North Dakota Mineral Leases Lesser Interest Clause

North Dakota Mineral Leases Lesser Interest Clause

The granting clause of a mineral lease will generally:

• presume that the lessor owns the entire mineral interest,
  and
• simply describe the land by a legal description.

However, if the lessor owns less than the entire mineral interest, a lesser interest clause will allow the lessee to proportionately reduce the lease benefits otherwise payable to the lessor – such as for the initial bonus payment, delay rentals, or royalty payments – in order to properly reflect such fractional ownership.

For example, if a mineral owner:

• owned only a 1/2 interest in the minerals,
  and
• leased such an interest in exchange for a 1/5th royalty,

the lessee would pay mineral owner in the event of production a net royalty of 10% (1/2 x 1/5).

A lesser interest clause is inserted into a mineral lease for the convenience of both parties, since it:

• allows the company to reduce the financial consideration identified in the lease to reflect the mineral owner’s actual interest in the property,
  and
• avoids specifying the actual interest held by the mineral owner in the granting clause of the lease – of which he or she may be unaware.

A common lesser interest clause would be similar to the following:

If lessor owns an interest less than the whole and undivided fee in the leased premises, the royalty and payments under identified herein shall be paid to lessor in proportion to which the lessor’s interest in the mineral rights bears to the whole and undivided fee.

North Dakota Mineral Leases Lesser Interest Clause – Modern Lease

An oil and gas lease proposed to be used in North Dakota in the last few years by one oil company contained the following “lesser interest clause“:

If said Lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties (including any shut-in gas royalty) herein provided for shall be paid the said Lessor only in the proportion which Lessor’s interest bears to the whole and undivided fee.

North Dakota Mineral Leases Lesser Interest Clause – 1981 Lease

For comparison purposes, an oil and gas lease actually used in Ward County, North Dakota in 1981 by an oil company in the business of oil exploration contained the following “Lesser Interest Clause“:

If said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties and rentals herein provided shall be paid the lessor only in the proportion which his interest bears to the whole and undivided fee.

However, such rentals shall be increased at the next succeeding rental anniversary after lessee has been notified of any reversion having occurred to cover the interest so acquired.

North Dakota Mineral Leases Lesser Interest Clause – 1977 Lease

For further comparison purposes, an oil and gas lease actually used in Ward County, North Dakota in 1977 by an oil company in the business of oil exploration contained the following “Lesser Interest Clause“:

In case said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties and rentals herein provided for shall be paid the said lessor only in the proportion that his interest bears to the whole and undivided fee.

North Dakota Mineral Leases Lesser Interest Clause – Comparison of Lease Terms

There are no significant differences between the terms of the three Granting Clauses identified above.

Topics of Interest – North Dakota Ancillary Probate

Topics of Interest – North Dakota Mineral Rights.

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Topics of Interest – North Dakota Intestate Succession.

Topics of Interest – North Dakota Informal Probate

Topics of Interest – North Dakota Intestate Succession.