# The Basics of the Oil and Gas Lease | Berlin Royalties

> For the mineral owner, the Oil and Gas Lease is the most common, but also the most important legal instrument that he will have to negotiate. …

Source: https://www.berlinroyalties.com/oil-scout/the-basics-of-the-oil-and-gas-lease/
Publisher: Berlin Royalties, a veteran-owned oil and gas mineral and royalty buyer in Tulsa, Oklahoma, buying for its own account since 2014. Call or text 918-984-1645.
License: free to quote and cite with attribution to Berlin Royalties and a link to the source URL.

## The Basics of the Oil and Gas Lease

By **Stephen Clayman** · May 3, 2015

For the mineral owner, the Oil and Gas Lease is the most common, but also the most important legal instrument that he will have to negotiate. Many books have detailed the Oil and Gas Lease, however, we will limit our study today to the basics.

99.9% of mineral owners will lease their mineral rights to an oil company for the right to explore and drill for oil and gas. The Oil and Gas Lease is a legally binding agreement between two parties, the mineral owner, called the Lessor, and the oil company or his agent, call the Lessee. In exchange for the opportunity to lease the mineral rights, the Lessee will tender consideration to the Lessor.

There are two components to the consideration. First, the Lessee will pay a cash bonus payment to the Lessor. Bonus payments vary widely and are dependent on local market conditions. Second, the Lessee will pay a royalty to the Lessor if a well is drilled and it produces oil and gas. The royalty is a percentage of the production revenues. The most commonly negotiated royalties are 1/8th and 3/16th. This means that if a Lessor agrees to a 3/16th royalty, he will receive 3/16th of the revenues attributed to the minerals he leased in the well free of any charges.

When leasing, most oil companies will offer at least two options with differing cash bonuses and royalty percentages which are inversely related.

For Example:

Option 1: $200/net mineral acre and a 1/8th royalty

Option 2: $150/net mineral acre and a 3/16th royalty

As mineral owners have differing horizons, each may choose a different option based on his current financial situation.

The Lease will also have a Primary Term. The Primary Term is the amount of time, usually three years, the oil company has to drill an oil and gas well. If the company does not drill a well capable of producing oil and gas in paying quantities, then the lease will expire. If the oil company does drill a well, then the lease will enter its Secondary Term and will remain in force as long as the well is capable of producing in paying quantities.

The Lease will also describe the lands being leased using the legal description. These will usually include the section, township, and range along with a more specific description of the tract. Legal descriptions will be detailed more thoroughly in a later post.

Stay tuned for more information about the Oil and Gas Lease in future posts.

BR

### Thinking about selling your minerals?

Berlin Royalties buys Oklahoma minerals and royalties, and we show you the work behind every offer. Free, no obligation, and if keeping them is the right answer we will tell you that too.

[Get a Free Valuation](https://www.berlinroyalties.com/free-valuation/)
or call or text **[918-984-1645](tel:9189841645)**

More From The Oil Scout

[March 13, 2018

### Extending an Oil and Gas Lease

It can happen to the best of us, it was three years ago and nobody was drilling deep gas in Custer. You signed an oil and gas lease with an op…](https://www.berlinroyalties.com/oil-scout/extending-an-oil-and-gas-lease/)

[March 1, 2018

### Is $10 Actually the Bonus Per Acre?

Berlin received another call from Bruce today. He was angry and slightly confused. Bruce was sure that some fly-by-night lease flipper was fix…](https://www.berlinroyalties.com/oil-scout/is-10-actually-the-bonus-per-acre/)

[September 5, 2026

### Your Aethon Check Now Says Adamas. Here Is What to Check.

Mitsubishi bought Aethon's Haynesville business in July 2026 and renamed it Adamas Energy. What royalty owners should verify when the payor name changes.](https://www.berlinroyalties.com/oil-scout/aethon-is-now-adamas-what-royalty-owners-should-check/)

[September 1, 2026

### Oklahoma's Royalty Interest Rate Changes November 1

HB 1371 moves Oklahoma's late royalty interest from 12% compounded to 15% simple on November 1, 2026. Higher is not always better, and here is where it flips.](https://www.berlinroyalties.com/oil-scout/oklahoma-royalty-interest-changes-november-1/)