The Doctrine of Indivisibility
Every petroleum landman and/or oil and gas lease agent should understand whether or not the Oil and Gas Lease is subject to what is known as the “The Doctrine of Indivisibility.”
This means that the Lease is not divisible or not divided, and states that a single well, which is capable of producing in commercial quantities, will continue to hold the entire leased lands described in the Oil and Gas Lease into the term past the Primary Term (secondary term).
In other words, unless the Lease itself contains a provision for dividing the lands, they remain whole or indivisible during this secondary term.
The Doctrine holds that what the Lessee does on one tract of land is, as if it has been done on all the tracts of land, within the Legal Description of the Lease. It may have language that could affect any pooled lands, as well. This could be applied to lands in different sections of land described on the Lease. For example, in Kansas, you can pool lands together that are in different sections.
This doctrine can be related to a ‘Pugh Clause’ or a ‘Continuous Drilling Clause’ which defines the divisibility of the lease at some point in time. But in the absent of such clauses, is the Doctrine of Indivisibility enforceable? The answer is “it depends.” Other such clauses that could impact the divisibility of the lease are such things as “dry hole clauses” and “shut-in royalty” clauses.
Also, continuous drilling operations clause, delayed rental payments, cessation of production, and the force majeure clause may play a part in determining what can be divided from the leasehold estate.
Something to consider is that certain clauses, such as the ‘shut-in royalty clause,’ were drafted as being a “covenant” rather than a “condition” to the lease would help prevent divisibility.
Any divisible clause should only apply to formations not being produced, such as “zones behind the pipe.”
Pooled lands from either statutory provisions or which are considered voluntary, should also be addressed in such divisible lease language.
For more in depth information regarding certain “landmines” regarding the oil and gas lease, you should take the Institute of Energy Management’s course “Concepts of the Oil and Gas Lease Essentials.”
Enroll today at www.InstituteOfEnergyManagement.com