An existing lease is considered to be a continuing contractual obligation between producer and a mineral owner if the lease is “held by production.” This means that generally as long as a leased property has at least one well that is producing royalties “in paying quantities” for the mineral owners that the old lease and its terms remain in effect. Obviously, new modern leases are negotiated with better terms to benefit the mineral owner or mineral and surface owner, so it is always best to question whether an old lease is actually still in effect before signing a company document that ratifies and modifies the old lease.

Many leases in West Virginia have been “held by production” for decades if not over a hundred years. A lease generally has a “primary” term of length and a “secondary” term of length. The primary term of the lease is for a length of time that the driller has to begin producing the minerals–normally five years on a new lease signed today. The “signing bonus” paid by a producer to a mineral owner for signing a new lease is basically a “rental payment” that is consideration for this term during which the minerals are leased but not produced. As soon as production begins, as long as oil and gas is continuously produced from the subject mineral tract, the lease remains in effect. (Sometimes, based on the wording in the negotiated oil and gas lease, it takes more than one well to hold all of the lease by production.)

Therefore, if you are asked to sign a modification and/or ratification to an existing oil and gas lease, you should first investigate whether you have been paid royalties for a well or wells on this exact leased acreage (versus other properties you own). And, you should also seek to ascertain the API # of the well so that you can review the reported production of the well on the Office of Oil and Gas’s database. Please see my last post on how to access this information. If the well has not been producing at all, then you should refuse to sign a ratification and should negotiate a new lease. If the well has been producing, but you have not been paid royalties, you should work with the producer of the well to show your ownership and to have them release funds owing to you that should have been escrowed.