Held by Production

Held by production (HBP) refers to the status of an oil and gas lease that has been extended beyond its primary term due to ongoing production of oil or gas from the leased premises. As long as production continues, the lease remains in effect indefinitely.

Legal basis: The habendum clause of a typical oil and gas lease provides that the lease continues "for a primary term of [X] years and as long thereafter as oil or gas is produced." Production before the end of the primary term triggers the "thereafter" clause.

Requirements for HBP status: - Production must be established before the primary term expires - Production must be in "paying quantities" (revenue exceeds operating costs) - Production must be reasonably continuous - Temporary cessation may be allowed depending on lease terms and state law

Cessation of production: - Most leases include a cessation clause allowing a specified period (e.g., 60-90 days) to re-establish production - If production permanently ceases, the lease terminates - Shut-in royalty provisions may maintain the lease when wells are capable but not producing

Significance: - HBP leases can last indefinitely as long as production continues - Mineral owners cannot re-lease HBP acreage - HBP status affects lease valuation and acquisition analysis - Determining HBP status requires reviewing production records and lease terms

Partial HBP: In some cases, a lease may be partially held by production where only a portion of the leased acreage is included in a producing unit, potentially allowing unleased portions to expire.