Primary Term
The fixed initial period of an oil and gas lease, during which the lease stays in force without production if its other terms are met.
Detailed Definition
The primary term is the fixed initial period of an oil and gas lease. During it, the lease stays in force without production as long as the lessee meets its other terms, such as paying rentals. What happens at the end of the primary term depends on production, operations, and the lease language (see Held by Production).
Federal leases
- 30 U.S.C. 226(e): "Competitive and noncompetitive leases issued under this section shall be for a primary term of 10 years." The same subsection provides that "Each such lease shall continue so long after its primary term as oil or gas is produced in paying quantities."
- 43 CFR 3100.5 defines the primary term of current leases as "the initial term of the lease, which is 10 years."
- Extension by drilling: under 30 U.S.C. 226(e), a lease on which "actual drilling operations were commenced prior to the end of its primary term and are being diligently prosecuted at that time shall be extended for two years and so long thereafter as oil or gas is produced in paying quantities." 43 CFR 3107.10(a) adds that "The BLM will not grant a drilling extension for a lease in its extended term."
- Suspensions: under 43 CFR 3103.42(b), "The term of any lease will be adjusted to account for the suspension," and "No lease will expire during any suspension."
- Mining claim conflicts: 30 U.S.C. 226(k) suspends the running of time on a lease as to lands where a mining claimant files a verified statement asserting a conflicting unpatented mining claim on which diligent work is being prosecuted.
State lease examples
The primary term on state and private land comes from state law or the lease form.
- Texas. A lease of public school and Gulf land "shall be for a primary term not to exceed 10 years and for as long after that time as oil or gas is produced from the leased area" (Tex. Nat. Res. Code 52.021).
- Utah. The SITLA oil and gas lease form is "granted for a primary term of five (5) years commencing on the Effective Date."
During the primary term
Rentals may be due to keep the lease alive while no well is drilled. On a federal lease, 43 CFR 3103.22 provides that failure to pay rental "on or before the lease anniversary date will cause a lease to terminate automatically by operation of law."
Why it matters in mineral title research
- The effective date and primary term have to be read from the lease itself, including any amendments, extensions, or ratifications.
- A lease past its primary term is alive only if something held it: production, operations, a shut-in payment, a suspension, or commitment to a unit. Each has to be shown by records (see Shut-in Royalty and Unitization).
- An expired lease that was never released of record still appears in the chain and has to be addressed (see Cloud on Title and Curative).
Related Terms
Mineral Lease
A contract by which the owner of minerals grants another the right to explore for and produce them for a stated term, in exchange for payments such as bonus, rental, and royalty.
Lease Bonus
The sum paid by a lessee to the lessor as consideration for granting a lease, as distinct from the rentals and royalties paid over the life of the lease.
Held by Production
Describes a lease that continues past its primary term because oil or gas is being produced in paying quantities from the lease or from lands pooled or unitized with it.
Shut-in Royalty
A payment that keeps an oil and gas lease in force while a well capable of producing is shut in, such as for lack of a market or production facilities.
Pugh Clause
A lease provision under which, after the primary term, the lease ends as to acreage that is not within a producing, pooled, or spacing unit, even though production elsewhere holds the rest.
Continuous Drilling Clause
A lease provision that keeps a lease in force after the primary term, or after production stops, while drilling or reworking operations continue without gaps longer than the lease allows.