Lease Administration and Lease Maintenance

Oil and Gas Lease Administration is more than just Lease Set-up; and to equate Lease Administration with Lease Maintenance doesn’t really capture everything that Lease Administration encompasses.  It takes an experienced lease analyst to fulfill a lease administration role and perform essential lease maintenance tasks.

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What all can Lease Administration or Lease Maintenance entail?

Special Provisions  –  Understanding the provisions of a lease is an important part of lease administration.  Understanding PUGH clauses, differentiating Continuous Operations from Continuous Development, and noting Consent to Assign requirements are just the beginning.  There are hundreds of potential Special Provisions in a lease; one paragraph can contain multiple clauses, or one provision can span multiple paragraphs that are not contiguous in the lease document itself.  These clauses can have huge impacts on your drilling requirements, lease expirations, and other facets of your business that depend on quality lease administration having been performed.

PUGH Clauses  –  PUGH clauses can be categorized several ways:  Vertical PUGH clause, Horizontal PUGH clause, Stratigraphic PUGH clause, Geographic PUGH clause, Depth PUGH clause, Area PUGH clause, the list goes on; but it boils down to this: a PUGH clause determines what acreage outside of a producing zone or unit expires, and when.  PUGH clauses can sever acreage from a lease outside of a unit or above/below a certain depth.  Interpreting PUGH clauses and understanding how they affect the expiration date of lease can have a major impact o n your drilling schedule and re-leasing operations.

Special Obligations  –  Any clause in a lease that requires you to do something isn’t just a provision, it creates an obligation.  Proper lease administration means tracking and fulfilling your obligations, including those beyond simple rent, extension, and royalty payments.

Development  –  When a well is drilled on lands that are leased there is a lot that needs to be done to properly track that acreage.  This is a core function of lease maintenance.  Is the entire lease held?  Are there any depth issues?  Do tracts need to be split in the land system?  These questions and more overlap other lease administration roles; just as the lease is seen as a whole and complete document, lease administration is an involved process that must be completed in its entirety to be truly effective.

Rental Payments  –  Lease administration may entail making rental payments, or at the very least tracking when they are needed, to whom they must be paid, and in what amount.

Extension Payments  –  Paid Up leases will not have a “delay rental payment obligation, but instead may allow, via a provision in the lease, for an extension to be taken by payment of a set amount being made by the Lessee to the Lessor.  Making sure that needed payments are made while unnecessary payments are not made is essential to holding onto acreage and not wasting money or time.  Some consider this to be the most important part of lease maintenance.

Expirations  –  Eventually leases do expire, in whole or in-part, and records need to be updated.  While on the surface this may seem like a simple lease maintenance task, it can be a very complex process to figure out exactly what acreage of a lease is expiring, when it is expiring (after taking all payments and provisions into account), and what your options are after it expires.

Lease Folders  –  Keeping lease folders up to date, whether they are physical or digital, is an important lease administration function.  Adding check stubs, copies of correspondence, legal documents, and other paperwork helps in due-diligence situations, data hand-offs, and researching the history of the lease when questions arise.

Working Interest Assignments  –  The Lessee is the first working interest holder, but they may take on partners, sell the lease, or have an agreement already in place before the lease is even taken that assigns a portion of working interest to another party.  Updating records to reflect these assignments is a common lease maintenance tasks that affects many lease administration duties.

Mineral Conveyances  –  Similar to how a Lessee can assign working interest a Lessor can assign their mineral interest to other parties with various conveyance documents, including deeds and probate.  Part of lease administration is knowing how this affects the tracts associated with a lease.  A lease analyst performing lease maintenance will need to transfer this interest and may need to split tracts or request further documentation.

Burdens  –  In addition to traditional Royalty owners a lease may also be subject to Overriding Royalty Interest (ORRI) owners and Non-Participating Royalty Interest (NPRI) owners.  These interests can transfer just like other interest and must be tracked properly during the lease maintenance period to be prepared for production and handling the Division of Interest process.

Payment History  –  Knowing what payments have been tendered for a lease is an important lease administration function.  Land owners may dispute having received a payment, during a due diligence period a purchaser will want to verify that necessary payments have been made, or a report may be needed to see what expenses are related to a certain property all this goes beyond standard lease maintenance to help a company properly perform lease administration to effectively secure their assets.

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At Pettigrew & Pettigrew Land Services a core focus of ours is Lease Maintenance, Lease Administration, and Land Administration because without proper lease administration other workflows begin to breakdown, placing an undue burden on the Division Order analysts, accounting department, and land managers.  Lease setup is key to tracking your assets and lease maintenance is key to knowing the current status of your assets; and both of these processes feed into efficient lease administration practices.  If your data is in need of being entered, has already been set-up, is now in need of being maintained, or in need of some other sort of organization Pettigrew & Pettigrew Land Services is ready to be your lease administration team!