Held by Production Clause
Candlefocus EditorFor the miners, the advantage of holding a lease with a held-by-production clause is that they can continue to explore, develop, and produce in the same area with fewer risks than having to negotiate new lease terms in the case of an expired lease. Moreover, because these terms are set in advance, it allows producers to access the best lease price for their operations as the market changes.
In order for held-by-production clauses to be effective, the lease must clearly specify the conditions for extending the lease. This includes details such as what production activities are needed to trigger the clause, whether an operator must have a proportion of the mineral in production or successfully searching for it, and what action the lessor should take if the lessee is not meeting the conditions.
For the landowner, held-by-production clauses provide a way to maintain a steady income stream while they can still control the activity on their land. This also allows them to be part of the process, set their own terms, and share in the increasing value as production rises.
In conclusion, held-by-production clauses are an increasingly popular form of lease terms that allow the miners and the landowners to benefit from a stable income while giving both the opportunity to share in any windfall profits that could occur. At the same time, it allows miners to plan for long-term projects, with less worry and cost of continually renegotiating their leases. In a time of fluctuating oil and mineral prices, held-by-production clauses can be a valuable tool for protecting the ongoing investment of producers in the short and long-term.