Delay rentals are payments made by an oil or gas lessee to the lessor to postpone drilling operations while maintaining the lease's validity. These periodic payments allow the lessee to defer exploration or production activities without breaching the lease agreement.
Surface revenues increased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, by $253,941. The increase in surface revenue was due primarily to the receipt of pipeline right-of-way payments associated with a new agreement signed with a natural gas gathering customer, as well as an increase in oil and gas delay rentals, which provide for payments by our lessees to postpone drilling operations during the primary term of the lease to keep the lease in effect, partially offset by a reduction in hunting leases on the Company’s property.
Sabine Royalty Trust (the “Trust”) was established by the Sabine Corporation Royalty Trust Agreement (the “Trust Agreement”), made and entered into effective as of December 31, 1982, to receive a distribution from Sabine Corporation (“Sabine”) of royalty and mineral interests, including landowner’s royalties, overriding royalty interests, minerals (other than executive rights, bonuses and delay rentals), production payments and any other similar, nonparticipatory interests, in certain producing and proved undeveloped oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma and Texas (the “Royalties”).
In connection with the transfer of the Royalties to the Trust upon its formation, Sabine had reserved to itself all executive rights, including rights to execute leases and to receive bonuses and delay rentals. In January 1993, Pacific (USA) completed the sale of substantially all its producing oil and gas assets to a third party. The sale did not include executive rights relating to the Royalties, and Pacific (USA)’s ownership of such rights was not affected by the sale.
The Company also recognizes revenue from delay rentals to the extent drilling has not started within the specified period, payment has been received, and the Company has no further obligation to refund the payment. Income Taxes
Exploration, geological and geophysical costs, delay rentals, and drilling costs of unsuccessful exploratory wells are charged to expense as incurred.
6.03 Delay Rentals. If no production from a groundwater supply well is commenced by Lessee on the Premises within five (5) years of the Effective Date of the Lease, the Lease shall terminate automatically and all rights hereunder will revert to Lessor, unless on or before such date Lessee pays to Lessor the sum of Five Thousand Dollars and NO / 100 ($5,000.00) (the “Delay Rentals”), which shall cover the privilege of deferring commencement of water production operations for a period of one (1) year from said date. In a similar way and upon like payments tendered annually by Lessee, the commencement of production from a ground water supply well may be further deferred for four additional one (1) year delay rental periods extending for no more than ten (l0) years from the Effective Date of the Lease.
(b) All payments (including all delay rentals, royalties and shut-in royalties) owing under Basic Documents have been and are being made (timely, and before the same became delinquent) by third parties where the non-payment of same by a third party could materially and adversely affect the ownership, exploration, development, operation, maintenance, value or use of any of the Properties after the Closing Date.
Delay rentals are payments made by a lessee to a lessor to maintain a lease’s validity when drilling or production has not commenced. This concept is common in oil, gas, and mineral leases, allowing the lessee to postpone exploration without forfeiting the lease, provided the delay rental payments are made on time.
Delay rentals should be used when a lessee wants to maintain their lease rights to explore or drill on a property but is not yet ready to start operations. These payments are utilized when additional time is needed for planning, securing permits, or arranging financing, allowing the lessee to extend the primary term of the lease without immediate development.
When writing about delay rentals in a contract, clearly specify the amount, timing, and method of payment, as well as any conditions that must be met for the payments to be valid. It’s important to define these terms precisely to avoid disputes. An example clause might read:
“The Lessee agrees to pay the Lessor an annual delay rental of $X on or before [date], each year during the primary term of this lease, unless drilling operations are commenced. Payment shall be made by check sent to [address]. Failure to make timely payments will result in the termination of the lease.”
Delay rentals are typically included in oil, gas, and mineral leases. These contracts involve the exploration and potential development of subsurface resources, and they allow lessees to maintain their rights to a particular area while addressing logistical or strategic considerations before initiating operations.
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