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Contracts for Sale of Output of Well

Generally, the minds of parties purporting to enter into a contract for the sale of the output of a gas well or an oil well must meet with respect to all material matters.  It is to be noted that if the words used in a gas purchase contact have no trade or technical meaning within the industry, then such words must be read in the ordinary meaning.

The right to go upon the land for the purpose of prospecting and taking oil and gas is a proper subject of sale.  It can be granted or reserved.  The title to the oil and gas becomes perfect when discovered and reduced to actual possession[i].

If a person purchases an oil lease with knowledge that his/her vendor has contracted that the oil produced on the property will be sold and delivered to a pipe line company at a price named in the sale contract, then the purchaser will be bound by such contract[ii].

It is to be noted that for a contract for the sale of dry gas may contain a provision whereby the lessee agrees to sell and deliver and the purchaser agrees to buy and receive at a specified price all merchantable gas produced by the existing or future wells.

Similarly, a contract for the sale of casing head gas may provide that the purchaser must install and maintain the necessary pipe lines and connections from the casing head to his/ her plant and must pay the lessee a designated proportion of the gross proceeds derived from the sale of the gasoline produced.

Further, if the rights under a contract containing an option agreement to purchase any or all oil is produced within a certain area but has no provision regarding the duration of such optional agreement, then such an contract must be exercised within a reasonable time.

[i] Ramey v. Stephney, 70 Okla. 87 (Okla. 1918).

[ii] Southwest Pipe Line Co. v. Empire Natural Gas Co., 33 F.2d 248 (8th Cir. Okla. 1929).

Inside Contracts for Sale of Output of Well