Options for Expiring Leases

If your oil and gas lease is to expire soon, what may occur?
Options for Expiring Leases - Articles
Options for Expiring Leases

Courtesy Penn State Extension

This question often arises as the lease period runs out. If your oil and natural gas lease is about to expire, one of five things may occur:

  • The oil and gas company – the lessee – will commence operations. ‘Commencing operations’ could mean drilling a well, or whatever the terms of the lease identify as operations.
  • The oil and gas company can renew the lease if the terms of the lease allow that. Most leases include a renewal clause. Landowners should be aware of what the renewal clause states.
  • The Lessee will allow the lease to expire, and then offer less favorable terms. This may happen if the company feels the leasing market has declined.
  • The company will allow the lease to expire, and another company may make offers to lease the property.
  • The company will allow the lease to expire, and no other leasing opportunities will be offered.

Leases can be written for various time frames, such as a 3-, 5- or 10-year primary term. The primary term is the period of time during which an oil and gas lease is in effect, in the absence of production, drilling or other operations specified by the lease. The oil and gas lease can be extended past the primary term by production in paying quantities, drilling, operations and/or the payment of shut-in royalties, or other items specified by the lease. Commencing operations would keep a mineral owner in the lease agreement for a secondary term.

If it does not look like your lease will be extended into a secondary term or be renewed according to the existing lease terms, you should receive a ‘Release of Lease’ or ‘Surrender of Lease’ document from the lessee 30-60 days after the lease expiration date. If you do not receive a Release or Surrender document, you may wish to contact the lessee to request the release. You can usually get faster results by going to the “owner’s tab” on the company website. This creates a ticket that needs to be addressed on the company’s end. If you can’t find this tab or don’t have an account, you should be able to find another way to contact the company on their website. You may need to be persistent in getting through to the company.

If you cannot get a response from the lessee after a reasonable amount of time, you can file your own release of lease. In Pennsylvania, the “Recording of Surrender Documents from Oil and Natural Gas Lease Act” outlines the recording of surrender documents for an oil and gas lease, and the steps a lessor can take to initiate surrender documents. The notice must contain:

  • A statement that the lease will be terminated, expired or canceled according to its terms, including the date of the termination, expiration or cancellation.
  • A statement that the lessee (the oil and gas company) has a duty to provide a surrender document under section 3 of Act 152 of 2014.
  • A statement that the lessor (the landowner) has failed to receive a timely surrender document from the lessee.
  • A statement that if the surrender document is not received by the date of termination, expiration or cancellation, the lessor has a right to record an affidavit of termination, expiration or cancellation of an oil or natural gas lease in the office of the recorder of deeds for the county in which the land is situated.

Include in your notice:

  • The names and addresses of the lessor, if contained in the lease.
  • The name and address of the person giving notice and a statement as to the person's interest in the land or relationship to the lessor.
  • The municipality in which the land is located and a brief description of the land.
  • If located in a unit, the name or description of the unit, if known to the lessor.
  • If there is a well on the land, the name or number of the well if known to the lessor.
  • The date of the execution of the oil or natural gas lease.
  • The date of termination, expiration or cancellation of the oil or natural gas lease and the basis of the termination, expiration or cancellation.

Read the entire 2014 Act 152 .

The impact of recording your own affidavit may not be as effective as recording a surrender of lease from the lessee. It is preferable to get a release or surrender document from the lessee.

Once you receive the release of lease, whether from the lessee directly or through serving notice on the lessee, you may need to file the document yourself. This entails taking the surrender of lease document to the County Recorder of Deeds. The document should be signed and notarized by the lessee. Take a self-addressed, stamped envelope so the release can be mailed back to you for your records. There is typically a fee of $20 to $30 for recording the surrender. Many offices won’t accept checks or credit cards, so either check before going, or bring cash with you. If there are multiple parcels leased separately, you will need to have a release of lease for each parcel, and pay a fee for each recording on each deed.

Is it necessary to go through this process if your lease expires? The recording will verify that you or your heirs have retained the oil and gas rights. This will also make it easier to negotiate a new lease, as it will be apparent to a potential buyer that the previous lease is no longer in force.

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Community Development

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