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Mineral Lease

Mineral Lease

Definition

A contract between a mineral owner (the lessor) and a company or working interest owner (the lessee) in which the lessor grants the lessee the right to explore, drill, and produce oil, gas, and other minerals for a specified period of time. The oil and gas lease is granted in exchange for royalty payments to the lessor.
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Related Terms

Joint Operating Agreement (JOA)

A contract that sets forth the duties and obligations of both the operator and nonoperating working interest owners of a mineral lease. The JOA serves several purposes, including identifying the property interests of the parties in the mineral lease, designating the party that is to act as operator, and setting forth the method for sharing expenses and for the allocation of liability for the oil and gas exploration and production operations. See alsoMineral lease.

Working Interest

A percentage of ownership in a mineral lease granting its owner the right to explore, drill, and produce oil and gas from the leased property. Working interest owners bear all of the costs and liabilities associated with leasing, drilling, producing, and operating a well but share in only part of the production revenue from a successful well. The share of production revenue to which a working interest owner is entitled will always be smaller than the share of costs that the working interest owner is required to bear, with the balance of the production revenue accruing to the royalty owners. For example, the owner of a 100 percent working interest in a lease burdened by a landowner's royalty of 20 percent would be required to pay 100 percent of the exploration, development, and operating costs but would be entitled to only 80 percent of the production revenue. The royalty owner would be entitled to the remaining 20 percent of production revenue.

Royalty Interest

Ownership of a portion of the resource or revenue produced from the leased property. Typically, the owner of the leased property retains a royalty interest. The party with the royalty interest is not responsible for the costs and liabilities associated with the exploration, development, and operation of a well.

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