Because of the cancellation statute, often times those owners and operators assume that even a pittance of a royalty paid to the mineral owner or a feeble effort by the lessee of the well to maintain production is sufficient to keep a lease operative.  A mineral owner may suffer paltry royalty payments and ineffective operation of the well for years under the incorrect assumption that he or she has no alternative.

However, even if the requirements of the cancellation statute are not triggered, the mineral owner may have legal means available to rid himself or herself of the problem lessee.

Long before Indiana adopted its cancellation statute in 2002, common law and the terms of the lease protected mineral owners from irresponsible and unproductive oil operators.

Many fail to realize that there are a number of “implied duties” on the part of the lessee in any oil and gas lease— including a long-recognized implied duty of “reasonable development.”  Irrespective of the terms of the oil and gas lease, the lessee has an affirmative duty to the mineral owner to operate the well as a prudent operator.  Courts have held that where a lessee has failed to exercise as a prudent operator, the lease may be terminated by the mineral owner.  If a lessee has failed to make efforts to maximize profits from an oil or gas well, the lessee may be in breach of the implied convenant of reasonable development and the prudent operator standard.

A mineral owner suffering difficulty or disappointment with a lessee’s operations should not assume that just because he or she is receiving royalty checks from time to time the lessor/lessee marriage cannot be dissolved.  The mineral owner may have other rights not expressly stated in the lease or the statutes to terminate the lease.

Because of the cancellation statute, often times those owners and operators assume that even a pittance of a royalty paid to the mineral owner or a feeble effort by the lessee of the well to maintain production is sufficient to keep a lease operative.  A mineral owner may suffer paltry royalty payments and ineffective operation of the well for years under the incorrect assumption that he or she has no alternative.

However, even if the requirements of the cancellation statute are not triggered, the mineral owner may have legal means available to rid himself or herself of the problem lessee.

Long before Indiana adopted its cancellation statute in 2002, common law and the terms of the lease protected mineral owners from irresponsible and unproductive oil operators.

Many fail to realize that there are a number of “implied duties” on the part of the lessee in any oil and gas lease— including a long-recognized implied duty of “reasonable development.”  Irrespective of the terms of the oil and gas lease, the lessee has an affirmative duty to the mineral owner to operate the well as a prudent operator.  Courts have held that where a lessee has failed to exercise as a prudent operator, the lease may be terminated by the mineral owner.  If a lessee has failed to make efforts to maximize profits from an oil or gas well, the lessee may be in breach of the implied convenant of reasonable development and the prudent operator standard.

A mineral owner suffering difficulty or disappointment with a lessee’s operations should not assume that just because he or she is receiving royalty checks from time to time the lessor/lessee marriage cannot be dissolved.  The mineral owner may have other rights not expressly stated in the lease or the statutes to terminate the lease.