If you're a mineral rights owner, chances are you've been approached at some point to sign an oil and gas lease. These agreements can be a great way to generate income without selling your minerals. But they can also be confusing and filled with legal language that's hard to understand.

At Fraction Royalty, we help mineral owners navigate these decisions. Whether you're reviewing a lease or considering selling your rights entirely, it's important to know what's in your agreement—and how it affects you.

This guide will help you understand mineral lease terms in plain language, so you feel confident and informed.

Most oil and gas lease terms follow a similar structure, but the details can vary widely. Understanding the key sections can help you evaluate any lease you're offered.

The Main Sections to Know

1. Granting Clause
   This spells out exactly what rights you're giving the oil company—usually the right to explore, drill, and produce oil or gas from your land.

2. Royalty Clause
   This determines what percentage of the production revenue you'll receive if oil or gas royalties are generated. We'll dive into this more below.

3. Bonus Payment
   Many leases include an upfront cash payment, known as a lease bonus. It's a one-time payment made when the lease is signed.

4. Term Length
   This is the number of years the lease is valid—typically 3 to 5 years—unless production occurs (which brings us to the next section).

5. Shut-In Clause
   If a well is drilled but not producing, this clause may allow the company to keep the lease active by paying a nominal fee each year.

The wording in these sections can make a big difference in what you earn and how long your land stays tied up. If you're unsure, we're happy to take a look and explain it in everyday language.

One of the most important things to understand is the concept of "Held by Production", often shortened to HBP.

What Does Held by Production Mean?

Once a well is drilled and producing oil or gas in paying quantities, your lease may remain active indefinitely, even after the original term ends. As long as production continues, the company doesn't need to renegotiate or renew the lease.

This can be good or bad:

• Good, because you continue earning royalties.

• Bad, if you're stuck with an old lease that pays a low royalty rate.

If your lease is held by production but you're unhappy with the terms, selling your mineral rights might be a better option. We can evaluate your situation and give you a no-pressure offer in 24 hours.  At the very least, getting an offer will give you some idea of what your mineral rights are worth.

The royalty clause lease section is where most of your money is made—or lost. It's also where many mineral owners get tripped up.

Common Royalty Rates

Most leases offer royalty rates between 12.5% (1/8) and 25% (1/4) of the production revenue. The difference between 12.5% and 25% can be huge over time.

In addition to the percentage, look closely at:

• Post-production costs: Are deductions for transportation, marketing, or processing allowed?

• Market price vs. net revenue: Make sure your royalty is based on gross value, not the value after expenses.

Negotiating the royalty rate and the details around it is crucial. Even small changes can add up to thousands of dollars.

Many mineral owners don't realize how long a lease can tie up their property, or what happens if the company doesn't drill.

Key Timing Terms

1. Primary Term
   This is the initial lease period, often 3 to 5 years. If the company doesn't drill by the end of this period, the lease usually expires unless extended.

2. Drilling Obligation
   Some leases require the company to drill within a certain time frame or pay a penalty. Others have no obligation at all.

3. Extension Clauses
   Companies may try to add an option for a second term (an extension) for additional years. Always check whether this is included and under what conditions.

Knowing how long you're locked in—and what the company is required to do—can help you avoid surprises down the road.

Tip:  The value of your mineral rights will go DOWN if the lease expires and not drilling occurs.

Whether you're considering your first lease or reviewing a renewal, take your time. Rushing into a lease can lock you into terms that aren't in your best interest.

Tips for Lease Negotiation

• Don't go it alone: Talk to someone who understands leases (like us).

• Ask for more: Bonus payments and royalty rates are almost always negotiable.

• Look at the long term: A small upfront bonus may not make up for a low royalty rate over 10+ years.

• Compare offers: If you're in a hot area, you may get multiple offers—make sure you know which is best.

If you're unsure about the lease you've been offered, we can help review it or talk you through alternatives like selling your mineral rights altogether.

Leasing your mineral rights isn't the only option. For many owners, selling mineral rights offers a faster, simpler way to get value—especially if you're dealing with a lease that doesn't pay much.

At Fraction Royalty, we give you:

• A clear, no-pressure offer within 24 hours

• Fast closings in 7 days or less

• No closing costs or hidden fees

• Guidance on lease terms, ownership questions, and sale options

Even if you decide not to sell, we're happy to help you understand oil and gas lease terms and make sense of what you've been offered.