HELD BY PRODUCTION

A provision in an oil or natural gas property lease that allows the lessee, generally an energy company, to continue drilling activities on the property as long as it is producing a minimum paying amount of oil or gas. The "held by production" provision thereby extends the lessee's right to operate the property beyond the initial lease term. This provision is also a feature of mineral property leases.

The "held by production" provision enables energy companies to avoid renegotiating leases upon expiry of the initial term. This results in considerable savings to them, particularly in geographical areas that have become "hot" due to prolific output from oil and gas wells. With property prices in such areas generally on an upward trend, leaseholders would demand significantly higher prices to renegotiate leases.