Fruit growers and landowners faced with oil and gas leasing decisions
Fruit growers and landowners are encouraged to understand the implications and negotiation options of the granting clause and the Mother Hubbard clause prior to signing an oil and gas lease.
The first paragraph of the oil and gas lease is called the granting clause. One provision that is discussed is the substances that can be explored for and produced. Some leases state that in addition to exploring, drilling and producing oil, gas and other associated hydrocarbons, “all other minerals and other gases and their respective vapors” are included. It may also state that mining is allowed. Other minerals and gases that could be encountered and produced are potassium, uranium, sulfur and helium. Regardless of what the market royalty is for these other substances, the royalty stated in the lease is what you will be paid. As an alternative, the mineral owner can consider inserting an arbitration clause that requires a determination of the royalty for substances other than oil, gas and associated hydrocarbons, should they be discovered, or limit the lease to the exploration and production of only oil, gas and other hydrocarbons.
The Mother Hubbard clause
This clause is almost always in what the industry calls a standard lease. A Mother Hubbard clause can state “or any other land adjacent thereto” or it may state “and all lands and interests contiguous or appurtenant to the land specifically described above”. Some landowners only wish to lease the land whose legal description is included in the lease. If the landowner accepts this lease provision, he is not reserving the right to negotiate a lease for the additional property in the future. This provision permits the developer to obtain the right to develop all contiguous or appurtenant lands owned by the landowner or that the landowner may own in the future that are adjacent or appurtenant.
Appurtenant in real property law describes any right or restriction which goes with that property, such as an easement to gain access across the neighbor's parcel. Some people also interpret this provision to mean that the land in the lease or appurtenant can be used as the drilling site for lands adjacent or appurtenant. This might be important if you do not have a non-development lease. Your land can be used as the drilling pad for a single well or multiple wells, which could include associated tank batteries, separators, etc. for those that do have non-development leases. Multiple well pads in the grand scheme are generally surface owner friendly, as there are less total surface acres disturbed. However, if your land is the site for the multiple well pads, lease language paying for surface damages for all surface disturbances is important.
The oil and gas leasing will be discussed in a series of Michigan State University Extension news articles. In the meantime, for more information regarding oil and gas leasing you can contact Curtis Talley Jr. at 231-873-2129 or view the Michigan State University Extension Oil and Gas Development webpage. Additional information to assist landowners in understanding and negotiating oil and gas leases and the oil and gas industry in general are on the page.