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The following comments should not be construed as legal advice and are intended to assist a freehold owner in gaining a basic understanding of the various clauses in freehold lease agreements and in determining whether he or she needs to seek the advice of professionals.

Most existing Canadian freehold lease agreements may be divided into sections. In the comments that follow, we have subdivided lease agreements as follows:

  • Identification
  • The Grant
  • The Habendum
  • Habendum Provisos
  • The First Proviso
  • The Second Proviso
  • The Third, Fourth and Fifth Provisos
  • CAPL leases
  • The Interpretation Clause
  • The Royalty Clause:
  • ‘Gross’ Oil Royalties
  • ‘Net’ Gas Royalties
  • The Acanthus Decision
  • Current Market Value
  • The Offset Wells Clause
  • The Shut-in Well Clause
  • The Pooling and Unitization Clause
  • The Surrender Clause
  • The Default Clause
  • The Assignment Clause
  • The Entire Agreement Clause

Not all of these sections are found in every freehold lease, and the order in which the sections or clauses occur sometimes varies.

Identification: A freehold lease agreement typically begins by setting forth the date on which the agreement is entered into, identifying the parties to the agreement as the ‘lessee’ (the energy company or land agent) and the ‘lessor’ (the freehold owner), and then describing the property owned by the freeholder as set forth in the freehold owner’s certificate of title.

Land agents may attempt to include the entire area of the mineral interests you own in one lease agreement.  FHOA often encounters situations in which a freeholder who holds mineral rights in more than one section has entered into a single lease agreement.  This creates a situation where, if the energy company-lessee drills a well which is capable of producing the leased substances from the freeholder’s mineral rights in one of the sections, that well continues the entire leased area and the energy company-lessee has no obligation to develop the freeholder’s mineral rights in the other sections.  If you own mineral rights in more than one section, you should always lease your rights in each section under separate leases.  In fact, you should always attempt to lease your mineral rights in tracts corresponding to the smallest spacing unit for the hydrocarbons most likely to be discovered within your lands.  For instance...

 

Natural Gas Royalty Map

Petroleum & Natural Gas Cap On Deductions Map

Petroleum & Natural Gas Royalty Map

 

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Freehold Petroleum & Natural Gas Owners Association

"Freehold Owners Association"

901, 1000 5th Ave SW, Calgary, AB, T4P 4V1 Telephone: 403-245-4438