Legal Definitions - entirety clause

An entirety clause is a specific provision found in mineral leases, particularly in the oil and gas industry. Its primary purpose is to ensure that if the land covered by the lease is divided or subdivided into smaller parcels after the lease has been signed, any royalties generated from mineral production on any part of that original land will be shared proportionally among all the current owners of those subdivided parcels. This prevents a situation where only the owner of the specific parcel where a well is drilled receives all the royalties, even though the lease originally covered a larger area now owned by multiple parties. It guarantees that all owners of the original leased tract, regardless of where the production occurs, receive their fair share of royalties based on their ownership percentage of the original leased area.

• Example 1: Family Inheritance

  Imagine a rancher, Mr. Henderson, owns a 640-acre property and signs an oil and gas lease covering the entire acreage with an energy company. Years later, Mr. Henderson passes away and, in his will, divides the 640 acres equally among his four children, with each child inheriting 160 acres. If the original lease included an entirety clause, and a productive oil well is later drilled on one child's 160-acre parcel, the royalties generated from that well would not solely go to that one child. Instead, the entirety clause would mandate that the royalties be divided equally among all four children, as each now owns an equal portion of the original 640-acre leased property.

• Example 2: Sale of a Portion of Leased Land

  A large timber company leases its 2,000-acre forest property to an oil and gas exploration company. The lease includes an entirety clause. Five years into the lease, the timber company decides to sell a 500-acre section of the forest to a real estate developer for a new housing project. Despite the sale, the original oil and gas lease remains in effect over the entire 2,000 acres. If a successful natural gas well is subsequently drilled on the remaining 1,500 acres still owned by the timber company, the entirety clause would require that the royalties from that well be shared between the timber company (owning 75% of the original leased land) and the real estate developer (owning 25% of the original leased land), proportional to their respective ownership of the original leased property.

• Example 3: Donation to a Land Trust

  A philanthropic family owns a 1,000-acre estate with an existing mineral lease that contains an entirety clause. The family decides to donate 200 acres of the estate to a conservation land trust, ensuring the land remains undeveloped. The mineral lease, however, continues to cover the entire original 1,000 acres. If, at a later date, a valuable mineral deposit is discovered and extracted from the 800 acres still owned by the family, the entirety clause would ensure that the land trust, as the owner of 20% of the original leased property, receives 20% of the royalties, while the family receives the remaining 80%, even though the production is not occurring on the land trust's specific parcel.