Common Title Challenges in the DJ Basin Jessy Pink & Anna Cavaleri July 15, 2013

Common Title Challenges in the DJ BasinJessy Pink & Anna Cavaleri

July 15, 2013

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Common Title Challenges in the DJ Basin

• Title to Minerals Underlying Roadways

“The following is based on actual events. Only the names, locations and events have been changed.” Anchorman: The Legend of Ron Burgundy (2004)

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Common Title Challenges (& Helpful Tips) in the DJ Basin

• Helpful Tip No. 1:– There is a greater value in combining the

identification and the resolution of problems than in issue-spotting alone

“You’re so wise. You’re like a miniature Budha, covered in hair.”

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1972: Four successful TV personalities from San Diego, California purchase a single Section of land (with the oil, gas & minerals) in a risky oil and gas play northeast of Denver, Colorado.


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• Five time Emmy-award winning anchor, Ron Burgundy (he was kind of a big deal): W/2NW/4, NW/4SW/4

• Brian Fantana, reporter in the field: NE/4NW/4, W/2NE/4

• Champ Kind, Sports: E/2NE/4, N/2SE/4

• Brick Tamland, Weather: SE/4NW/4, NE/4SW/4, S/2S/2

Brian

Ron

Champ

Brick


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Title to Minerals Underlying Roadways

• Who Owns the minerals under highways, streets and/or alleyways?

• It depends on the language of the conveyance creating the roadway and subsequent conveyances thereof, as well as conveyances of lands adjacent to the roadway.

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Who Owns the Road? • Brick Tamland conveys a “strip of ground” to Weld County for “road right-

of-way purposes”

• Baxter Energy, Inc. acquires an Oil & Gas Lease from Brick and drills a well spaced entirely on Brick’s property and pays Brick all of the royalties attributable to production from the well

• A representative of Weld County calls Baxter Energy, Inc. and claims that the County is entitled to royalties attributable to production under the roadway across Brick’s land

• Who owns the minerals under the road?

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Who Owns the Road?

• A conveyance of an estate in land is presumed to be fee simple unless expressly limited. C.R.S. 38-30-107.

• However, the presumption can be overcome. Board of County Commissioners of Logan County v. Morris, 362 P.2d 202 (Colo. 1961).

– In this case, the use of the words “strips of ground,” for “right-of-way” purposes led the court to conclude that only an easement, not a fee mineral interest was granted.

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Who Owns the Road?

• Weld County owns only an easement covering the strip of ground on Brick’s land and is not entitled to any of the proceeds of production from the well on Brick’s land.

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• Helpful Tip No. 2:– When you encounter a title issue, review the

ownership AND the comment/requirements in the most recent Title Opinion covering the Subject Lands

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“Well, I could be wrong, but I believe diversity is an old, old wooden ship that was used during the Civil War era.”

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Who Owns the Road? • By Warranty Deed, Brian Fantana conveys a “strip of land” to Weld County

for “road use”

• Baxter Energy, Inc. acquires an Oil & Gas Lease from Brian and drills a well spaced entirely on Brian’s property. Accordingly, Baxter Energy Inc. pays Brian all of the royalties attributable to production from the well.

• A representative of Weld County calls Baxter Energy, Inc. claiming that the County is entitled to the royalties attributable to production under the road across Brian’s land.

• Who owns the minerals under the road?

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Who Owns the Road?

• The Colorado Court of Appeals determined that a fee interest to the surface and minerals was conveyed when the instrument was titled a “warranty deed,” the property conveyed was described as “land” rather than “ground” and the deed did not contain the words “right-of-way.” Farmers Reservoir & Irrigation Co. v. Sun Production Co., 721 P.2d 1198 (Colo. Ct. App. 1986).

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Who Owns the Road?

• Weld County is entitled to proceeds of production attributable to the minerals under the road.

• Weld County gets fee title, including minerals, to the “strip of land.”

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Roadways Dedicated by Plat

• Ron Burgundy owns the W/2NW/4 and NW/4SW/4 in our subject Section X, Weld County and decides to subdivide the W/2NW/4, annex it into the adjacent municipality, Pleasure Town, and sell individual lots.

• He has a surveyor create a plat of the land he wants to subdivide and sell.

• He has not sold any of the individual lots yet, but files the subdivision plat in the county records.

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Burgundy Estates Subdivision PlatT3N, R65W, Sec. X: W/2NW/4

Lot 1

Lot 2

RON

WCR 53

Scotchy Scotch Dr.

• “All streets, roadways and alleys are dedicated to the public.”

NW/4SW/4 – outside of Burgundy Estates

Burgundy Estates

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Who Owns the Roadways in Burgundy Estates?

• Baxter Energy, Inc. drills a well spaced entirely on Lots 1 and 2.

• Ron has not yet conveyed the individual lots, so Baxter Energy, Inc. pays Ron all royalties attributable to the well.

• Pleasure Town claims that it is entitled to royalties attributable to production from that portion of the minerals underlying Scotchy Scotch Drive.

T3N, R65W, Sec. X: W/2NW/4

Lot 1

Lot 2

RON

WCR 53

Scotchy Scotch Dr.

Burgundy Estates


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Roadways Dedicated by Plat

• C.R.S. § 31-23-107, “All streets, parks and other places designated or described as for public use on the map or plat of any city or town or of any addition made to such city or town are public property and the fee title thereto vested in such city or town.”

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• Helpful Tip No. 3:– Note: C.R.S. § 31-23-107 applies to roadways

dedicated to a municipality

“Discovered by the Germans in 1904, they named it San Diego …”

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Statutory Dedication

• Under the statutory dedication process, land dedicated by a developer to a municipality does not vest the municipality with anything other than use of the surface for the purpose specified in the plat. See City of Leadville V. Bohn Min. Co., 37 Colo 248 (1906) and City of Greenwood Village v. Boyd, 624 P.2d 362 (1981).

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Who Owns the Road? • Pleasure Town acquired fee title to the surface

only of Scotchy Scotch Dr. • Ron Burgundy is entitled to all of the proceeds

of production from the well spaced on Lots 1 and 2.

“I love scotch. Scotchy scotch scotch.”

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Burgundy Estates Amended Subdivision Plat

• Ron decides to further subdivide Lot 2 and files an amended subdivision plat.

• The amended plat again provides that “All streets, roadways and alleys are dedicated to the public.”

• This time the plat states that “All minerals are hereby reserved.”


Lot 1

Lot 2A

Lot 2B

RON

Scotchy Scotch Dr.

WCR 53

Burgundy Estates


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Who Owns the Minerals? • Ron Burgundy conveys Lot 2B to Veronica Corningstone

without reservation.– BUT, The conveyance provides that it is subject to prior

reservations.– Ron retains ownership of Lot 1 and Lot 2A. – Who should receive proceeds of production from Lot 2B?


Lot 1 Ron

Lot 2A

Lot 2B Veronica

RON

Scotchy Scotch Dr.

WCR 53

Burgundy Estates


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Who Owns the Minerals Under Lot 2B?

• Veronica Corningstone owns the minerals under Lot 2B and is entitled to proceeds from Lot 2B.

“Subject to prior reservations” does not reserve the minerals owned by the Grantor. This language is only effective to limit the warranty of the estate conveyed.

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Who Owns the minerals Under Scotchy Scotch Drive?

• They Share! • Ron: Lot 1 to the centerline of

Scotchy Scotch Dr. and Lot 2A to the centerline of Scotchy Scotch Dr.

• Veronica: Lot 2B to the centerline of Scotchy Scotch Dr.


Lot 1 Ron

Lot 2A

Lot 2B Veronica

RON

Scotchy Scotch Dr.

WCR 53

Burgundy Estates


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Conveyances Described as Bounded by a Road

• Ron conveys the NW/4SW/4 to Champ. In the conveyance, the parcel is described by metes and bounds and as being bounded on the West by Weld County Road 53.

• “Beginning at a point 33 feet East of the West ¼ corner of Section X, thence North along the East side of WCR 53…..

• Does Ron retain ownership of the minerals under WCR 53?


Lot 1 Ron

Lot 2A

Lot 2B Veronica

CHAMP

Scotchy Scotch Dr.

WCR 53

Burgundy Estates

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Conveyances Described as Bounded by a Road

• In the absence of an obvious intent to the contrary, a conveyance of land described as bounded by a road is interpreted as covering the adjacent roadway to the centerline of such road.

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Vacated Roadways• Ron conveys Lot 2A to Brick,

reserving all oil, gas and other minerals.

• Ron retains title to the minerals under Lot 2A as well as under Scotchy Scotch Dr.

• Scotchy Scotch Dr. is later vacated.

• Who owns Scotchy Scotch Dr.?

Ron

Brick


Lot 1 Ron

Lot 2A Brick

Lot 2B Veronica

CHAMP

Scotchy Scotch Dr.

WCR 53

Burgundy Estates

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Title to Vacated Roadways• Vacated roads vest in fee in the adjacent owners.

• Title to not only the interest previously vested in the municipality, but full fee title to the surface and the minerals vests in the adjacent owners. Buell v. Sears, Roebuck & Co., 321 F.2d 468 (1963).

• Ron retains mineral ownership from Lot 1 to the centerline of Scotchy Scotch Dr. and Brick acquires title to the surface and the minerals from Lot 2A to the centerline of Scotchy Scotch Dr.

• In 2007, C.R.S. 43-2-302 authorized a county to provide that title to a vacated roadway shall vest in parties who use the vacated roadway, rather than the adjoining landowners.

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• Helpful Tip No. 4:– Note: If the road was vacated after September 1,

2007, the resolution of the board of county commissioners approving the vacation should be examined to determine the disposition of title.

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• Pre-existing Pooling Agreements

“The following is based on actual events. Only the names, locations and events have been changed.”

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• Five time Emmy-award winning anchor, Ron Burgundy (he was kind of a big deal): W/2NW/4, NW/4SW/4

• Brian Fantana, reporter in the field: NE/4NW/4, W/2NE/4

• Champ Kind, Sports: E/2NE/4, N/2SE/4

• Brick Tamland, Weather: SE/4NW/4, NE/4SW/4, S/2S/2

Brian

Ron

Champ

Brick

Pre-existing Pooling Agreements

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• Helpful Tip No. 5:– Weld County’s EagleWeb/iCRIS database now

includes copies of all recorded documents from January 1, 1865 to present

https://searchicris.co.weld.co.us/recorder/web/

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Pre-existing Pooling Agreements• 1978:

– Corningstone Petroleum obtains Oil & Gas Leases from Brick and Champ, with standard provisions, including pooling, and a five (5) year primary term

– Baxter Energy, Inc. obtains Oil & Gas Leases from Ron and Brian also with standard provisions, including pooling, and a seven (7) year primary term

POOLING CLAUSE: Lessee may at any time or times pool any part or all of said land and lease, or as to any stratum or strata, with other lands and leases in the same field so as to constitute a spacing unit to facilitate an orderly or uniform well spacing pattern or to comply with any order, rule or regulation of the State or Federal regulatory or conservation agency having jurisdiction. Such pooling shall be accomplished or terminated by filing of record a declaration of pooling or declaration of termination of pooling and by mailing or tendering a copy to Lessor or to the depository bank. Drilling or reworking operations upon or production from any part of such spacing unit shall be, for all purpose of this lease, such operations or production from this lease. Lessee shall allocate to this lease the proportionate share of production which the acreage in this lease included in any such spacing unit bears to the total acreage in such spacing unit. (emphasis added)

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Pre-existing Pooling Agreements• 1979:– Corningstone Petroleum and

Baxter Energy, Inc. drill the AnchorOne J Sand well in the SW/4NE/4 spaced on the N/2

– Because ownership of the mineral estate is not uniform across the spacing unit, Corningstone Petroleum and Baxter Energy, Inc. place of record the following Declaration of Pooling in order to pool production from the separate leases

BRIAN

RON

CHAMP

BRICK

AnchorOne Well

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DECLARATION OF POOLING

KNOW ALL PERSONS BY THESE PRESENTS:

WHEREAS, those certain Oil and Gas Leases described in Exhibit “A” attached hereto and by this reference expressly made a part hereof, as originally written, or as heretofore amended, provide that the Lessee shall have the right and privilege to consolidate the gas leasehold estate into operating units, by executing in writing and recording in the conveyance records of the county in which the land is situated an instrument identifying and describing the consolidated acreage; and,

WHEREAS, the undersigned, Corningstone Petroleum as Owner and Operator of the N/2 of Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado, and Baxter Energy, Inc., as an Owner, (hereinafter sometimes referred to as the “parties hereto”) are the owners and holders of the “Oil & Gas Leases” described on said Exhibit “A” attached hereto and by this reference expressly made a part hereof, insofar as they cover the lands herein described;

NOW, THEREFORE, the parties hereto, in order to prevent waste of gas, as defined by law; to protect the correlative rights of all parties concerned; to prevent the drilling of unnecessary wells, and to insure proper and efficient development and promote conservation of the gas resources of the State of Colorado, and pursuant to the terms of the Oil & Gas Leases, do declare that such lands covered by said Oil & Gas Leases are within the N/2 of Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado, and said Oil & Gas Leases insofar as they cover the N/2 of said Section X, shall be and the same are hereby unitized, consolidated, combined and pooled so as to constitute a drilling unit comprising the N/2 of Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado, as to the production of natural gas and associated liquid hydrocarbons from the producing horizon commonly referred to as the “J” Sandstone formation underlying said lands.

This Declaration of Pooling may be executed in any number of counterparts, each of which shall be deemed an original instrument. All executed counterparts shall be construed together, and shall constitute one agreement. The signature and acknowledgment pages may be executed in counterpart and separate pages may be inserted for purposes of filing and recording.

This Declaration of Pooling is executed Effective March 1. 1979, on this 1st day of July, 1979.

Corningstone Petroleum

Veronica Corningstone .By: Veronica Corningstone, President

Baxter Energy, Inc.

Baxter M. L. Gentleman By: Baxter M. L. Gentleman, President

…do declare that such lands covered by said Oil & Gas Leases are within the N/2 of Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado, and said Oil & Gas Leases insofar as they cover the N/2 of said Section X, shall be and the same are hereby unitized, consolidated, combined and pooled so as to constitute a drilling unit comprising the N/2 of Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado, as to the production of natural gas and associated liquid hydrocarbons from the producing horizon commonly referred to as the “J” Sandstone formation underlying said lands.

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EXHIBIT “A”

Attached to that certain Declaration of Pooling dated Effective March 1, 1979; covering the North-Half (N/2), Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado.

As to production of natural gas and associated liquid hydrocarbons produced from the producing horizon commonly referred to as the “J” Sandstone formation underlying said lands.

Lease One:Lessor: Brick TamlandLessee: Corningstone PetroleumDate: May 1, 1978Recording: May 17, 1978 in Book 833 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.Section X: SE/4NW/4, NE/4SW/4, S/2S/2

Lease Two:Lessor: Champ KindLessee: Corningstone PetroleumDate: May 5, 1978Recording: May 17, 1978 in Book 833 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.Section X: E/2NE/4, N/2SE/4

Lease Three:Lessor: Brian FantanaLessee: Baxter Energy, Inc.Date: June 12, 1978Recording: June 24, 1978 in Book 834 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.Section X: NE/4NW/4, W/2NE/4

Lease Four:Lessor: Ron BurgundyLessee: Baxter Energy, Inc.Date: June 2, 1978Recording: June 24, 1978 in Book 833 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.Section X: W/2NW/4, NW/4SW/4

As to production of natural gas and associated liquid hydrocarbons produced from the producing horizon commonly referred to as the “J” Sandstone formation underlying said lands.

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BRIAN

RON

CHAMP

BRICK

AnchorOne Well

• 1994:– Corningstone Petroleum and

Baxter Energy, Inc. recomplete the AnchorOne well in the Codell/Niobrara formations spaced on the NE/4


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DECLARATION OF POOLING

KNOW ALL PERSONS BY THESE PRESENTS:

1. Corningstone Petroleum and Baxter Energy, Inc. are the owners and holders of the Oil and Gas Leases (“Leases”) set forth on Exhibit “A” attached hereto insofar as the Leases cover and affect the NE/4 of Section X, Township 3 North, Range 65 West, 6th P.M., Weld County, Colorado.

2. The Leases contain provisions authorizing the Lessee to unitize or pool the Leases and the lands covered thereby, in whole or in part, so as to create a unit or pool as may be required to conform with applicable rules and orders of the Colorado Oil and Gas Conservation Commission.

3. Acting under and by virtue of the pooling authority contained in the Leases, the undersigned do hereby pool, combine and designate the following lands (and the mineral and royalty rights thereunder) as a unit for the drilling and production of oil and gas from the surface to the base of the Codell and/or Niobrara formations:

Township 3 North, Range 65 West, 6th P.M.Section X: NE/4Weld County, Colorado

IN WITNESS WHEREOF, this instrument is executed as of the 19th day of May, 1994, but shall be effective for all purposes as of the earliest date of first production from the AnchorOne well located in the SW/4NE/4 of said Section X.


Veronica Corningstone .By: Veronica Corningstone, President

Baxter Energy, Inc.Baxter M. L. Gentleman .By: Baxter M. L. Gentleman, President

Acting under and by virtue of the pooling authority contained in the Leases, the undersigned do hereby pool, combine and designate the following lands (and the mineral and royalty rights thereunder) as a unit for the drilling and production of oil and gas form the surface to the base of the Codell and/or Niobrara formations.

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EXHIBIT “A”

Attached to that certain Declaration of Pooling dated May 19, 1994; covering the North-East (NE/4), Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado.

As to production of oil and gas produced from the producing horizon commonly referred to as the Codell/Niobrara formations underlying said lands.

Lease One:Lessor: Champ KindLessee: Corningstone PetroleumDate: May 5, 1978Recording: May 17, 1978 in Book 833 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.

Section X: E/2NE/4, N/2SE/4

Lease Two:Lessor: Brian FantanaLessee: Baxter Energy, Inc.Date: June 12, 1978Recording: June 24, 1978 in Book 834 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.

Section X: NE/4NW/4, W/2NE/4

As to production of oil and gas produced from the producing horizon commonly referred to as the Codell/Niobrara formations underlying said lands.

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BRIAN

RON

CHAMP

BRICK

ChannelFour Well AnchorOne Well

• 2008:– Corningstone Petroleum and

Baxter Energy, Inc. drill the ChannelFour well to the Codell/Niobrara and J Sand formations spaced pursuant to COGCC Rule 318A(e) on the W/2NE/4, E/2NW/4


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ChannelFour Well

WELLBORE SPECIFIC DECLARATION OF POOLING

WHEREAS, the undersigned parties are the owners of the Oil and Gas Leases described in Exhibit “A” attached hereto and made a part hereof, insofar as said Leases cover lands lying within the unit herein below designated; and,

WHEREAS, the provisions of each of said Leases as originally written, or as amended, grant the Lessee the right and power to pool and combine the lands covered by each of said Leases, or any portion or portions thereof, with other lands for the exploration and development thereof and the production therefrom of oil, gas and other hydrocarbons associated therewith;

NOW, THEREFORE, pursuant to the rights granted by law and under each of the Leases described in Exhibit “A” attached hereto the undersigned parties hereby consolidate and pool the following described lands into a single unit for the production of oil, gas and associated hydrocarbons from the ChannelFour well, drilled under authority of Rule 318A(e), established by the Colorado Oil and Gas Conservation Commission, and from the formations described below, situated in Weld County, Colorado, to wit:

Township 3 North, Range 65 West, 6th P.M.Section X: W/2NE/4, E/2NW/4

Limited to the ChannelFour wellbore and the Codell/Niobrara and “J” Sand formations. Said declaration is not intended to enlarge, reduce or otherwise affect any existing units.

IN WITNESS WHEREOF, this Declaration of Pooling is executed as of this 3rd day of October, 2008, but shall be effective for all purposes as of the date of first production of oil and gas produced from the Pooled Unit. This agreement may be executed in any number of counterparts, each of which shall be considered an original for all purposes.


Veronica Corningstone .

By: Veronica Corningstone, President

Baxter Energy, Inc.

Baxter M. L. Gentleman .

By: Baxter M. L. Gentleman, President

…Limited to the ChannelFour wellbore and the Codell/Niobrara and “J” Sand formations. Said declaration is not intended to enlarge, reduce or otherwise affect any existing units

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EXHIBIT “A”

Attached to and made a part of that certain Wellbore Specific Declaration of Pooling dated October 8, 2008, covering the E/2NW/4 and W/2NE/4, Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado.

Lease One:Lessor: Brick TamlandLessee: Corningstone PetroleumDate: May 1, 1978Recording: May 17, 1978 in Book 833 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.

Section X: SE/4NW/4, NE/4SW/4, S/2S/2

Lease Two:Lessor: Champ KindLessee: Corningstone PetroleumDate: May 5, 1978Recording: May 17, 1978 in Book 833 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.

Section X: E/2NE/4, N/2SE/4

Lease Three:Lessor: Brian FantanaLessee: Baxter Energy, Inc.Date: June 12, 1978Recording: June 24, 1978 in Book 834 at Reception No. 1754xxx Description: Township 3 North, Range 65 West, 6th P.M.

Section X: NE/4NW/4, W/2NE/4

Attached to and made a part of that certain Wellbore Specific Declaration of Pooling dated October 8, 2008, covering the E/2NW/4 and W/2NE/4, Section X, Township 3 North, Range 65 West, 6th P.M., County of Weld, State of Colorado.

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2013- Ron, Brick, Champ and Brian

discuss the royalties they are receiving from the oil and gas production on their Colorado properties and take a look at the three “Declaration of Pooling” Agreements filed of record for the AnchorOne and ChannelFour wells.

“Why are we yelling? Loud noises!!” Brick Tamland

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Pre-existing Pooling AgreementsAnchorOne Well:

Ron, Brick, Champ and Brian receive LORs from JSND production

Champ and Brian receive LORs from CD/NB production

BRIAN

RON

CHAMP

BRICK

AnchorOne Well

BRIAN

RON

CHAMP

BRICK

AnchorOne Well

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Pre-existing Pooling AgreementsChannelFour Well:

Brian Champ and Brick receive LORs from JSND and CD/NB production

• Ron wants to know why he isn’t receiving royalties from the JSND production from the ChannelFour well, since all JSND production from the N/2 of Section X was pooled in 1979

• Champ believes he is entitled to a greater royalty from the ChannelFour well’s CD/NB and JSND production on the basis of all of his pooled acreage in the NE/4 per the 1979 and 1994 pooling declarations

BRIAN

RON

CHAMP

BRICK

ChannelFour Well AnchorOne Well

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Pooling ProvisionPOOLING CLAUSE: Lessee may at any time or times pool any part or all of said land and lease, or as to any stratum or strata, with other lands and leases in the same field so as to constitute a spacing unit to facilitate an orderly or uniform well spacing pattern or to comply with any order, rule or regulation of the State or Federal regulatory or conservation agency having jurisdiction. Such pooling shall be accomplished or terminated by filing of record a declaration of pooling or declaration of termination of pooling and by mailing or tendering a copy to Lessor or to the depository bank. Drilling or reworking operations upon or production from any part of such spacing unit shall be, for all purpose of this lease, such operations or production from this lease. Lessee shall allocate to this lease the proportionate share of production which the acreage in this lease included in any such spacing unit bears to the total acreage in such spacing unit. (emphasis added)

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Pre-existing Pooling AgreementsAnchorOne Well:

Ron, Brick, Champ and Brian receive LORs from JSND production

Champ and Brian receive LORs from CD/NB production

BRIAN

RON

CHAMP

BRICK

AnchorOne Well

BRIAN

RON

CHAMP

BRICK

AnchorOne Well

Offset Well Offset Well

318A(e)Offset Well

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REQUIREMENT No. 17: (Pre-Existing Pooling Instruments) Information set forth in the prior Title Opinions examined by the undersigned indicate that numerous wells have been drilled on the Subject Lands, or on lands pooled therewith, and completed in the Codell/Niobrara and “J” Sand formations. As to these existing wells, it is likely that the Codell/Niobrara formation has been pooled on the basis of 80.00 +/- acre standup or laydown unit areas or 160 acre quarter/quarters and it is likely that the “J” Sand formation has been pooled on the basis of 320.00 +/- acre standup or laydown unit areas. These wells were drilled and likely pooled based on the then existing spacing unit areas established by the Colorado Oil and Gas Conservation Commission under Rule 318A. As you are likely aware, Order No. 1R-100 of the Colorado Oil and Gas Conservation Commission amended Rule 318A, the Greater Wattenberg Area Spacing and Unit Designation Rule, to allow new wells to be drilled to bottom hole locations located less than four hundred sixty (460) feet from the governmental quarter-quarter section boundary, providing that the production from such wells will be spaced on a wellbore basis (“wellbore spacing unit”) comprised of the four (4) governmental quarter-quarter sections nearest to the wellbore regardless of section or quarter section lines. The result of this well spacing rule is to create new “wellbore spacing units” which overlap one or more existing Codell/Niobrara and “J” Sand spacing unit areas which were established under Commission Rule 318A and previously pooled under recorded documents. Amended Spacing Rule 318A(e) standing alone is not sufficient to alter the contractual rights of royalty owners, overriding royalty owners, and/or working interest owners under existing pooling agreements which entitle such parties to participate in the proceeds of production attributed to any well located in the pooled area and completed in the pooled formation or allocated to the pooled area. As a result, it is possible that any party owning a royalty, overriding royalty or working interest in an existing pooled unit area, which has a portion of the pooled lands lying within the four governmental quarter-quarter sections comprising the new spacing area established under Rule 318A(e) for the ChannelFour Well, may claim an interest in the proceeds of production from such well based on their ownership interest in the existing pooling areas, portions of which lie within the new 318A(e) spacing unit area. Notwithstanding this ownership issue, Operators drilling in the Greater Wattenberg Area, including but not limited to Corningstone Petroleum and Baxter Energy, Inc. have agreed to take the business risk of distributing the proceeds of production from all new 318A(e) wells based on the “wellbore spacing units” established by such rule. Most pooling documents of record reference the applicable provisions of Commission Rule 318(A) and therefore support for the assumption of this business risk is based in large part on the premises that the existing Codell/Niobrara and “J” Sand spacing units were pooled pursuant to the original 318A well location rule and therefore limited by implication to those wells drilled under such rule. At the direction of Corningstone Petroleum and Baxter Energy, Inc., the ownership interests are set forth herein on the basis of the spacing unit area established for the ChannelFour Well under Commission Rule 318A(e). Requirement: All pre-existing pooling documents of record covering lands lying within the 318A(e) spacing unit area established for your ChannelFour Well should be amended to exclude any new wells drilled under new COGCC Rules. Alternatively, any wellbore pooling instrument filed of record for the ChannelFour Well should contain language stating that the ChannelFour wellbore and production attributed thereto, is specifically excluded from any pre-existing pooling declaration or instrument. Recording the wellbore pooling declaration for the ChannelFour Well will not eliminate the possibility that under an existing pooling agreement or document, a party owning a royalty, overriding royalty or working interest in the pooled area may claim to own, and successfully establish, an ownership interest in a share of the production from the ChannelFour Well based on the theory that a portion of their existing pooled unit lies within the ChannelFour Well wellbore spacing unit.

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Sometimes working in the DJ Basin can feel like a battle…

Our Final Helpful Tip: Don’t despair…

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… stay classy DADOA!

… but it can also be as much fun as shopping for new suits!

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Jessy Pink: [email protected]

Anna Cavaleri: [email protected]

mailto:[email protected]

mailto:[email protected]

Documents

Common Title Challenges in the DJ Basin Jessy Pink & Anna Cavaleri July 15, 2013