I received a ratification of a lease agreement, The lease is HBP. Landman states the ratification is to create a unit. If I agree to signing the agreement, should I be expected to get cash consideration? Landman states that they need lease ratification to create a unit. The unit may dilute my interest.
It depends upon the specific type of interest that you own, but the operator can probably create a unit without your ratification. It just is more difficult to determine the interests in the unit. Yes, depending upon your interest, the unit may dilute your interests, but it also may allow you to participate in wells in the unit, which you would not otherwise be able to participate in.
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Read the ratification document carefully. Many companies ask a mineral owner to ratify a lease as an agreement that the lease has not expired and is still in effect. Are you certain that your lease or a portion of your lease has not expired? If so, then may be an opportunity to improve your terms or be paid for an extension. A ratification of a DPU for a unit is a very different document as it is a consent for your leased minerals to be included in a unit. The oil company will ask for this consent if your lease does not give the lessee the power to pool your minerals. A unit is generally necessary because most mineral owners do not own an interest in a tract large enough for a horizontal well. Ask for a copy of the DPU to see the total acreage and depths. You can limit your consent to the formation for the well and not for deeper depths which may expire under your lease. You may want to consult an attorney to be sure you understand the legal effects of the document before signing.
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TennisDaze is correct. You should carefully read any document that a landman or any other oil company professional presents to you. Depending upon the words in the instrument, the interest that you have, the relation of the Lease to your interests, and the location of wells and their production, it may be either beneficial or detrimental to sign the instrument. The effect of the instrument very fact-specific. However, if you find that the instrument is to your detriment, you may want to point this fact out to the landman and request consideration upon signing.
I know my response is vague, but the answer to your question depends upon specific facts.
As all deals go, let him know you are interested but you need more information. You want to see the plat of the proposed well being drilled with the following at least: Surface location, Penetration point and the Last Take Point. Then you need to know what your Mineral interest covers.
From there you should be able to see if this is a good deal, or you will need enticing. Good luck.
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