In this week’s episode of All Things Marcellus Attorney Doug Clark dives deep to address Oil and Gas Lease Amendments, Modifications and Ratifications. In times of a low natural gas prices and reduced drilling, Lease Amendments, Modifications and Ratifications may become common. Gas companies may attempt to revive or restore a expired lease by presenting the royalty owner with a Lease Modification and Amendment.
The gas company landman will always present the royalty owner with an Oil and Gas Lease Amendment and Modification which also includes “ratification” language for the original lease. In other words, when the royalty owner signs the Lease Amendment and Modification, they are also “ratifying” their existing lease. When the royalty owner ratifies the existing Oil and Gas Lease, they are stating that they agree that as of the moment of their signature the Oil and Gas Lease is valid and in effect and is not in breach. The courts have taken very strong positions on ratifications of gas leases generally giving the documents the full force and effect of ratifying the existing lease, whether it was expired or not. If there is any thought that your existing Oil and Gas Lease has terminated, you must not sign any document that “ratifies” the possibly expired lease.
Gas companies are smart and may not use the word “Ratification” in the title of the Oil and Gas Lease Amendment, but they will certainly include ratification language within the document. Be aware of companies burying ratification legalese language within the lease amendment so it is much more difficult to identify and understand. Doug explains various tricks that he believes the company uses to persuade royalty owners to sign Gas Lease Amendments without focusing in on the ratification aspect of the agreement.
One example, companies may even offer an Oil and Gas lease Amendment and Ratification that includes a higher royalty percentage then that offered in the existing lease. Why would the company ever offer you a higher royalty percentage in a lease amendment if they did not have to? That is an excellent question. They would not.
However, if the company is concerned that the underlying lease has expired and is terminated due to a lack of drilling operations or gas production, they may feel it necessary to obtain a lease ratification from you prior to drilling. The lease ratification will give them the security they feel is necessary before drilling and developing your property, but it also may bring to life an expired lease and eliminate any future lease negotiation opportunities. Accordingly, gas company landmen may approach the royalty owner and explain that they are trying to be nice and offer a higher royalty percentage because the royalty owner has waited so long for gas production royalties. Do not fall for this trick – especially Tioga County royalty owners as you are a likely target for this ratification approach. If you were being offered a higher royalty percentage, you must understand why and make sure that you do not lose powerful leverage to negotiate a new lease for a per-acre bonus and higher royalties. Doug believes gas companies put shiny objects in front of landowners and make future promises in exchange for signatures without much thought or investigation. Pennsylvania property owners must stop falling for these tactics and make sure that they have any Oil and Gas Lease Amendment or other agreement reviewed by an experienced oil and gas attorney.
As drilling slows and stops in Tioga county and in most areas of Pennsylvania, Doug opines that royalty owners will receive many request for Oil and Gas Lease Amendments, Modifications and Ratifications in the future. These legal documents are extremely important and must be carefully reviewed. Unfortunately, many people will sign Lease Amendments and Modifications not understanding the documents and not maximizing their opportunity to negotiate for a new lease with friendlier terms. As natural gas prices collapse, companies will become more desperate to attempt to hold on to leases and avoid having to re-negotiate with the royalty owner. Doug believes this will result in more lease amendments and modifications and potential he more “trickery” where royalty owners sign documents without understanding their content. We need to stop relying on the landman working for the gas or pipeline company and start relying on experienced oil and gas counsel. Call The Clark Law Firm, PC today for all Pennsylvania Oil and Gas Representation – 570-307-0702.