Production In Paying Quantities
Essentially all present day oil & gas leases contain habendum clauses that provide for a set primary term. Customarily three to five years, followed by a secondary term in which the lease is perpetuated by the production of oil and gas in paying quantities. Although this clause is commonly used in oil and gas leases, it doesn’t have a constant definition. Some courts interpret the language of the habendum clause strictly and require the actual, physical production and marketing of oil or gas for the secondary term to continue, others focus on the capability of production and don’t require the actual selling or marketing of oil or gas to preserve the lease. However, Texas has embraced the actual production interpretation.