If you are an Ohio landowner leasing an oil and gas well, you need to be aware of your rights, particularly if it is an old Ohio oil and gas lease.
If production is still occurring, or if the well is held by a shallow producer or a non-producer, you need to know what to do about that. If you have been approached by an operator about signing a ratification agreement, you should also think about it before signing.
The old oil and gas leases typically reached only shallow sandstone deposits because the technology did not exist to reach the deeper shale. Marcellus and Utica wells are much bigger than the old wells. If you are a landowner whose property is “held by production,” this means you cannot lease your land to the developers of the deep shale formations, many of whom are offering large signing bonuses, because the shallow well operators and producers hold your rights.
However, operators of these shallow wells can only hold the lease rights if they are actively and continuously producing. If they are not, the landowner may take steps to cancel the old lease. The language of the original lease may also benefit the landowner in seeking to get out of a lease that is “held by production.”
Implied Covenants of Oil and Gas Law
The lessees are also bound by “implied covenants” which need not be expressed in the lease, but are part of Ohio oil and gas law.
Sometimes an unwitting landowner signs a lease and specifically waives these covenants. As long as the landowner has not done that, by Ohio law the operator must meet several obligations regarding drilling, drainage, the lessor’s royalty interest and marketing of the gas or oil. This means a gas and oil producer has a duty to do what is reasonable in these areas.
It is also possible the landowner may have part of his land released from the lease obligation. If the lessor has a 100-acre tract, and only 20 to 40 acres are being effectively produced, and the producer has not reasonably attempted to develop the remaining acreage, it could be determined that the latter property is no longer subject to the lease.
Ratification of an Old Oil and Gas Leases
To “ratify” a lease means the landowner and oil and gas producer agree (or re-agree) to the terms of the existing lease. It is like starting anew with the same agreement, but the parties can make amendments.
You should ask yourself why the well operator is seeking ratification. You should also make yourself aware of what the current market is paying in bonuses and royalties and what other landowner protections are being written into new leases.
Often, the producer believes you may have legitimate grounds to break the existing lease, or he may want to “pool” your property with others and the existing lease does not allow for that. He may want to sell your rights to one of the shale developers. You may be in a better bargaining position than you realize.
Without some legal assistance it may be hard to effectively negotiate or even decide whether you should renew your lease or even try to cancel it.
Slater & Zurz LLP has experienced Ohio oil and gas attorneys who can help with these complex decisions. We would be pleased to have an attorney meet with you. The initial consultation is free.
Please contact us at 1-888-534-4850 or send us a website message.