A mineral owner called us last month with a question we hear more often than you’d think. She had a lease that was supposed to expire in 2023, but the operator drilled a well in 2022 that’s still producing. She assumed the lease would stay active indefinitely. Then she got a letter from a different company asking if her minerals were available. Now she was confused. Was her lease still good or not?
The answer came down to a clause buried in page three of her lease: the continuous development provision.
What “Held by Production” Actually Means
Most people who inherit mineral rights know the basic concept: once the primary term of a lease ends, if there’s a producing well on the property, the lease stays active. This is called being “held by production,” and it’s the most common way leases extend beyond their initial three, five, or ten-year term.
But here’s what surprises people: held by production doesn’t always mean the entire lease stays active forever. It depends on what else is written in the lease.
If your lease has a Pugh clause (and many modern leases do), then only the portion of your minerals that’s actually part of the producing well’s unit stays under lease. The rest of your acreage can revert back to you, even while that first well keeps pumping.
And if your lease has a continuous development clause with specific timing requirements, the operator may need to keep drilling new wells to hold the entire lease, even if existing wells are producing.
The Continuous Development Question
Continuous development clauses exist because mineral owners want to prevent situations where an operator drills one well, collects royalties from a small portion of the minerals, and then just sits on the rest of the acreage for decades without doing anything with it.
These clauses typically require the operator to drill additional wells within a certain timeframe, often 90, 120, or 180 days after completing the previous well. If they don’t drill within that window, portions of the lease may expire.
The catch is that these clauses are written in about a hundred different ways. Some apply only during the primary term. Some give the operator the option to pay delay rentals instead of drilling. Some have exceptions for force majeure events or low commodity prices. Some are vaguely worded enough that you’d need a courtroom to settle what they actually require.
We’ve seen leases where the continuous development language is crystal clear, and we’ve seen leases where three different attorneys would give you three different interpretations.
Why This Matters More Now
Over the last few years, we’ve watched operators become much more selective about where they drill. Even when commodity prices have been supportive, many companies have focused on capital discipline rather than aggressive drilling programs. They’re completing wells on their best acreage and leaving their marginal acreage alone.
That’s a reasonable business decision from their perspective, but it creates a problem for mineral owners whose leases include continuous development requirements. If an operator leased your property in 2019 planning to drill multiple wells, but then decided by 2024 that they’d rather focus their resources elsewhere, you might have minerals sitting under a lease that’s no longer being developed, and depending on your lease terms, that might mean portions of your lease should have expired.
The challenge is that lease expiration isn’t always automatic or obvious. The operator doesn’t send you a letter saying “By the way, we failed to meet the continuous development requirement, so your lease just terminated on the north forty acres.” In fact, many times the operator’s land department might not have flagged it themselves.
What to Look For in Your Lease
If you’ve inherited mineral rights that are currently leased, it’s worth pulling out that lease document and looking for a few specific things:
First, find the continuous development clause if there is one. It might be labeled that way, or it might be tucked into a section about operations or drilling obligations. Look for language that requires the operator to drill wells within specific time periods.
Second, check whether there’s a Pugh clause. This will usually say something about the lease terminating as to depths or acreage not included in a producing unit.
Third, look at the dates. When was your lease signed? When did the primary term end? When was the last well drilled on your property?
If you’re seeing gaps between when wells were drilled, or if it’s been years since any drilling activity on your minerals, and your lease has continuous development language, you might want to get a closer look at whether your lease is actually still valid on all of your acreage.
It’s Worth Checking
The mineral owner who called us ended up discovering that about half of her acreage had indeed reverted back to her. The operator’s well was holding the lease on the pooled unit, but the continuous development clause required additional drilling that never happened, and the Pugh clause released the rest.
She wasn’t upset with the operator. They’d followed the market and made their business decisions, and the lease terms were right there in writing. She was just glad to know that she could now consider new opportunities for the acreage that had come back to her.
If you’ve got minerals under lease and you’re not sure whether everything is still tied up or whether some of your rights might have reverted, we’re happy to take a look at your lease and talk through what’s actually happening on the ground. Sometimes the answer is straightforward, and sometimes it takes a bit of digging, but either way, it’s worth knowing where you stand.