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.]
“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). [Blacks Law 8th]