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Understanding the Cessation-of-Production Clause in Oil and Gas Leases
Definition & Meaning
A cessation-of-production clause is a provision found in oil and gas leases. It outlines the actions that a lessee must take to keep the lease active if production stops. This clause is designed to extend or preserve the lease while the lessee works to resume production. Typically, it specifies a temporary period during which production may cease without terminating the lease, as long as the lessee takes steps to restore operations within an agreed timeframe.
Table of content
Legal Use & context
This clause is primarily used in the oil and gas industry. It is crucial in lease agreements where production is expected to be ongoing. If production ceases due to various causes, the lessee can avoid lease termination by resuming operations within the specified period. Legal professionals often draft these clauses to protect the interests of both the lessor and lessee. Users may find templates for these agreements on platforms like US Legal Forms, which can help them create legally sound documents.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A lessee's oil well stops producing due to equipment failure. The lease includes a cessation-of-production clause stating that the lessee has 60 days to resume drilling operations. The lessee repairs the equipment and begins drilling within the allowed period, thus maintaining the lease.
Example 2: A lessee experiences a temporary market downturn and halts production. According to the lease's clause, they must restart operations within 90 days. They successfully resume production before the deadline, keeping the lease active. (hypothetical example)
State-by-state differences
State
Cessation Period
Additional Requirements
Texas
90 days
Must notify the lessor of cessation.
Oklahoma
60 days
Requires proof of efforts to resume production.
California
Not specified
May include specific operational requirements.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Cessation-of-Production Clause
Clause allowing lease to remain active despite temporary production halt.
Specific to oil and gas leases.
Force Majeure Clause
Clause excusing parties from performance due to extraordinary events.
Broader application beyond production issues.
Common misunderstandings
What to do if this term applies to you
If you find yourself in a situation where production has ceased, review your lease agreement to understand the specific terms of the cessation-of-production clause. Ensure you take the necessary steps to resume operations within the specified timeframe. If you need assistance, consider using legal templates from US Legal Forms to create the appropriate documentation. For complex situations, consulting a legal professional is advisable.
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