Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2018 at 6:13

At a guess, when an existing lease is Held By Production, it remains in effect as long as production continues.  There are wells in the Caddo Pine Island Field that have been in production for close to one hundred years.  When ownership of the mineral right under a valid lease is transferred to another party, usually handed down through the family, the lessee (the company holding the lease) often asks the new owner (the lessor) to sign a ratification acknowledging the existing lease.  If the lease is still producing, and therefore paying royalty, then it's okay to sign a ratification. 

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Permalink Reply by Bob Zimmerman on July 25, 2018 at 7:05

Is it possible to "ratify" an expired lease from which there is no production? 

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Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2018 at 10:11

Sure.  Not advisable but possible.  If there is no Release in the public record and the well is shut-in, future utility (not plugged), a company could try to revive an old lease, re-enter the well bore and attempt to establish production.  A good O&G attorney would probably kick their you know what but far too many people don't seek their assistance.  The terms of the old lease are likely much more beneficial to the company than a new one would be.  Mineral lessors should always demand a release filed of record when production ceases under an existing lease.

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Permalink Reply by JHH on July 25, 2018 at 11:20

Skip... when does a "commercially viable" well come into play versus continuous production. what if a well is only producing pennies a month... on a lease that's 40 or 100 years old? And is there a difference in Texas law and Louisiana law on this issue. thanks.

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Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2018 at 11:49

Is there a difference between Texas and Louisiana mineral law?  Usually.  The issue that you bring up is generally referred to as a question of "production in paying quantities".  This is a question heavily dependent on case law.  That means the verdict and written opinions of judges who have heard similar cases.  The crux of this issue is how far back in time to look.  The industry wants to take the last 18, 24 or more months into the decision of whether a well makes more than what it costs to operate.  Mineral lessors generally are looking at, and wanting the court to consider, the last 3 to 6 months.  Each state has differing case law.  This is an issue that requires an experienced O&G attorney familiar with the case law for a given state.  A well that fails the production in paying quantities test terminates the lease.

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Permalink Reply by Lawrence Silver on July 25, 2018 at 12:02

Thanks! This is a help.My grandmother inherited from her uncle, my father inherited the production from her and I inherited from my father. Pine Island has been producing a long time! Thanks for the info.

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Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2018 at 12:09

You're welcome, Lawrence.  However please be aware that my answer is generic and does not take into account any specifics of your ratification request nor the particulars of your mineral interest.  If the mineral interest is substantial, it is always a good idea to have an experienced O&G attorney review the details.

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Permalink Reply by Dion Warr, CPL on July 25, 2018 at 16:12

Lawrence:

Um, ok... There has been some solid information posted here; let me build upon some and throw in some additional points:

Though heirs and successors to lessors have been approached to ratify existing leases on occasion, usually the request to ratify an existing oil and gas lease stems from a set of conditions or circumstances which *may* call the validity of the existing lease into question. Production in paying quantities is one. A well or well(s) tied to the lease being shut-in and/or offline for extended period(s) is another. In such cases, lessees will attempt to cure any possible deficiency in either its or its predecessor(s) prior operations and/or duties and obligations under the terms of the lease by obtaining an affirming or confirming act such as a ratification. In many cases, the ratification instrument will also contain language which operates as a "reviver" or possibly creates a new grant (lease, let and/or demise) under substantially the same terms as the prior lease.

This is not to say that the lessee is necessarily being nefarious. The lessee, upon direction of counsel, may be following title requirements which advise obtaining confirmation of the lease in order to protect it or other vested interests (e.g., a lender) from defect, deficiency, or prior act(s) (or lack thereof) of its prior ancestors-in-title.

If you are so inclined (and possess some expertise and/or you can possibly do some of this in lieu of paying someone else), it may be a good idea to do some well status and production research on the well(s) and/or unit(s) connected to your lease. In Caddo Pine Island you may have no units affecting your lease - much of the older production was pursued and obtained on a lease basis. In any event, checking the operative wells for production or long lapses of non-production may be a good start. Obtaining a copy of the lease would also be recommended. Many older leases have provisions allowing for a small payment (in the form of a shut-in rental or royalty) which would allow for holding the lease for an extended term (sometimes indefinitely, if timely paid) in lieu of production, at which point wells may be shut-in for long periods and otherwise may be of may have been held by such payment(s). As an heir of some long passed relatives, who is to say whether such activity or payments were properly made or not? Perhaps the current operator is a second or third-tier operator and possess little information from the prior owners in this regard as well. However, do your homework (if you can) prior to inquiring as to same of the current operator; thus you can compare notes armed with independent knowledge.

In some cases, the operator is looking to confirm its lease so as to confidently look for (or trade or hold) a deeper target that they can pursue at preferred terms rather than more "modern" terms (higher royalty, Pugh clause, limited rentals / shut-in remedies). In most parts of Caddo Pine Island, that is likely not the case, but it wouldn't hurt to do some homework in exploring that possibility. You may wish to request a trade in which you ratify and confirm the lease in part in exchange for a release of any deeper depths (from the top of the Annona Chalk down, for example), or perhaps specify for a higher royalty at any such deeper depths.

As to the shallower depths (Nacatoch, etc.), keep in mind that these wells, if plugged, may likely never be drilled again. Most of the shallow wells in Caddo Pine Island are rated as stripper wells and although any one well may be economically viable "as is", no operator may ever be inclined to redrill or significantly rework such a well - to propose a bunch of onerous terms to add to a lease held by such a marginal well or insist on a new lease would amount to just killing the goose. If you are receiving sporadic payments on marginal or intermittent production generated by such wells, it is generally in everyone's interest to maintain the status quo as to those existing wells. It may not amount to much, but some mailbox money is better than none.

In other situations, one could contemplate other trades (short-term "free" leases in exchange for specific performance, deferred bonuses, etc.) to grant some short-term incentives for augmenting production or bringing a "dead" or "barely breathing" well back to life - but based upon what you state here, none of that is likely applicable. In this case, I would advise "be aware, but be fair".

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Permalink Reply by Lawrence Silver on July 28, 2018 at 11:58

Thanks - this is a help.

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Permalink Reply by Bob Zimmerman on July 29, 2018 at 5:08

I don't see anything that would prevent the ratification of an expired lease. Or that requires a lease to be in effect in order to be ratified. This is why they make lawyers.

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Permalink Reply by Skip Peel - Mineral Consultant on July 29, 2018 at 5:12

I agree but would stipulate an experienced O&G attorney.  Far too many got poor advise from lawyers that had little experience with leases and the mineral code in the Haynesville land rush.  A couple of readings of the code won't cut it.  Much of what is important is case law.

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Permalink Reply by William R Dotson on July 30, 2018 at 7:09

Make sure you check the records filed with the state for well production. It sounds as though you are just finding out about the lease, which tells me you have not been receiving royalty checks. Make sure that you have been paid for all past production. If there is production that you have not been paid for, that could very well be a violation of the lease.

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