Oil and Gas Lawyer Blog
I have recently been asked to review requests for lease ratifications sent to my clients, and I thought that ratifications would be a good topic for this site.
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.
A non-executive mineral owner is the owner of a mineral interest who has given up the right (by conveyance or reservation) to lease his/her interest. The non-executive mineral owner has the right to receive his/her share of any bonus and royalty paid pursuant to the lease granted by the holder of the leasing right.
Ratification of a lease by a royalty owner or non-executive mineral owner may or may not be in his/her best interest, depending on the circumstances. If you own a royalty or non-executive mineral interest and are asked to sign a lease ratification, you should first ask for a copy of the lease you are being asked to ratify. You should determine whether the lease covers only the acreage in which you own an interest or also covers additional acreage in which you own no interest. If the lease covers lands in which you own no interest, you should be sure that you understand the effect of the ratification. That will depend on the language in the lease. You should confer with an oil and gas attorney about the legal effect of the ratification.
You should also determine whether a well has already been drilled on the lease (or on a pooled unit in which the lease is included). Companies should obtain lease ratifications before wells are drilled, but they often do not. If a well has already been drilled and if it is located on the tract in which you have an interest, there is usually no benefit to you to ratify the lease, and the result might be that your interest is unnecessarily diluted by a pooled unit that you have not consented to. If the well is not located on your tract but is in a pooled unit in which your land is included, you will not share in production from the well unless you ratify either the lease or the pooled unit.
Finally, if you own a non-executive mineral interest and are entitled to a share of the bonus paid for the lease, you should be sure that you get your share of the bonus. The entire bonus may have been paid to the owner of the executive interest, in which case you have a claim against the executive interest owner to get your bonus share. Or the company asking for the ratification may have taken and recorded the lease but not paid you your bonus share. A company landman may tell you that you are not entitled to get your share of the bonus unless you ratify the lease. This is not correct. You are entitled to your share of the bonus whether or not you ratify the lease.
Lease ratifications are legally binding documents, and owners should be sure that they understand the legal effect of the instrument before signing.