Term

The orderly development of mineral rights is essential to generating long-term shareholder value.  Effective monitoring of the term clause is needed to ensure that Heritage’s mineral rights are developed to their full potential in accordance with the lease, and any non-producing zones are returned to Heritage to be re-leased.

The Term clause will likely include the following attributes (may differ between lease forms):

Primary Term: during the Primary Term all rights leased are intact. The Primary Term is a specified time period within which the Lessee must conduct drilling or production operations on the land to hold the lease past the expiration date. At expiration, the Lessee must demonstrate that the lands are producing (or in some cases capable of production) or lose the lease.

Continuation: a lease is continued at the end of the Primary Term if the Lessee can demonstrate that the lands are producing (or in some cases capable of production), and the lease remains in good standing. Continued leases are typically referred to as “held by production”.  It is the Lessee’s responsibility to apply for continuation at the end of the Primary Term of their leases by providing the required production information to Heritage.

Post-Primary Term: the period of time that commences at expiration of the Primary Term for continued leases.

Rights/Spacing Unit Reversion: if present in the lease form, rights and/or spacing unit reversion permits Heritage to take back non-producing mineral rights and/or spacing units and allows Heritage the opportunity to re-lease the non-producing rights or spacing units to third parties. Types of rights reversion are specified in the lease and may include deep rights reversion, zonal reversion or spacing unit reversion.

  • Deep rights reversion allows for leased rights below the base of the deepest producing formation to be returned to Heritage.
  • Zonal reversion allows for non-producing formations to be severed from the lease agreement and returned to Heritage.
  • Spacing unit reversion allows for non-producing spacing units to be severed from the lease agreement and returned to Heritage.