Why held by production clause matters to a first-time founder
For an energy venture, this clause can determine whether valuable extraction rights expire or continue for years. The exact production threshold, payment duties and covered acreage affect asset value and financing. Missing a deadline or assuming minimal activity is enough can lead to litigation or loss of rights.
Examples of held by production clause
An operator holds a five-year oil lease with a secondary term lasting while wells produce in paying quantities. Production begins before year five and continues profitably, so the lease may remain effective. A temporary shutdown is assessed under the lease’s savings clauses and local law.
Common misunderstanding
The clause does not concern holding manufactured goods for sale. It belongs mainly to oil and gas leasing, and “production” may require more than extracting a token amount. Courts and statutes define paying quantities, interruptions and lease coverage differently, so wording and jurisdiction both matter.
When to use it
Use the term when reviewing, valuing or financing mineral leases that can extend through production. Track primary-term dates, output, costs, royalties and any shut-in obligations. Obtain specialist legal advice before relying on a clause, suspending operations or claiming that a lease has expired.