Legal Definitions - dry-hole clause

A dry-hole clause is a provision in an oil-and-gas lease that specifies what a lessee must do to maintain the lease for the remainder of the primary term after drilling an unproductive well. The clause is intended to make clear that the lessee may maintain the lease by paying delay rentals for the remainder of the primary term.

For example, if a company leases land for oil and gas exploration and drills a well that does not produce any oil or gas, the dry-hole clause would require the company to continue paying rent to maintain the lease for the remaining term.

The dry-hole clause is important because it ensures that the lessor continues to receive compensation for the use of their land, even if the lessee is not able to extract any oil or gas.