I’ve been sent a request to sign a lease ratification on a shut-in well that had a casing leak. I inherited the interest from my parents and there is another working well/lease on the tract that I receive payments for. This original lease that they want ratified was filed in Dawson Co. and the new operator says the lease done in 1950 did not have a shut-in clause. The company wants to perform a workover on the well to find the casing leak, put in a temporary line and if economically practical, permanently replace the line. The ratification doesn’t mention my ownership percentage, but states;
“For said consideration, the undersigned does hereby grant, demise, lease and let the above described lands for the purposes stated in the Lease as if the terms of the Lease were fully incorporated herein and effective at all times and does further convenant and agree that the Lease shall be held to cover all of the right, title and interest of the undersigned in and to said lands; and the undersigned does hereby recognize the Lease to be in full force and effect on the date hereof; and the Lease is by reference made a part hereof with the same force and effect as if the undersigned had originally joined in the execution thereof as Lessor.”
Besides making sure the land description on the ratification matches the lease, what else should I be aware? Thank you very much.
Is the other well under a separate lease? If not, did it prevent the lease on this part of the section from expiring due to lack of production? If this is a separate lease, what acreage and depths are involved and what is the royalty rate? How many net mineral acres do you own? Did the lease expire due to cessation of production and can you negotiate a new better lease? There is case law on what is required for a lease to expire as the answer depends on the wording of the lease and the facts surrounding the well situation.
In some of the old leases there was a provision that if a well did not produce for 60 consecutive days “for any reason” that the lease automatically terminates. Could be that they did not realize that your lease contained such a provision and now the only way for them to avoid losing the lease is for you to ratify. I would have your situation reviewed by an oil & gas attorney or at least someone knowledgeable in oil & gas leasing. We had a similar thing happen with an old lease. We did not ratify and ultimately negotiated a higher royalty and got a better pugh clause plus other concessions in exchange for them being able to keep the then modified lease.
That’s why I’d like to know WHERE in Dawson and WHO the operator is.
If it’s in North/Northeast Dawson and it’s not an operator who’s doing the horizontal drilling (like EOG or a company leasing), then it could be a legit attempt to salvage the last drops of the well’s potential by ratifying a lease which would otherwise be too costly for that well’s reserves to justify paying. In a sense, you’d be re-upping your lease for a $0 bonus and whatever royalty you had before, but if there’s no activity and a mostly drained well, then squeaking out a few extra dollars of royalties could be nice.
If it’s in more active acreage in the south half of Dawson, or a larger operator who usually doesn’t scrape the bottom of the reservoirs for the last drops (this is usually done by the lower-overhead smaller companies), then be on alert. They could have found a lease that accidentally terminated due to lack of production and is trying to reactivate to avoid paying modern bonuses and royalties.
Thank you for your comments. It’s Entex. League 2, Taylor County School lands, Various tracts: 1-3, 5, 6-12 and N/2 of tracts 4 and 5. The original lease was in 1950, with no shut-in clause. I think it was 3/16 royalty. I’m waiting for a copy of the lease. Thanks.