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WHAT IS A TITLE OPINION?
M I N E R A L T I T L E E X A M I N A T I O N D A V E H A M P T O N
Intro Session
Title Opinions: In General
Title examination = title assurance
Title opinions serve to assure companies and individuals that the exploration or drilling projects they wish to engage in is legally supportable
Legally supportable projects depend upon marketable & defensible title Marketable title –
Title that is free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record – O.S. Title 16 § 1.1
Such marketable record title shall be subject to: (a) All interests and defects which are inherent in the muniments of which such chain of record title is formed;
provided, however, that a general reference in such muniments, or any of them, to interests created prior to the root of title shall not be sufficient to preserve them, unless specific identification be made therein of a recorded title transaction which creates such interest. (b) All interests preserved by the filing of proper notice or by possession by the same owner continuously for a period of thirty (30) years or more, in accordance with Section 74 of this title.
(c) The rights of any person arising from a period of adverse possession or user, which was in whole or in part subsequent to the effective date of the root of title.
(d) Any interest relating to a title transaction which has been recorded subsequent to the effective date of the root of title from which the unbroken chain of title of record is started; provided, however, that such recording shall not revive or give validity to any interest which has been extinguished prior to the time of the recording by the operation of Section 73 of this title.
(e) The exceptions stated in Section 76 of this title as to rights of reversioners in leases, as to severed mineral or royalty interests, as to easements and interests in the nature of easements, and rights granted, reserved or excepted by instruments creating such easements or interests, or restrictions or agreements which are part of a subdivision development plan, and as to interests of the United States. – O.S. Title 16 § 72
Mineral Title Examination, Paper No. 1, Page No. 1-1 & 1-4 (Rocky Mt. Min. L. Fdn. 2007) || O.S. Title 16 § 1.1, 72
Title Opinions: In General
‘Defensible Title’ as defined on a Purchase & Sale Agreement:
DEFINITION OF DEFENSIBLE TITLE. As used in this Agreement, the terms 'Defensible Title' shall mean: (a) As to each
Lease that title of Seller which: (i) is filed of record and free from reasonable doubt such that a prudent person engaged in the business of the ownership, development and operation of producing oil and gas properties, with knowledge of all the facts and their legal effect, would be willing to accept the same; and (ii) is free and clear (except for Permitted Encumbrances as defined in Section 3.3 below) of all liens, encumbrances, obligations or defects which are of record prior to Closing. (b) As to each Well that title of Seller which: (i) entitles Seller to own at least the 'Net Revenue Interest' for the Wells identified on Schedule 2.4 as being associated with such Wells, without reduction, suspension or termination throughout the productive life of such Well, except for any reduction, suspension or termination as set forth in Schedule 2.4; (ii) requires Seller to bear no greater 'Working Interest' than the Working Interest for each of the Wells identified on Schedule 2.4 as being associated with such Wells, without increase throughout the productive life of such Well, except for any increase as set forth in Schedule 2.4; and (iii) is free and clear (except for Permitted Encumbrances as defined in Section 3.3 below) of all liens, encumbrances, obligations or defects.
http://contracts.corporate.findlaw.com/planning/asset/2841.html
Title Opinions: In General
Title examiners job is to declare a title valid
Determining title validity depends upon one applying the applicable State or Federal law of deeds and conveyances in combination with the law of deed recordation, and the laws of Wills, Trusts, Intestate Estates, Contracts, and Civil Procedure
The examiner applies the applicable law to the chain of title in order to declare his/her opinion which may hold up in the court of law
Chain of Title: Chain of title all documents affecting a parcel of property. Chain of title is
documents of conveyances, court orders, probate orders, leases, easements and all other documents which are title in the Registrar of Deeds, county clerks office in the county in which the property is located OR in a another title repository (e.g. State of Oklahoma Commissioners of the Land Office, Bureau of Indian Affairs title offices, and BLM (Bureau of Land Management) Regional Offices.
**Abstracts compilations of all documents affecting title to the property under examination, certified and bonded by a licensed abstractor
Mineral Title Examination, Paper No. 1, Page No. 1-1 & 1-4 (Rocky Mt. Min. L. Fdn. 2007).
Title Assurance in Real Property
There are 4 general types of title assurances: 1) Warranty Deeds (oldest)
Deed warrants title to the Sellers interest
2) Title Certificates under the Torrens land registration system (outmoded)
3) Attorney’s title opinion based upon abstract and/or stand-up search (our focus)
4) Title Insurance Applicable in most cases to surface title and not mineral title. Attorneys
opinions are usually forms of ‘title insurance’ for the mineral estate.
Mineral Title Examination, Paper No. 1, Page No. 1-9 (Rocky Mt. Min. L. Fdn. 2007).
Abstracts and Title Opinions
Licensed Abstractors
Attorneys historically prepared title opinions from ‘abstracts’ assembled by abstractors
Abstract of title: A concise statement, usually prepared for a mortgagee or purchaser of real property,
summarizing the history of a piece of land, including all conveyances, interests, liens, and encumbrances that affect title to the property. — Also termed ‘brief’; ‘brief of title’. - Black's Law Dictionary (8th ed. 2004).
A summary of the independent elements of each recorded document in the ‘chain of title’. They were initially handwritten early on.
Abstractors keep independent set of Indexes which are usually done on a tract basis (i.e. description of land as opposed to Grantor-Grantees or successive parcel numbers whereas the County Clerk maintains Indexes based on Grantor-Grantee or successive parcel numbers or receptions numbers
Formal abstracting has disappeared over time
Attorneys will perform stand-up searches of mineral title, or outsource this duty to landmen With the advent of computers, most records may now be accessed online, or, will be
available soon. This enables the County Clerk of Registrar of Deeds electronic archiving as well as a new source of revenue.
All Counties are being digitized in some way with some allowing full access…to others providing other briefs of the documents
Mineral Title Examination, Paper No. 1, Page No. 1-9 & 1-13(Rocky Mt. Min. L. Fdn. 2007).
Abstracts and Title Opinions
Title Attorneys Duties
Disclose all discoverable defects and explain the various potential impacts
Review all past conveyances, past probate proceedings and other orders issued by a court Identify all easements and outstanding mortgages and all documents concerning the leasing
of all oil, gas, and other mineral interests and assignments
*Note: ‘title insurance’ is N/A to mineral titles Most title companies will not draft a policy of title insurance for minerals because of the
inherent obscurity in mineral titles
The title opinion issued by an Attorney constitutes title insurance in that the Attorney certifies as to his/her opinion of the title, and, warrants the same subject to his objections, comments, and requirements
Mineral Title Examination, Paper No. 1, Page No. 1-9 & 1-13(Rocky Mt. Min. L. Fdn. 2007).
Marketable Title: What is it?
Marketable Tile Definition: A title that a reasonable buyer would accept because it appears to lack any defect and to
cover the entire property that the seller has purported to sell – Also termed ‘good title’ – Black’s Law Dictionary 722 (3rd pocket ed. 2006).
Title that is free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record – O.S. Title 16 § 1.1
Courts have used this term to denote title that is good enough that a reasonable buyer would accept it (i.e. no material defects)
A.K.A. ‘merchantable title’, ‘good title’, ‘good and marketable title’, ‘indispensible title’, and ‘perfect title’
Many states have enacted marketable title acts E.g. ‘Model Marketable Record Title Act’-found in the Uniform Marketable Title
Act; adopted by the National Conference of Commissioners on Uniform State Law (An internet search indicates that as many as 22 states have adopted some form of the MRTA) See, e.g., OK Marketable Record Title Act – O.S. Title 16 §§ 30.1 ~ 30.14
Mineral Title Examination, Paper No. 1, Page No. 1-14 (Rocky Mt. Min. L. Fdn. 2007) || O.S. Title 16 § 1.1 || O.S. Title 16 §§ 30.1 ~ 30.14
Mineral Title Opinions, Reports and Examinations
Title Opinion Definition: Statement of a opinion by an attorney, surface in the form of a letter, as
to the state of the title to land, mineral, royalty or working interests. The opinion will often recommend (OK requires) that curative instruments be obtained before the property interest is purchased, drilled on, on otherwise dealt with.
Reports and Opinion Letters Usually limited to the clients interest or the interest of another party to be
obtained (i.e. client is purchasing the WI’s (working %’s), ORRI’s (Overriding Royalty %’s, or mineral interests of a certain individual or entity
Title Memo’s, Status Reports, and Mineral Certificates Cursory Title Reports Take-Off Reports Title Memoranda Status/Ownership Reports Mineral Certificiates
Oil and Gas Title Opinions
Mineral Title Examination, Paper No. 1, Page No. 1-16 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Cursory Title Reports, Title Memo’s, Status/Ownership Reports, and Mineral Certificates Cursory Title Reports
Commonly performed by a landman…
Cursory Lease Checks Determine if minerals are currently leased and/or held by production in order to determine if they are available for lease (usually conducted by field landman)
Cusory Surface Title Examination pipeline right-of-way, road construction, etc (usually conducted by field landman)
Mineral Title Examination, Paper No. 1, Page No. 1-16 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Cursory Title Reports, Title Memo’s, Status/Ownership Reports, and Mineral Certificates Take-Off Reports
AKA ‘run sheets’
Used during the lease acquisition phase of a natural resource project in order to establish mineral ownership in regards to leases
LEAST thorough and comprehensive of title reports
Frequently prepare by a landman or lease broker
Can take the form of a written report ID’ing apparent mineral ownership by tract…OR...it may be in the format of a standard BLM (Bureau of Land Management) use plat or other map
VERY limited
Mineral Title Examination, Paper No. 1, Page No. 1-16 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Cursory Title Reports, Title Memo’s, Status/Ownership Reports, and Mineral Certificates Title Memoranda
Used at the acquisition phase of a project
Reflect material conveyances, reservations, exceptions, unreleased leases, and encumbrances
MORE thorough than the Take-Off report…but still less thorough than a formal status report or title opinion
Mostly prepared by an abstractor or landman
Limited to what is specifically requested NOT used in drilling
Mineral Title Examination, Paper No. 1, Page No. 1-17 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Cursory Title Reports, Title Memo’s, Status/Ownership Reports, and Mineral Certificates Status/Ownership Reports
Detail the status of the lands as reflected by title records or one or more title repositories (e.g. BLM state office)
Itemized list of all historical index entries for the lands covered, relevant statutes, etc.
Examiner many times attaches photocopies of relative orders, patents, surveys, plats, and serial register pages
Historically, requested at the acquisition phase or drilling stage of a project
Prepared by attorneys OR landmen for delivery to in-house or ultimately, outside title examiners
Most documents and records are available on the BLM State Office, Bureau of Indian Affairs title offices, and state land agency websites
In general…they exist as limited updates of title
Mineral Title Examination, Paper No. 1, Page No. 1-17 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Cursory Title Reports, Title Memo’s, Status/Ownership Reports, and Mineral Certificates Mineral Certificates
Sometimes available from abstract title companies
Generally 1 or 2 pages long
Contain a tabulation of ownership and indentify title encumbrances
Very rarely used today
Mineral Title Examination, Paper No. 1, Page No. 1-17 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Comprehensive examination of all documents filed against a certain tract of land used for
Drilling purposes. Covers surface minerals, leasehold ownership, and overriding royalties…and, provides an opinion as to all mineral owners how they acquired their interests and all problems associated with their ownership
4 Basic Elements of Attorney’s Opinion: 1. ID’s ownership of lands:
1. Surface used for identifying the proper surface owner(s) for rights of ingress & egress for the oil company (i.e. surface location, lease roads, easements – both past and future)
2. and mineral ID’s all owners of minerals so that OGL leases can be secured from proper parties
2. ID’s evidence upon which he draws his legal conclusions 3. ID’s defects in title 4. Recommends how defects might be cured
Acquisition Opinions Drilling Title Opinions Division Order Title Opinions Drilling and Division Order Title Opinions Division Order Summaries Security or Financing Opinions Supplemental Title Opinions
Mineral Title Examination, Paper No. 1, Page No. 1-19 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Acquisition Opinions
Obtained prior to closing of an asset sale or stock acquisition** (note…lock-stock & barrell asset acquisition doesn’t necessarily require title opinion…might just have cursory title opinion or let the landman do his due diligence)
If acquiring proven/producing assets, the acquisition opinion may not ID surface ownership…i.e. usually will only pertain to seller’s working interest in the property (cost-bearing interest and working interest)
If acquiring unproven assets, acquisition opinion may take surface ownership into account
Also used to determine proven un-developed properties for additional drilling after acquisition
Usually limited to the sellers interest and its defects and limitations
Mineral Title Examination, Paper No. 1, Page No. 1-18 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Drilling Title Opinions
Prepared prior to the commencement of drilling operations
Examine all title repositories affecting proposed drill-site lands:
A. Fee titles, County Clerk or Registrar of the Deeds for that county, Borough or Township
B. BLM Public Rooms and online services for Federal Lands
C. State land offices for lands owned by the State (i.e. Commissioner land office OK, GLO Texas, Colorado State Board of Land Commissioners)
D. Companies selling online digital access to records in various counties
Examine BLM records, applicable state agency records, county recorder records (of which the land is situated in), and county clerk/assessor/treasurer records
Also focus upon easements, zoning restrictions and lease stipulations that affect the timing or location of drilling operations
Needs to accurately reflect the record ownership of both surface and mineral estates…including examiners comments upon title defects and recommendation(s) re: corrective action(s)
N/A for title issues relating to allocation of proceeds of production…however, due to advances in spreadsheets…revenue distributions are usually included
ALWAYS prepared by Attorney’s
Mineral Title Examination, Paper No. 1, Page No. 1-18||Paper No. 15, Page No. 15-1 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Drilling Title Opinions
SEE attached opinions
Mineral Title Examination, Paper No. 1, Page No. 1-18||Paper No. 15, Page No. 15-1 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Division Order Title Opinions
Prepared after well is drilled, when it is evident that well is capable of producing in paying quantities…deals with mathematical distribution of royalties
Based on Supplementing the prior Drilling Opinion by inclusion of all leasehold assignments, royalty conveyances, and other transactions to effectuate the drilling of the well
Report ownership of minerals produced from a property for purposes of proceed distribution
E.g. lessor’s royalties, working %’s, overriding royalties, production payments, net profit %’s, and other lease burdens
Usually report ‘net revenue %’ of each owner in decimal format, with a basis of 1.0 representing the whole mineral pie interests (**usually carried out to 7 or 8 decimal places)
Mineral Title Examination, Paper No. 1, Page No. 1-19 ||Paper No. 15, Page No. 15-1 (Rocky Mt. Min. L. Fdn. 2007).
25%
10%
20%
26%
18.75%
Net revenue % Working %'s #1 Bobby B
Carey C
Working %'s #2 Royalty %'s
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions
Division Order Title Opinions
Title comments focus less on surface estate and more on issues affecting the oil and gas leasehold interests and mineral/royalty interests
Used by corporate landman/division order analyst
Division order title opinion is usually delivered to a division order analyst, a more detailed mathematical and analytical person, whose main job is to cure the post production title defects and set-up the companies distribution, division of interest decks for each O&G well…this includes payments of royalties, overrides and working interests…this division order analyst is usually a more detailed land person whose job is to distribute revenue and proceeds to owners of leaseholds and is someone who is probably the most critical and most knowledgeable towards an attorney’s title opinion
Statutory Penalties for non-payment of revenue:
**Note – various states have enacted statutory penalties for non-distribution of royalties within a timely period and also they provide for immediate interests to accrue on royalties upon first sales at rates that do not exist in the current economic climate (i.e. 6% for royalty payments that are not paid immediately…and anywhere from 12-18% for royalties not paid within a certain specified period…this can be very costly to an O&G company on wells that are not producing but are distributing royalties upon first sales…and may even result in mal-practice in the future)
***Many consider this the HIGHEST state of the title examiner’s art***
Mineral Title Examination, Paper No. 1, Page No. 1-19 ||Paper No. 15, Page No. 15-1 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Drilling and Division Order Title Opinions
Most comprehensive title opinions
Combine elements of both drilling and division order title opinions into one
Are usually limited to the well drilled and the formation produced because most agreements for the operations are focused on the producing horizons
All title defects are discussed, including surface, mineral, and leasehold %’s
Distinguishes between requirements needing action prior to drilling and those requiring action prior to production proceeds
**Companies & attorneys are moving this direction…
The advent of spreadsheets & easier number crunching has helped drilling opinions become more comprehensive…thus, a drilling opinion needs less work to supplement it to a Division Order title opinion and usually the Division Order Analyst will prepare revenue distribution decks
**However, not that assignments and farmouts and joint operating agreements (JOA’s) can cause a complete different title than the original drilling opinion
Mineral Title Examination, Paper No. 15, Page No. 15-1 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Division Order Summaries
Prepared when:
1. Separate title opinions for different tracts have been previously prepared and are combined for a different unitized formation
2. Tracts are pooled and/or unitized voluntarily or statutorily
3. Client wishes to know how to distribute proceeds of production within a pooled, or unitized area
Mineral Title Examination, Paper No. 15, Page No. 15-2 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions or Acquisition tile opinions Security or Financing Opinions
Created in connection with mortgages of producing mineral properties and leasehold OR current or future production for project exploration and development (i.e. proven undeveloped leasehold [PUDS] or minerals)
Follow tabulation form of either Drilling Title Opinion or Division Order Opinion
Big difference these opinions are tailored for financial institutions AND the opinions are only direct at the interest of the borrower or debtor and not other involved parties within the well (e.g. Have working %)
Mineral Title Examination, Paper No. 1, Page No. 1-19 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Oil and Gas Title Opinions Supplemental Title Opinions
Prepared because an existing title opinion is too old to be relied upon or because drilling was postponed due to economics, current market conditions, or waiting on off-set well results towards proving up the new drilling activity
Relevant public records are searched & existing title opinion is updated/changed as need be
Any title issues that have arisen since previous title opinion should be discussed Issues and requirements from prior title opinions should be addressed and
restated Also accounts for ‘gate-crashers’ (i.e. people joining up at the last moment)…
holds everyone accountable Should examine the prior opinions to determine any and all limitations of the
prior examination, should further determine any inconsistencies from prior opinions to the present.
If prior opinion is limited…supplement the same to overall relevant title as to the new proposed operations
Mineral Title Examination, Paper No. 15 Page No. 15-2 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Format of Title Opinions: a. Legal Description b. Materials Examined c. Ownership d. Taxes e. Easements and Rights-of-Way f. Liens and Encumbrances
a. Prior O&G leases which are not released of record g. Current Oil and Gas Leases h. Current Assignments of Oil and Gas Leases i. Current Assignments of Overriding Royalty j. Title Comments and Requirements k. Summary of royalty, leasehold, and overriding royalty interests
(Gross interests and net interests)
Mineral Title Examination, Paper No. 15 Page No. 15-3/4/5/6 (Rocky Mt. Min. L. Fdn. 2007).
Mineral Title Opinions, Reports and Examinations
Format of Title Opinions: Title Comments and Requirements* 1. Patents
2. Delay Rentals
3. Lease Maintenance
4. Special lease provisions
5. Unrecorded assignments
6. Unreleased oil and gas leases
7. Unrecorded agreements
8. Zoning
9. Split-estate laws
10. Surface inspection
11. Limitations and exceptions
12. Joint Operating Agreements (JOA’s) 1. …same as above with the exception of requirements as to distribution of royalty
*comments commonly found in drilling and division order title opinions
Mineral Title Examination, Paper No. 15 Page No. 15-6/7/8/9 (Rocky Mt. Min. L. Fdn. 2007).