A held by production clause is a provision commonly found in oil and gas leases. This clause is a contractual arrangement between a landowner (lessor) and an oil and gas company (lessee). The clause typically relates to the duration of the lease and the conditions under which the lease will be extended or terminated based on production activities.

Key points about the “held by production” clause include:

1. **Lease Continuation:** The primary purpose of a “held by production” clause is to extend the lease as long as the lessee is actively engaged in production activities on the leased property. In other words, the lease continues as long as the property is productive.

2. **Production Activities:** For the lease to be held by production, there usually must be actual production of oil or gas from the leased premises. The lessee is required to undertake exploration, drilling, and extraction activities to maintain the lease.

3. **Minimum Production Levels:** Some held by production clauses may specify minimum production levels necessary to keep the lease in force. If production falls below a certain threshold, the lease may be subject to termination.

4. **Savings Clause:** Some leases include a savings clause that allows the lessee to maintain the lease even if production is temporarily interrupted due to unforeseen circumstances, such as equipment failure or regulatory issues.

5. **Continuous Operation:** The lessee may be required to continuously operate wells or engage in activities that demonstrate a commitment to producing oil or gas from the leased property.

6. **Duration of the Lease:** The “held by production” clause has a significant impact on the duration of the lease. As long as the lessee is actively producing, the lease can be extended, providing ongoing rights to explore and extract resources.

7. **Termination of Lease:** If the lessee ceases production or fails to meet the conditions outlined in the clause, the lease may be subject to termination. Upon termination, the rights to the property typically revert to the lessor.

8. **Negotiable Terms:** The specific terms of a “held by production” clause are negotiable between the lessor and lessee during the lease negotiation process. The parties may agree on the duration of the lease, the minimum production requirements, and any other relevant conditions.

The “held by production” clause is an important aspect of oil and gas lease agreements as it influences the financial interests of both the landowner and the energy company. Landowners should carefully review and negotiate the terms of this clause to ensure that their interests are protected and that the lease remains in force as long as the property is productive. Conversely, oil and gas companies aim to negotiate terms that provide flexibility while maintaining their rights to explore and produce resources.