Replies to This Discussion

Permalink Reply by Thomas C. McKowen, IV on July 30, 2016 at 8:12

Kathy,       Thanks for the info.  It is some indication that Sabine will be doing something.  I notice that Sabine's bankruptcy reorganization was just approved by the Bankruptcy Court in New York.  Also, what is a "Unit Ratification"?  I am not familiar with this term.                      Tom

Permalink Reply by Skip Peel - Mineral Consultant on July 30, 2016 at 10:55

I am familiar with lease ratification where operating companies ask Non-Participating Royalty Interest owners (NPRI) to ratify the leases executed by the individual or other party holding the executive rights to the underlying mineral ownership.  I've never dealt with a unit ratification but I think the following excerpt is likely to be the proper answer.  I believe the issue is pooling of ownership interests that do not hold executive rights.

"Companies generally ask owners of royalty and non-executive mineral interests to ratify oil and gas leases covering the lands in which they own an interest. The companies ask for the ratification because they want the right to pool the royalty or non-executive mineral interest covered by the lease. In Texas, even though the holder of the executive right (the right to lease) has the right to negotiate and grant leases covering the interests of royalty and non-executive mineral owners, the holder of the leasing right does not have the right to grant the lessee the right to pool those interests (unless that right was expressly granted or reserved in the instrument creating the royalty or non-executive interest). In order for a pooled unit to be effective as to a royalty or non-executive mineral owner’s interest, the owner must either agree to the pooled unit or grant the lessee the right to pool his/her interest."

http://www.oilandgaslawyerblog.com/2012/06/lease-ratifications.html

Permalink Reply by Thomas C. McKowen, IV on July 30, 2016 at 11:22

Kathy's guess seems reasonable, although it is odd that such issues would not have been resolved 10 years ago when production began in the unit.  Also, thanks for the definition.

Permalink Reply by Skip Peel - Mineral Consultant on July 30, 2016 at 11:31

Lease or unit ratifications have become a more critical element of royalty pay decks with the advent of allocation wells producing from multiple units.  That may be why it is being addressed now instead of 10 years ago.

Permalink Reply by jffree1 on July 31, 2016 at 3:56

I found a Q&A that might help shed a tiny bit of light re: Mr. McKowen' question.

NPRI Lease vs. Unit ratification

Question
After receiving your prior response regarding this question, I told the O&G Co. I'd ratify pooling my interest into a unit rather than ratifying their lease. In return I was told my ownership tract is currently targeted as a drillsite, but unless they receive lease ratifications the  drillsite will be moved and I'll be cut out because I chose not to ratify the lease.  Sounds like a 'Catch 22. I've read prior responses regarding drillsite vs. non-drillsite ratifications and am aware there are special considerations between the two, but I'm perplexed by the "ratify the lease or we'll move the drillsite" response.  Thanks in advance for your direction.

Answer
Hello Anne. Sounds like you have an oil company that is a bully and not overly bright.  Perhaps the landmen didn't understand what you were trying to tell him, but I would tell him that you are agreeable to ratifying the lease only as to that part of the leased lands in the unit.  If this doesn't make the landman happy he/she is a dunce.  If all of the land is in the unit, and there are are not going to be any other wells drilled on leased lands outside the unit, this is, in effect, a ratification of the entire lease.  If there is leased acreage outside of the unit, the lease is still ratified as to acreage within the unit so there should be no problem.  They just have to contact you again for a ratification if the outside acreage is included in a new unit.

As to whether an oil company would actually eliminate a drillsite tract out of a unit because of a non participating royalty interest owner like yourself is questionable. Certainly, it is possible for this to happen and it has, but it doesn't happen that often.  Even if they did this, you would still have the unilateral option to ratify the lease and pool yourself into the unit if you acted within a reasonable period of time.

There is nothing wrong with ratifying the lease in your situation if all of the property is going to be in the unit.  There is also nothing wrong with limiting your ratification of the lease to that portion of the leased property in the unit if you have acreage outside the unit.  Your landman should accept either one.

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