Continuous Drilling Clause
A lease provision that maintains the lease by continuous drilling operations rather than actual production.
Detailed Definition
A continuous drilling clause (also called a continuous operations clause or drilling operations clause) is a provision in an oil and gas lease that allows the lessee to maintain the lease in force by conducting continuous drilling operations, even if production has not yet been established by the end of the primary term.
Purpose: - Provides the operator additional time to complete drilling operations that are underway at the end of the primary term - Allows the operator to drill multiple wells in sequence without the lease expiring between wells - Protects the operator from losing the lease when a well is being drilled but has not yet produced
How it works: - If drilling operations are ongoing at the end of the primary term, the lease continues - The operator must maintain continuous operations (with defined gaps between wells) - Typical language allows 60 to 180 days between completion of one well and commencement of the next - The lease remains in force as long as drilling continues with reasonable diligence - If the operator ceases drilling and no production has been established, the lease terminates
Key terms to negotiate: - Definition of "drilling operations" (what activities qualify) - Maximum gap allowed between wells (cessation period) - Number of wells required or depth/formation obligations - Whether the clause applies to the entire lease or specific tracts - Relationship to the Pugh clause (if both are present)
Significance: Continuous drilling clauses are particularly important for leases covering large acreage positions or multiple formations where the operator plans an extended drilling program. They provide operational flexibility while ensuring active development.
Related Terms
Mineral Lease
A contract granting the right to explore for and produce minerals from a specific tract of land in exchange for rental payments and royalties.
Primary Term
The initial fixed period of an oil and gas lease during which the lessee must begin drilling or production to maintain the lease.
Held by Production
An oil and gas lease that continues beyond its primary term because of ongoing production from the leased premises.
Pugh Clause
A lease provision that allows acreage not included in a producing unit to expire at the end of the primary term, rather than being held by distant production.