As we continue to discuss energy as inclusive of both oil and gas, and renewable energy, in this article we compare some common elements of a basic oil and gas lease to a basic wind lease, highlighting some key differences.
The term of a wind lease is typically much longer than that of the primary term of the oil and gas lease. Wind leases are generally for 20 to 30 years, and are renewable for an additional term. Wind leases can also be structured to only take effect after an option period to allow the developer time to conduct feasibility, though generally both the option and lease will be executed simultaneously. Payment under a wind lease is very similar to a royalty payment one would receive under an oil and gas lease; however, it is structured much differently. Some wind leases will have a periodic payment (annually or quarterly until construction is commenced) and then once power is produced, a sliding scale royalty based on a percentage of gross revenue is paid to the lessor. Gross Revenue will be based off total kilowatt hours for sale at a common meter, among other factors; and payments made to the lessor may be monthly or quarterly, depending on how the lease is structured. The lessor may also receive payment for the number of turbines installed and for access and transmission easements.
Generally, wind leases will contain a termination clause that specifies the date in which the wind lease terminates, which typically coincides with the proposed turbine’s useful life. Like oil and gas leases, wind leases may contain retained acreage clauses, allowing for a certain amount of time for lessee to survey the land and identify the exact location of all improvements and release all other land, except for any land utilized for access. Finally, wind leases will usually contemplate what happens once a facility is no longer in use. Similar to surface use agreements to conduct oil and gas operations, the Lessor of a wind lease can negotiate for removal of the facility and that the surface is restored to a certain condition, or the Lessee can contractually shift this burden to the Lessor.
When drafting a wind lease, the lessee is concerned about use and access to the surface but must not overlook the mineral estate and any easements already burdening the surface. Not only does the lessee need to enter into a wind lease, if the estate is severed, the lessee should also seek to obtain waivers from mineral owners, and accommodation agreements from any operators with rights to develop the oil and gas underneath the surface. In addition to the wind lease with the surface owner, commonly lessor and lessee will also enter into the following agreements: Option Agreement, Wind Easement and an Encroachment Agreement.
In sum, wind leases and oil and gas leases can have many differences. Wind leases typically have longer defined term lengths than oil and gas leases and can have different revenue structures. However, wind leases and oil and gas leases can both contain surface use and retained acreage provisions. Additionally, wind lessees should consider agreements with mineral owners and mineral lessees to prevent future conflicts and protect the wind resources.
Informational Purposes Only
The information is provided for informational purposes only and is not legal advice, nor does reading anything that we author or post on our website constitute legal advice or create an attorney-client relationship. Additionally, we may periodically update the content of our website, but the content is not necessarily complete or up to date. Likewise, information posted on our website may not be applicable to all jurisdictions.
McCarn & Weir, P.C. is comprised of attorneys and professional staff highly experienced in transactions and litigation involving the Energy, Real Estate, Corporate, Banking and Finance industries. Our firm has multiple attorneys Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization, along with attorneys licensed in Texas, Oklahoma, New Mexico and California. Our goal is to provide high quality and cost-effective legal services, while maintaining the flexibility to adapt to the ever-changing needs of the industries we represent.