Ratification Question

Oil and Gas Leasing Help
1

Our family has a small NPRI royalty interest in an 80-acre tract of land in south Texas that has been horizontally drilled for gas. We were unaware that we held an NPRI until just recently when we received a Ratification of an Oil and Gas Lease. The first part of the Ratification was pretty clear and easily understandable; however, the second was a bit more difficult. I got a copy of the site abstract, a copy of the lease (57 pages long), and a few documents from the Railroad Commission (P-12 and W-1) and now am more confused than ever.

  1. The ratification references a piece of land that is about 1,200 acres in size; the P-12 and W-1 reference a piece of land that is about 1,700 acres in size. Is this normal?

  2. In the pooling clause of the lease, it states that “Pooling for gas producing above the depth of 7,000 feet and pooling for oil produced from the vertical portion of a wellbore at any depth are expressly prohibited.” Yet the P-12 shows 24 pooled areas and does not address “gas only.”

  3. The pooling section goes on to say, “However, in the event that any non-executive mineral interests or non-participating royalty interests exist within the lands to be pooled, then as a condition to obtaining the right and power to pool or combine this lease or parts thereof, Lessee shall first obtain a ratification of such pooled unit from the owners of such interest.” The ratification that we received addresses this pooling issue.

  4. The next part of the pooling section goes on to say, “Subject to the above and foregoing, Lessee is hereby given the right and power to pool or combine this Lease or leases or parts thereof, as to gas only, with the oil and gas lease or leases described on the attached Exhibit A (which only covers about 295 acres of the 1,700 acres and includes the 80 acres where we have an interest), when it is necessary to do so to properly explore for or develop…” Sounds like NPRI interests can only pool gas? Is this normal, and if so, why does it not include pooling over the entire lease (1,200 acres, or the 1,700 acres on the abstract, W-1, and the P-12 for the existing 24 signed pooling agreements)?

Sorry for the length of this. Hope it makes sense. Thanks in advance for any guidance.

2

Dear Mr. Blackburn,

Everything seems very reasonable, except for paragraph 3 which is extraordinary in its rarity - rare to the extent that I have never seen it before. Essentially, it makes the ratification of non-executives or NPRI’s a requirement to allow the pooling transaction. Very unusual. Not really in the Lessor’s best interest. There must be something else going on - what I do not know.

There are a lot of moving parts to your question and time and constraints prevent me from having a thorough discussion. I penned a blog on pooling and unitization in Texas that has three parts. You will benefit from reading them. Part three is here:

http://www.mineralrightsforum.com/profiles/blogs/pooling-in-texas-part-3

and contains references to parts one and two.

3

Thanks for the input Buddy. I have a meeting with an Oil & Gas attorney this afternoon to discuss.

Tom