Lease Purchase Agreement

Definition - What does Lease Purchase Agreement mean?

Lease Purchase Agreement is an agreement which acts as a leasehold of an oil and gas lease. A leasehold is a property tenure where a party buys the right to use a property surface in order to explore and obtain minerals and hydrocarbons for a given length of time. Leasehold interests are the rights granted to a grantee by a grantor of an oil & gas lease for exploration and production of hydrocarbons present under a permitted lease. The operating or working interest owners bear all the expenses in the exploration, production and development of wells, and other operating costs. The leasehold owners are usually the oil and gas exploration and production organizations.

Petropedia explains Lease Purchase Agreement

When an oil and gas lease is handed over to leasehold owners in a lease purchase agreement, the leasehold owners are entitled to pay all the expenditures made from exploration activities till the abandonment of oil or gas wells. As per the law, they are also entitled to share the production revenues in the form of Royalties to the royalty interest owners on that piece of lease based on the percentage of their royalty interests.

Once they determine that the production is declining and there is no more hydrocarbons left or enhanced oil recovery techniques do not have any beneficial results, field abandonment is done and the mineral rights are reverted back to the grantor. Similarly, if the mineral lease expires, the ownership of minerals is also returned back to the grantor.

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