Which Title Curative Issues Can Affect Drilling and Completion?
A well-rounded petroleum landman should be very familiar with the different categories of curing title issues and the different types of title defects (mineral and/or surface title, working interest title, royalty interests, joint operating agreement issues, oil and gas lease status and issues, recording and notices issues, intestate succession issues, probates, life estate issues, ancient defects, etc) that can affect the drilling and production phases of a well.
The following was taken from an article by Randolph L. Marsh:
“Once the title faults are identified, a producer and its landman and attorneys can seek to resolve these title faults by a variety of methods. The process is designed to correct any faults in the public record so that the public record reflects the actual ownership of the land. Therefore, documents missing from the record or substitutes for them are recorded, documents correcting mistakes are executed by the relevant parties and placed of record, and ambiguous ownership is corrected by agreements between the parties or by judicial action.”
There are generally two categories of title curative issues that appear in an attorney’s title opinion report (drilling order title opinion and a division of interest title opinion). However, there can be versions of each which apply to pre-drilling operations and pre-production phases.
Advisory
- Advisory
- Advisory Only
Requirement
- Necessary Requirement
- Critical Requirement
- Temporary Waivable Requirement
- Waivable Requirement
a. Is there a difference between a Temporary Waivable Requirement and a Waivable Requirement and can you think of an example?
Things to consider – is the answer yes, no, or it depends?
- Are Temporarily Waivable Requirements not necessary to cure before drilling the well?
- Should Necessary Requirements be resolved prior to the drilling of a well if possible?
- Should Critical Requirements be cured prior to drilling a well due to how they could affect the percentage of Working Interests and Net Revenue Interests that end up on the Division Order Title Opinion?
- Are Waivable Requirements generally considered low risk, such as no action will be taken prior to the drilling of a well or ever?
- Is an Advisory or an Advisory Only something that needs to be cured at some point in time or are these just comments that apply to the operator’s business risk issues?
- What are Ancient Defects and are they needed to be cured for drilling or producing the well?
Marketable Title
Marketable Title is the goal when Attorneys draft Title Opinions and when Landmen are trying to get all Necessary Curative Documents completed. What is Marketable Title?
- A Marketable Title is one that is: “… a record title that is free from reasonable doubt such that a prudent person, with knowledge of all salient facts and circumstances and their legal significance, would be willing to accept it. To be marketable, a title need not be absolutely free from every possible suspicion.” Tex. Title Std. 2.10.
- Another definition: “A Marketable Title is one free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record.” Okla. Title Std. 1.1 2.
- Marketable Title is defined under some state statutes. Some states have Marketable Title Acts which cut off claims that occur prior to a certain date, usually between 20 and 40 years. The definition of Marketable Title can also be seen in Case law. A definition of Marketable Title can also be found in Title Standards for states with Title Standards where we look at the qualities of a Marketable Title and/or the matters that make the Title unmarketable.
Examples
Example 1
You receive a Title Report. It shows the Mineral Owner to be Evelyn Harris c/o Charles Harris. The Mineral Interest is an undivided 50% of the NW/4 NW/4 of Section 7, T11N, R3W. You contact Charles Harris only to find out that Evelyn Harris is deceased. Further into your conversation you discover that Evelyn owned this property with her Husband Mike Harris who survived Evelyn.
Charles tells you that Mike died 5 years after Evelyn and that this mineral interest was in his Trust and all of it went to Charles according to the Trust. You asked Charles why the interest is still of record in Evelyn's name if she died before Mike and the interest was in a trust. He said that in her Will she gave all her interest to Mike.
Summary
- Evelyn and Mike were the Original Title Holders as Husband and Wife.
- Minerals were in Oklahoma where they both lived and died.
- Current Title Report showed Evelyn Harris the sole owner c/o Charles Harris.
- Evelyn had a Will, but it has never been probated which stated that her ½ of the mineral interest went to Mike Harris (husband) upon her death.
- Evenly and Mike are deceased, and Mike died 5 years after Evelyn.
- Mike did not have a Will at the time of death.
- Mike’s son, Charles said that all their interest went to his father after his mother died and was in Mike’s Trust and that Charles was the sole beneficiary.
- Evelyn and Mike had two children: Charles Harris and Susan Harris Miller.
Questions
- If Mike and Evelyn originally owned the property as Husband and Wife and Evelyn died before Mike, why is the property shown to be in her name only c/o her son, Charles Harris in a Title Report dated 4-17-2018?
- Shouldn’t the sequence of death have been Mike first then Evelyn since she is the Current Record Title Holder?
- And how did the interest get into Mike Harris’ trust if the Current Title is showing Evelyn Harris c/o Charles Harris?
- Is this mineral interest even capable of being leased?
- What steps, if any, should be taken to lease this mineral interest and who would sign the lease and what percentage of interest would they have?
- Do you have to do Title research to make sure Evelyn did not own it as her own sole and separate property and the Title Report was wrong?
Given what you know, describe the steps you would take to cure this Title issue and describe who you would lease and how much interest they would own.
Example 2
You receive a title report. It shows a note to there being a Stranger in Title who signed an oil and gas lease but was not in the Chain of Title – Susie King. You locate and contact Susie King because you see that the oil and gas lease is due to expire in 30 days and you want to inquire about a ‘Top Lease.’ In your conversation, you ask Susie how she got her minerals and she said that she inherited her mineral interest from her Uncle Bob.
Susie told you that her grandmother, through her probated Will, gave her Uncle Bob his interest. She said she thought Uncle Bob had a Will but wasn’t for sure. In addition, Susie said that her mother told her how much she owned because her mother owned a portion of the minerals as well and she was named in the Will. Susie said that she had never met Uncle Bob and that her boyfriend was a petroleum landman and his company took the lease with her.
Summary
- Susie King – Stranger in Title with a lease that is expiring in 30 days.
- Claims to have inherited her mineral interest from her Uncle Bob through his Will.
- No Probated Will for Uncle Bob exists in the county where the minerals are located.
- She said that her Grandmother’s Will gave the interest to Uncle Bob.
- She said her mother was named in Uncle Bob’s Will.
Questions
- Is it safe to take a top lease from Susie without the Will of Uncle Bob being probated in the county where the minerals are located?
- Is it even possible to take a lease before and without the proper documentation being in place Oklahoma laws on Intestate Succession?
- Is it safe to get a copy of Uncle Bob’s Will and go ahead with a lease referencing Susie’s interest in the Will?
- Since there were no other documents of record (just the existing lease with Susie), is this mineral interest even capable of being leased at this time?
Given what you know, describe the steps you would take to cure this title issue and describe what steps you would take to lease Susie.
To learn more about critical title defect issues along with how and when to cure them, visit our website at www.InstituteOfEnergyManagement.com. View our course catalog and chose the Title Curative Essentials.