Ratification of Old Lease

A company wants a marcellus drilling amendment for pooling through an amendment to a 1914 lease. They want us to...."ratify and affirm all of the terms and provisions of the Lease (old lease) to the extent blah blah blah and " ratify and agree that the (old) lease is valid and in effect.....

The problem is that the ONLY terms of the old lease are in one sentence and provides for only a payment of $50/well per year for any well drilled on the land. My question is whether the WV statute for mandatory 12.5% royalties would be retroactive and apply to this 1914 lease. We are having a hard time locating past payments on this piece of land. I know it is time for a good o&g attorney, but curious if anyone knows the answer to this question or does anyone know the code section of that legislation.

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Permalink Reply by Nancy Mosley on August 19, 2011 at 1:41pm

http://www.legis.state.wv.us/WVCODE/22/code/WVC%2022%20%20-%20%206%...

22-6-8

Sounds like it is saying there will be no NEW permits issued for flat rate wells.

I think it means that when a new well is permitted (like for Marcellus) it will be a minimum of 12.5% royalty.

Hope someone else joins this discussion.

Janice Lanphere HancharickPermalink Reply by Janice Lanphere Hancharick on August 20, 2011 at 2:23am

I'm SURE they want no changes to the old lease, other than the Marcelllus amendment! You really need that old lease like you need a toothache.  Let it fade into history and be prepared to join a landowners group and get some real negotiating done ... strength comes in joint action.  A group needs professional representation that doesn't get paid unless you get paid.  This is not pie-in-the-sky.  It's happening all over the Marcellus/Utica play, but you won't hear the landman talking about it.

The 12.5% royalty would not be retroactive.  Payments made on the 1914 lease would always be what was agreed to at the time.  If none have been made since forever then the well is out of production, and there is an excellent chance that company no longer has claim on the OGM's .  They will bluster about the whole thing, but give it right back and let them know you have a lawyer.  Require a formal statement on company letterhead that is a "letter of surrender" for the old lease document, or have them point out WHERE the '14 agreement states they own it for eternity.  This isn't a kitchen table discussion you want to have.  Meet them @ YOUR lawyer's office.

Permalink Reply by Jim Litwinowicz on August 20, 2011 at 3:58am

Nice job by Nancy to post the code language. Sounds like no new well can be drilled unless they agree to pay 12.5% royalties. However, it doesn't state anything about other lease issues so that they could drill if they just agree to pay the 12.5% royalty. Keep in mind the going rate for almost all areas is now a minimum of 15%.  Plus you should demand that no costs of production are permitted so that you get the full 15%.  And some people have been able to get a better rate than that.

 

Like Janice said, the lease is probably no longer valid. Have a good attorney look it over and then have the attorney demand the letter of surrender. They have asked for a ratification of the old lease because they know there are issues with it and it is probably invalid. Otherwise, they would just operate off the old lease without asking you to re-sign it. If all it states is that they have the right to drill and you get paid $50/yr than that would allow them to drill any formation including the Marcellus as long as they agree to pay the 12.5% royalty.  This is just a trick to get you to sign what is essentially a new lease.

 

You may be better off negotiating a new lease with the same company, maybe not. Once a company asks for any change, it gives you the opportunity to renegotiate the entire lease. Check with neighbors and landowner groups to see what is being offered in your area.

 

Good luck

Permalink Reply by Jim White on August 20, 2011 at 5:57am
Thanks all and especially for that code section. That code section says that there can be no new well drilled in state without that provision. I did oil and gas legal work when I practiced in the state MANY years ago. All has changed. When they file for their application to drill, they must include something about us having a 1/8 statutory royality. This potential well is in the thick of things in Wetzel Co. WV. Is there a group that anyone knows about in that area. There must be some reason they want the old lease ratified. Probably so we don't ask for a new lease with bonus money. They are actually asking us to radify an invalid lease which has to be contrary to law. Not sure. The real problem comes when they say we either sign or they have another tract they can use. That would be a bigger problem except we know for a fact that the company itself owns all the mineral interests under our tract that we don't own. Powerful incentive to pay us and use our interest.
Permalink Reply by Jim White on August 20, 2011 at 6:32am
Sorry, one last think I forgot. Our interest is be "held by production". The existing well has been pumping out gas since 1918. Very little now, but enough that they probably would not surrender it.  I don't know if that makes any difference as to ratifying the old lease.
Permalink Reply by Nancy Mosley on August 20, 2011 at 6:47am
Yes I think it would hold the whole lease. I think you would have the opportunity to ask for more than the 12.5% royalty on any new well.
Permalink Reply by Jim White on August 20, 2011 at 7:00am

Nancy

I realize the property is HBP, but I still don't see the difference with them coming to us for a new lease on an unleased piece of property and them coming to us on property held by production and asking for an amendment. We say no and they have to go elsewhere. We say yes and they can drill. If we can ask for more royalities, we should also be able to ask for a bonus and whatever other clause we feel is necessary. Yes they could go elsewhere, but with them owning the additional mineral interests, I am trying to decide how hard to push, if I can in fact, ask for those additional things (bonus etc)...Is that in fact how it works or can work?

Permalink Reply by Nancy Mosley on August 20, 2011 at 7:21am
If you figure it out, let me know! I think your area of the state is a lot hotter than where our interests are (Ritchie) so I think you have more leverage in your negotiations.
Permalink Reply by Little Cougar on August 22, 2011 at 3:56am

I have old leases from the early 1900 and 1920's on 2 separate tracts of land, one which I own 1/5th interest and the other where I own more then 100 acres.  EQT and landmen keep contacting me to modify these old leases and even to buy the mineral rights.  I went to 2 attorney's that specialize in O&G leasing and both told me that when you modify a lease, technically you are negotiating a new lease.  So this is an opportunity to negotiate a better royalty and maybe even an upfront bonus payment.  Each time, they contact me, I say call me back when you are ready to negotiate this new modified lease.  And each time they call, the upfront bonus goes up a little (still only about $200 per acre bonus) and they seem to be willing to renegotiate the royalty percentage.  However, most of these contacts are from landmen...one call from a landman representing EQT.  I have not heard back but when they finally get serious regarding these modifications to the old lease, then they will have to talk directly to my attorney.  And these O&G companies are very familiar with these addendums that are being added to these old leases.  They are hoping we will believe them when they say they are just modifying the old lease and we have no rights.  Poop on them...if they have to modify the old lease to drill these new horizontal wells, then we mineral right owners have the right to modify to our benefit too.  As far as the leases written in the 1950's and 1960's, I don't know about them.  But my attorney has looked at these old 1900 and 1924 leases, and they both agree that when you modify an old lease, it makes the old lease no longer applicable so this is an opportunity for both you and O&G company to add beneficial language to both parties, an Addendum.  Of course, the landmen will try and scare you and say they will drill around you.  And be careful, they may just want to tie your land up if it has an old well that is producing so that the other units they put you in with are Held by Production.  And they may not drill for 20 years or more and all you might get only $100 per acre.  A lot of skullduggery going on out there...

 

Good luck,

 

littlecougar 

Permalink Reply by Jim White on August 22, 2011 at 5:42pm
Thanks Little Cougar. Your situation is exactly like our. I knew your answer was the only way it could be, but I wanted someone else to back me up....:)
Permalink Reply by Craig on September 7, 2011 at 8:27am

Jim,

 

I have read the responses.  Discount Janet Lanphere's and look to the other's, they have some ring of good information, but...

 

Based on what you originally posted, the company was looking for a ratification, not an amendment.  They are not looking to change the terms, just have you acknowledge thaat the lease exists, and you agree to abide by the terms therein.

 

I do not know WV law, so I cannot comment on the 12.5% royalty, although, I think they would be hard-pressed to pay you any less on a new well.

 

What they are doing here is this - out of an abundance of caution, prior to development, they are removing any possible clouds on title, or questions that may come up.  This is typical on an old lease that is about to have new production, or development.  If the old lease stated they only had to pay 50/well, and nothing else, and the old wells are still producing, and all the required state production records were turned in, then you are HBP and the lease is valid, even today.  Now, with new state minimum regulations, I feel as you do, they woul dnow have to pay a 12.5 royalty.  In fact, they could probably just drill the well and go on, paying you 12.5% and the 50/well as the lease calls for. 

 

However, they are probably not doing it with their own monies, and therefore want absolute title to the lease.  Since it is so old, there is no feasible way to prove the 50/well was paid to the predecessors in title,  but production has not ceased, and there is a leagal warngling to be done that can insure them absolute title to the lease, it is however, easier to approach you and ask for a ratification. 

 

I know it irks one to ratify something that you don't like, but in the end, they have more money and more time.  There may be a way to meet somewhere in the middle.  I have done this exact thing in the past - from both sides.  As a landowner and as a landman. 

 

My suggestion - if it is just a typical landman for this part of the US, ask to speak to his supervisor, or the Land Manager.  If you can speak with them, tell them you are willing to sign the ratification.  Start with the good noews, for it can be good for both of you.  Second, let him know that you understand it typically means new development is on its way - what do they see coming?  (this really doesn't matter, but it will give you a better idea of what you may be able to do) 

 

Then tell him in the interest of time, and wanting to assist them  in the progress of their development plans you want to sign, but need some assurances - in your reading of the state regulations, you belive they would have to pay 12.5% on any new wells, is that correct?  If he says, yes, then move in for something better - can you all write me a ratification and amendment, signed by them as well,  that states Jim W, hereby ratifies said 1914 lease, and further both parties amend such lease to include 15% royalty.  It never hurts to ask.  If they won't go with 15, then ask for them to just word it to include a 12.5% royalty as state law requires, and sign the thing and go on.  Asking for too much can hurt you and them.  As a land manager, I would determine how badly it was needed, then determine if I wanted to waste the time fighting with you.  As long as you are not tryign to get allt he neighbors to go for 15%, then I feel more like playing ball with you ad just moving on to get the project rolling.  If there is no project pushing the need, then I (as a land manager) would just drop the subject and come back later, if necessary.  But, I can tell you i have never asked for a ratification on an old lease unless we had developmnt planned.  And, in many cases, I have allowed amendments to find their way into our ratifications, because not having the ratification may be holding up funding, and the cost of opportunity is increased by time.  However, I can tell  you in 25 years, I have NEVER written a new lease over the top of an old lease that I held by production, especially if I hold good title to the surrounding property.  I'll drill it and fight the fight, draining your monies in the fight, and still producing my well.

 

You have already said here, that you believe you are HBP.  Therefore the leg you are standing on is lop-sided to the facft that you bought a property with an old well on it, and it is HBP under an old lease thaat does not match today's market - to be blunt, that is not the oil compnay's fault, but if they are reasonable people, you might be able to work new things into the old lease by giving them what they want - secure title to the lease.

 

I have, as a landowner, in the past , asked for and received, addendum items like site fees, mututal consent clauses, double ditch clauses, etc. when ratifying old leases on minerasl I owned.  And, as a land manger, I have also given these items to landowners - it is a fair shake - I already have dirt-moving equipment on the ground, why not spend a few extra hours  and do a good job, if it expedites my goals on the title end, and really does not cost me that much money in the end - I have also, written in surety language for royalties, but I have never written a new lease, nor would I - if your attorney, says that's what they need to do, then expect little movement, and maybe, none.  If it comes out otherwise, I would like to know. 

 

The guy responding below - Bob Sauers - has got a chip on his shoulder, and nothig will change it.  The fact remains that way back when the original  lease was signed, the use of the gas and other products was very low, the vaalue was very low, and it was probably thought to be a good deal at the time - 50 dollars was a lot of money too stick a pipe in the ground and get some natural gas out of the ground that meant nothing to the guy who owned the ground at the time.  It is not a good deal for you now, in comparison to what is happenign around you, but then, you bought the property knowing there was a gas well on it, and thus, took it as a good deal today. 

 

I have been there many times - bought land that was HBP, ow land with no mineral rights attached, even bought some one time where I had mineraal rights but no executive rights - the owner of the executivew rights worked a good deal for monies, but no land protections, and the land was relatively useless for what I had intended to use it for after development, but they had to pay dearly for the surface damaged casued.  If I had owned the executive rights I could have protected that, and knew it, but there was no development forseeable, and I was not concerned, until a discovery was made, and new development wreaked havoc on the terracing I had done along a hillside and used as irrigation in an area of dry-land farming that had great potential for vegetable farming, and those plans went down the drain.  I still own the land and rais cattle on it, but the fact that I boughtit with out the executive rights dashed my master plan.  Oh well, it was my decision to take the land under the terms of the sale, and that's all there was to it. 

 

Anyway, good luck, just though I would drop my 2 cents - you know what they say about Opinions....

Permalink Reply by Inchworm antenna on August 25, 2011 at 4:50pm
Sounds like some old crappy Dominion or Columbia Gas lease.  Those old leases are a freakin Ripp-Off, and those companies should be ashamed of themselves.  The lease sounds unfair.  I thought anti-trust laws are supposed to prevent "unfairnes" and that sure sounds unfair to me.  I hope ther's an anti-trust law out there to help you out. 

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