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Simple English definitions for legal terms
drilling-delay rental clause
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A quick definition of drilling-delay rental clause:
A drilling-delay rental clause is a part of an oil-and-gas lease that allows the lessee to keep the lease without drilling by paying delay rentals instead. This clause is used to avoid any obligation to drill a test well on the premises. Before this clause became common, lessees had an implied duty to drill within a reasonable time after the lease was granted. The clause provides periodic income for the lessor and ensures that the lessee has no obligation to drill during the primary term.
A more thorough explanation:
A drilling-delay rental clause is a provision in an oil-and-gas lease that allows the lessee to maintain the lease by paying delay rentals instead of starting drilling operations during the primary term. This clause negates any implied obligation to test the premises and provides periodic income from the lease for the lessor.
For example, if a lessee has a drilling-delay rental clause in their lease, they can pay a delay rental fee to maintain the lease instead of drilling a test well on the leased premises. This allows the lessee to preserve their rights and provides income for the lessor.
Drilling-delay rental clauses became common in oil and gas leases because many courts previously held that lessees had an implied duty to drill a test well within a reasonable time after the grant of the lease. The courts' determination of what was a reasonable time varied depending on the circumstances.