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The Standard Producer’s 88 Lease

Back in the 80′s and 90′s (and earlier but that was before my time) we had oil and gas leases that contained mostly “boilerplate” clauses. People often referred to a standard “Producer’s 88″ lease. There were, actually, dozens of variations on the so-called “Producer’s 88″, but the variations were mostly a matter of which boilerplate clauses were or were not included in a particular lease form. These boilerplate clauses were born in the first couple of decades of the 20th century, and they remained basically unchanged for nearly 100 years. You decided which lease form you liked and bought it in tablets of 50 from your preferred forms printer. As you went around to landowners, you tore off a lease, filled in the blanks, and got it signed and notarized. Some landmen (people who go around to landowners to get them to sign leases) carried a typewriter with them, many just filled them in by hand.

These boilerplate clauses became the subject of decades of court interpretations. Consequently, we had lots of court decisions telling us what these clauses meant and how they were to be interpreted. Court cases also developed what were called “implied covenants” inherent in these boilerplate clauses. There were (and still are) covenants such as the implied covenant to develop the lease, the implied covenant to produce and market oil and/or gas, the implied covenant to operate as a reasonable and prudent operator. You couldn’t find these obligations by reading the leases; the courts declared them to exist by implication. As a rule, they benefitted the landowners (lessors).

Then along came word processors. Nobody wanted to fill in forms with a typewriter any more, so lease forms were copied to hard drives and blanks were filled in with the word processor. Over time, people with lease forms on their computers decided to start messing around with the wording. Some of these people were lawyers who generally made changes that legally made sense. Other people were non-lawyers who generally made changes because they didn’t understand the lease in the first place and thought they’d make “improvements”. Non-lawyers generally had little inkling of how their changes might conflict with a century old body of court decisions.

Lawyers, especially over the last decade or so, have been making changes that specifically emasculate the implied covenants. It’s interesting to see how they come up with wording to eliminate covenants that aren’t contained in the wording of the lease in the first place. They’re not something you can “select” and “delete” on the word processor. You have to come up with language that expressly supersedes something that was there by implication in the first place!

Landowners have always been at a disadvantage when it came to comprehending oil and gas leases. It’s worse now, as clever lawyers (dare I count myself among them?) generate new lease forms that remove implied covenants – covenants that were favorable to landowners even though they didn’t know it. The “Standard Producer’s 88″? A thing of the past, if it ever existed in the first place.

14 Comments

  1. lakhjit says:

    Gd day,

    To be honest with you, I was searching for a lawyer with an oil and gas blog and to my surprise i found one! I found you blog to be most intriguing and hope you continue to add posts up when time allows you. I am pursuing a masters in petroleum engineering and am personally thinking of doing a JD after gaining a year or two in field experience. Hoping to specialize in oil and gas law as well. In any case, thanks for having this website!

  2. John says:

    Thanks for dropping by. There’s a better oil and gas law blog here: Oil and Gas Lawyer Blog. Being a large firm, one might suspect it’s actually written by a paralegal or law clerk but, still, there’s a lot of information. Being a one-man operation, I’m somewhat limited in the amount of time I can spend blogging.

    Update: The Oil and Gas Lawyer Blog is written by an oil and gas lawyer, not a paralegal or law clerk. Thanks, John, for correcting me about that!

  3. Definitely one of the better posts I’ve read in a while. Thanks!

  4. John says:

    Omigod, if people are going to actually read this blog, I’ll have to get more serious about posting articles!

  5. Dee says:

    I like the layout of your blog and I’m going to do the same thing for mine. Do you have any tips?

  6. John says:

    Use WordPress. Good luck.

  7. duncan mccalla says:

    Unfortunately, investors/working interest owners only invest in a prospect with recognized forms. The Oil business is a century old business. It’s good to find a discussion on these forms in the newer generations.

  8. John says:

    I haven’t really found that to be the case. However, my clients who offer fractional interest assignments are fairly small independents dealing with investors with whom there’s already a business relationship, or friends of such investors. Although the forms I draft tend to be more “standard”, these investors wouldn’t know the difference, and they’re only concerned about their assignments, not the lease.

    I’ve noticed that penny stock promoters or others who may have SEC filing requirements always want to use AAPL 610 operating agreements and 1984 COPAS and AAPL 637 farmout agreements, even though they’re overkill for the particular drilling program. Of course they do this for the very reason you mention. Frequently, it’s not very long before such promoters use up the investors’ money and realize they’re deep into the red as to actual operation of the wells. Of course, I’m speaking from a Kansas oil patch perspective, particularly Eastern Kansas.

    Getting back to lease forms, though, I’m seeing such promoters often using their own “customized” (and often incompetent) lease forms as well as assignment forms. You’re probably referring to sophisticated oil and gas investors who actually have some knowledge about the business; whereas, many of the promoters I’m seeing (not my clients, by the way) deal with investors who are totally unfamiliar with it. It has never ceased to amaze me how many people out there are willing to hand over large sums of money on the strength of basically nothing of substance.

  9. Duncan McCalla says:

    Hi John, You sound very oil business savy. My partners are also a close group and I see also unbelievable amounts of money available for oil prospects from people who know very little about the business. I always avoid them because there is usually too much explaining to do.

  10. John says:

    After 30 years of this, I would hope to sound a little savvy. There’s still plenty about it that I’m not savvy about, though. The oil virgin investors are a mixed blessing. As long as they’re getting checks they tend to be happy and not ask a lot of questions. But they’re the ones who don’t appreciate what the operator goes through to get the oil out of the ground and keep it flowing. I told a client recently he should take the investors out to tour a lease this summer. An hour in 100 degree heat and a couple dozen ticks crawling up their legs might make them a little more appreciative of what he does. On the other hand, there are operators who inflate the operating expenses on top of the override they kept on top of being carried on the drilling costs. And yet, people still invest in their deals. Incredible.

  11. Chris Graves says:

    I have been asked to execute a Producers Form 88, rev. 04-05. Can you tell where I can find a rider that is suitable for this contract? Not being an attorney, but a cautious layperson, several items concern me. I’d bet my lunch that a rider is floating around somewhere that would cover my concerns, as surely they have surfaced previously.
    THANK YOU

  12. John says:

    “Producers Form 88, rev. 04-05″ doesn’t mean anything to me. There were/are printing companies that produced pre-printed lease forms with “Producers Form 88″ at the top followed by words, letters and/or numbers. Knowing which printing company the form came from might enable a person who has their catalog to find that particular lease form. Kansas Blue Print Co. made most of the lease forms seen in Kansas for years. Kraftbilt in Oklahoma puts out the AAPL forms (identified by number) seen more in Oklahoma and Texas.

    I don’t recall ever seeing a “Producers Form 88 Rider” in anybody’s forms catalog. I often see leases with “See Exhibit A attached” at the end. Exhibit A will have additional provisions that may or may not do anything to make the lease better one way or the other. I developed an Addendum for one of my “lessee” clients that was attached to the AAPL 690/691 lease forms they were using. It added an additional pipeline easement and some other things they needed, plus a couple paragraphs for the lessor’s benefit. It didn’t actually add benefits the lessor didn’t already have under various statutes, regulations and implied covenants, but they felt better seeing them in writing as part of the lease.

    A lot of leases these days are word processed documents written by a lawyer or landman or whoever. I think they usually start out copying one of the pre-printed forms, and then edit in ways they think better serve their interests. I’ve written a number of lease forms, with “Producers Form 88″ at the top along with some meaningless letters/numbers; the body of the lease done with small fonts and margins to make them look like they must be “standard” leases.

    It would be fairly futile to try to devise a “one size fits all” rider or addendum or Exhibit A. Not only are there different lease forms, but an important “extra” for a Kansas lease could backfire in another state. There may be a “lessor’s checklist” out there somewhere, that one could use for reference in reviewing a lease and drafting a rider. I’ve never had occasion to make such a checklist myself. I think I’ve seen a few over the past 30 years, but couldn’t tell you where. You could check out royalty owner websites (there are some links on my “Links” page). While it’s better to know more about oil and gas leases before signing one, it’s an “esoteric” area of the law and fraught with traps for lawyers who are not well versed in it, not to mention non-lawyers who might think they’ve covered their bases with a rider they found somewhere or wrote themselves.

    Short answer(s): No, without seeing the particular lease, I could neither point out a rider nor draft one and call it suitable. Having seen a particular lease I still couldn’t point to a ready-made rider, nor could I draft one I’d consider suitable without a consultation to identify individual circumstances that should be addressed along with “standard” lessor concerns.

  13. John McFarland says:

    Thanks for linking to my blog. It is just me, no paralegals or other help from my firm. I do enjoy it, but it is a bit of work to try to do it every week. I enjoy yours as well.

  14. John says:

    John, thanks for correcting me about that! In hindsight, I see that it was kind of a snide, not to mention unnecessary, remark. But, I still stand by my opinion that your blog is superior to mine. I’ve spread myself too thin building websites for other people and organizations (I built six of the sites in the “Links” list in the right column, and there are others) besides trying to make a living from solo law practice. Keep up the good work!