resources
- “Oil and Gas Lease Handbook” by Jerome R. B. McCarthy
- “The Fundamentals of Oil and Gas Accounting” by Charlotte Wright
- American Association of Petroleum Geologists
- U.S. Energy Information Administration
Test Your Knowledge: Held-By-Production Clause Quiz
Thank you for joining the wild world of Held-By-Production clauses! Remember, in the realm of energy and mining, knowledge is power. Just like a well-drilled oil well, it keeps the good times flowing! 🌟
