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05.05.16   |   Insights

Ohio Records and Royalty Checks Allow Landowners to Evaluate Whether a Well is Producing in Paying Quantities

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An important feature of any oil and gas lease is its term. For landowners, this is the length of time the property is subject to the lease, and subject to the producer’s rights to develop the property.

For producers, it is the time the company may conduct operations and make productive use of property. Because an oil and gas lease can effect land rights indefinitely (some leases in Ohio are still in effect from the 1890s), understanding the term of a lease, including how the production of oil and gas from the leased property extends the term, is key to negotiating an agreement that could impact the use of land for generations.

The most common method of defining the time period over which a lease is effective is split between two terms: a primary term and a secondary term. The primary term is the number of years over which the producer is permitted to drill a well on the leased property. The primary term may be one year, five years, or some other length of time. During this time, a producer may use the property for any permitted purpose under the lease, most of which relate to drilling a well or multiple wells. At the expiration of the primary term, the lease may remain in effect, depending on the definition of the secondary term. While the primary term is a definite period of time, the secondary term is more loosely defined, and generally corresponds to whether the producer is making productive use of the leased property. Under most leases, as long as oil and gas is produced from the property in “paying quantities”, the lease term will extend year after year.

The term “paying quantities” has been recognized by Ohio courts to mean quantities of oil or gas sufficient to yield a profit to the producer over the producer’s operating expenses. Operating expenses do not include the drilling costs or equipping costs for establishing the well. Based on this definition, the amount of oil and gas that must be produced to retain a lease is low. On the other hand, Ohio courts have determined that simply providing free gas to the property owner for domestic use does not constitute production in paying quantities to extend the lease term. Oil or gas must actually be produced and sold from the property to keep the lease going. While the relatively vague phrase “paying quantities” is commonly used to define the secondary term, the parties may negotiate a better definition. It has become more common over the past several years to define “paying quantities” in the lease (as X barrels of oil per year, for example), rather than leaving the calculation open ended.

Given the definition of the secondary term, for a landowner, there are two basic ways to determine whether a lease is still active. The first is easy: is the landowner consistently receiving a royalty payment? If so, the lease is mostly likely active. If no royalty is paid, the landowner should be sure that the producer has the landowner’s contact information. Land is often transferred without notice to the producer, so a telephone call or letter to the producer is necessary to direct the royalty payment to the new owner. If a landowner has notified the producer of a change in ownership, and no royalty is paid, there may be no production from the property. The second method for determining whether a lease is active, and whether oil and gas is produced under a lease, is to review the records of the Ohio Department of Natural Resources (“ODNR”). ODNR’s website ( provides a map and property-by-property information concerning wells drilled and produced. For each well, a “well card” is available showing a substantial amount of information, including the date the well was permitted, drilled, and the amount of oil and gas production reported for the well. The ODNR’s information, including the map and well cards, is an excellent resource for landowners.

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