Title Examination Series: Most-Favored-Nations Provisions

A “most-favored-nations” or “favored-nations” provision usually provides that a lessor will be entitled to a matching royalty or bonus to any other lessors in a nearby area who receive better terms under a lease.

If Lessee shall enter into an oil and gas lease(s) part of which is located within three (3) miles of any exterior boundary of the subject lands covered by the Subject Lease, hereinafter referred to as " Third Party Lease" , Lessee shall notify Lessor of such fact. If the reserved royalty or the amount per acre payable for delay rentals, shut-in rentals or minimum royalty, at any time payable under such Third Party Lease, is higher than the like royalty and amounts payable as provided in the Subject Lease, the royalty or amount payable per acre in the Subject Lease, which is less than that provided in the Third Party Lease shall be immediately increased so that it will equal the royalty or other amounts payable under the Third Party Lease.

Such provisions are usually limited to royalty or bonus, but can be created to impact any of the terms of a lease (shut-ins, minimum royalty, retained acreage, etc). If these provisions are not limited in area covered and time frame, they may be overly onerous or impractical to comply with. An examiner should note the existence of such a provision and the terms thereof.