“The purpose of the lease drilling-delay rental clause is to ensure that the lessee has no obligation to drill during the primary term by negating any implied obligation to test the premises. Before drilling-delay rental clauses became common in oil and gas leases, many courts held that lessees had an implied duty to drill a test well on the leased premises within a reasonable time after grant of the lease. The rationale for the implied covenant was that the major consideration for the grant of the lease by the lessor was the expectation that the property would be tested within a reasonable time. The courts’ determination of what was a reasonable time ranged from a few months to several years, depending upon the circumstances. Lessees found that they could not rely upon a long stated term alone to preserve their rights.” John S. Lowe, Oil and Gas Law in a Nutshell 195–96 (3d ed. 1995).
drilling delay rental clause
drilling-delay rental clause. Oil & gas. A provision in an oil-and-gas lease giving the lessee the right to maintain the lease from period to period during the primary term by paying delay rentals instead of starting drilling operations. • Lessees use drilling-delay rental clauses because courts have said that they obviate any implied covenant to drill a test well on the premises. They are accepted by lessors because they provide for periodic income from the lease. See “or”lease, “unless”lease under LEASE. [Cases: Mines and Minerals 78.1(3). C.J.S. Mines and Minerals §§ 269–270.]
