Expert: Frederick M. - 6/27/2009

Question
We signed a lease with East Recourses last July and have not received the lease money yet. We have received several letters from them explaining the situation and we always opted out of the immediate lesser payment option. We just received another letter that has three forms. One - to opt out of the lease, a second - to receive the immediate lesser payment, and third - a form titled "Ratification of Oil & Gas Lease." It states that we are ratifying the lease signed in July of 2008. To me this simply means we want to stick to the terms of the original lease, but I want to make sure that is what we are signing. I know I should just call East, but I like to have as much info as possible before I go into a conversation on which I really know nothing about.

Any info would be great. Thanks!


Answer
Amanda, it's not too terribly unusual these days (unfortunately) for lessees to either not pay on time, or to ask the lessor (you) to accept a lesser payment.

Oil companies, especially the ones that drill in the continental U.S. these days aren't as rich as everyone thinks they are...some are highly leveraged in fact, and after prices went down and credit dried up it took many by surprise. Companies that were able to borrow vast amounts this time last year now see that their credit has dried up. This puts a strain on their cash flow, hence the request that you accept a smaller bonus.

As to the Ratification; without seeing it, or the 2008 lease I'd hate to speculate really as to what you should do. I suggest you see an attorney on that one. A "ratification" of an oil and gas lease is generally a confirmation of a lease executed by a concurrent owner other than the original lessor, so it may be that in 2008 someone other than the current owner signed that lease. I would have to see both to be sure.

Hope this helps you out, Amanda.
Frederick M. "Mick" Scott CMM