How do oil well leases work?
John Hall
Updated on March 07, 2026
Oil and gas lease is an agreement between a mineral owner (lessor) and a company (lessee) in which the owner grants the company the right to explore, drill and produce oil, gas, and other minerals below the surface of the earth.
What is a oil well lease?
A contract between mineral owner, otherwise known as the lessor and a company or working interest owner, otherwise known as the lessee in which the lessor grants the lessee the right to explore, drill and produce oil, gas and other minerals for a specified primary term and as long thereafter as oil, gas or other …
Should I sign an oil and gas lease?
Unlike a sale of land, an Oil and Gas Lease creates a lasting, long-term relationship between the landowner and the Oil and Gas Company. For this reason, it is important to make sure that the company that has approached you is a reputable operator in the region.
How long do oil and gas leases last?
¹ The term of an oil and gas lease is divided into two parts, a primary term and a secondary term. The primary term is usually for a set amount of years, 1, 3, 5, 7 or 10 years.
What does a paid up oil and gas lease mean?
Accordingly, when you see the words “Paid-Up Lease,” this normally means that you will receive an upfront bonus for which the oil and gas company does not have to do anything during the initial or primary term of the lease.
How long do oil royalties last?
Oil and gas royalties paid to the landowners will often last for decades. The oil and gas wells will deplete, however, so over time the money received from oil and gas royalties will drop considerably. The average well is thought to last 35 years.
What is paid up oil and gas lease?
If a lease is a “paid-up” lease, then the lease will remain in effect during the entire primary term with no further payments to the Lessor unless and until actual production of oil or gas is established. Shut-in royalty. After the primary term, a lease will expire unless oil or gas is being produced.
How much money do oil rig owners make?
What are Top 10 Highest Paying Cities for Crude Oil Owner Operator Jobs
| City | Annual Salary | Monthly Pay |
|---|---|---|
| Sunnyvale, CA | $263,670 | $21,973 |
| Santa Cruz, CA | $261,233 | $21,769 |
| Santa Rosa, CA | $255,344 | $21,279 |
| Williston, ND | $250,198 | $20,850 |
Why are oil and gas lease terms negotiable?
It’s also important because oil and gas lease clauses contain the “primary lease terms”. This is the time an operator has to drill on your property. If they don’t drill within that time, they will lose your lease. Just like anything else in an oil and gas lease, the clauses are negotiable.
When do you need to extend an oil and gas lease?
If an operator completes or abandons a well on your property, or if production from a previous well stops for any reason for up to 90 days before your primary lease term ends, most producers want to extend the lease for 90 days. Often times, operators will add language to oil and gas lease clauses that cover them outside of the primary lease terms.
What is a royalty in an oil and gas lease?
The Lessor of an oil and gas lease reserves a royalty interest in all production from the lease. It is called a royalty interest because it is paid to the Lessor without deduction for the costs of drilling or production. It is typically expressed as a fraction or a percentage.
Can a mineral owner sign an oil and gas lease?
Accepting a Proposed Oil and Gas Lease Without Any Negotiation. A mineral owner could be so elated to receive a cash payment in exchange for signing an oil and gas lease that it signs the first offered Oil and Gas Lease document submitted. The Western Landowners’ Alliance strongly encourages its landowner members not to do this.
