FHOA LEASE

CAPL LEASES

Royalty

Fixed negotiated royalty (typically 15%
to 18%)

Freehold Mineral Tax

Oil company-lessee pays 100% of
freehold mineral tax - increases effective
royalty to 30%

Freeholder pays royalty share of freehold mineral tax

Prices

Gas and gas liquid pricing tied to weighted average Alberta prices published by the Government

Gas prices subject to manipulation

Deductions

Transparent deductions for gas tied to gas price; no deductions for oil

Deductions for both gas and oil incomprehensible to most freehold owners

Deep Rights Reversion

Rights below deepest formation proven capable of production in paying quantities revert to freeholder at end of primary term

No deep rights reversion

CBM Royalties

CBM royalties to natural gas owner; oil company-lessee indemnifies freeholder from claims by coal owner

CBM royalties at discretion of oil company-lessee; no indemnification

Shut-in Wells

Continues lease only if production is in paying quantities; substantial shut-in payment

Continues lease with any production; CAPL 88 & 91 require only token shut-in payment

Unitization

 No right to unitize without freeholder’s consent

Oil company-lessee can unitize without consent of freeholder

Offset Wells

Protection from wells completed after date of lease from lateral and diagonally offsetting spacing units.

CAPL 88 & 91 - no protection if dry hole exists on spacing unit including the freeholder’s lands, no diagonal protection; CAPL 99 - no protection from offset wells drilled before date of lease

Caveats

Lessee required to amend caveats 60 days after the end of the primary term to reflect deep rights reversion and to remove caveats 60 days after lease termination.

No requirement to amend or remove caveats. 

Default

Negotiation, mediation, binding arbitration or litigation at the option of the freeholder.  Freeholder has right to acquire well in the event of default.

Bullet proof lease - freeholder risks becoming involved in litigation in the event of default

Assignment

Either freeholder or oil company-lessee can assign but must nominate one designated representative.  Oil company-lessee assignees jointly & severally liable for performance.

CAPL 88 & 91 - Assignment by freeholder is restricted but assignment by oil company-lessee is not.

Lessee assignees not jointly and severally liable for performance.

Royalty Reporting

Detailed reporting understandable by the freeholder.                           

No reporting requirement

Standard of Operations

Good faith obligation, competent operator

Contractual obligation - contracts made to be broken; diligent, careful & workmanlike operator

Implied Covenants

Courts free to imply covenants in the lease to the extent permitted by common law.

No implied covenants