Lou,
"I'm curious about oil leases. I am sure someone can write it anyway they like. But there must be a typical structure.
Do they go by just a cut of the oil? A cut of the oil plus a lease fee? A cut of the oil plus there is a minimum amount payed even if they they don't recover any oil that month?"
Probably 99% of the leases Dragon operates are very old. These leases, on printed form ususually called a Producers 88 provided for a 1/8 share of oil/gas to be paid the the mineral owner upon sale. As these leases were sold over the years the sellers probably retained overriding royalty interests. All of this expense is paid out of the GROSS. Typically the operator paid some up front money or gave a drilling commitment to get the lease. The lease typically would have a 3 year primary term during which the operator establishes production. Maintaining production in "paying quantities" maintains the lease indefinitely. If production is lost - usually the provision is for 120 days, then the lease expires. Payments in lieu of production are called shut-in royalty and are paid for gas wells waiting on a market.
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