Dry-Hole Clause Law & Legal Definition

Dry-hole clause is a provision in the oil-and-gas lease. Dry-hole clause is related to the rent payments in the event of a dry well. This provision specifies what a lessee ought to do in order to maintain the lease for the remainder of the primary term subsequent to the drilling of an unproductive well. A dry-hole clause is intended to make clear that the lessee may maintain the lease by paying delay rentals for the remainder of the primary term. The following is an example of a state statute relating to the dry-hole clause:

“If the first well drilled is a dry hole and if a second well is not commenced on the land covered by the lease before the next anniversary of the lease following the completion of the well, the lease may be terminated by the board unless the lessee, on or before such anniversary, resumes payment of any delay drilling penalties imposed by the board. Upon the resumption of payment of any required delay drilling penalties and their continued payment, the lease continues in force during the primary term as though there had been no interruption in the delay drilling penalty payments.”