CHAPTER 1 SECURING THE CORPUS--AN INTRODUCTION TO THE HISTORY AND BUSINESS PURPOSE FOR MINERAL DEVELOPMENT TITLE OPINIONS

• Jurisdiction: United States

Mineral Title Examination
(Feb 2012)
CHAPTER 1
SECURING THE CORPUS--AN INTRODUCTION TO THE HISTORY AND BUSINESS PURPOSE FOR MINERAL DEVELOPMENT TITLE OPINIONS
C. Elaine Carleton
Carleton Gotlin Law P.C.
Denver, Colorado
Robert D. Comer
International Tower Hill Mines Ltd.
Englewood, Colorado

C. ELAINE CARLETON, is an Attorney with Carleton Gotlin Law PC in Denver, Colorado. Her practice primarily focuses on the upstream side of oil and gas development. She has extensive business and legal experience in all aspects of the oil and gas industry, including acquisition/divestment, exploration, development, marketing, and transportation. With 30 plus years of practical experience, she has developed a practice that emphasizes her background in title examination, drafting, reviewing, and negotiating oil and gas industry contracts for drilling, development and exploration. Elaine administers and directs the resolution of various legal issues relating to exploration and drilling, including surface and mineral owner conflicts, title defects, and oil and gas transactional issues. Originally from Midland, Texas, Elaine graduated with a PLM from the University of Texas and began her career at ARCO where she spent over a decade establishing her foundation in oil and gas. In 1991, Elaine relocated to Denver to attend law school at the University of Denver while working for Apache Corporation, Basin Exploration, Inc., and Amoco Production Company in Denver. In 1995, she received her J.D. and was admitted to practice in Colorado, and in May 1996, she was admitted to practice law in Texas. Elaine was the managing partner of Akers & Carleton, LLC for nine years before starting Carleton Law Firm LLC in 2008. Elaine is now the managing partner of Carleton Gotlin Law PC.

ROBERT D. COMER is Chief Administrative Officer and General Counsel for International Tower Hill Mines Ltd. Bob also has served in senior leadership positions at the Department of the Interior and a Fortune 500 mining, mineral processing and specialty metals company. Most recently, Bob was a partner with the international law firm of FaegreBakerDaniels. In these roles, Bob has counseled industry and government executives and litigated a wide array of matters, including mining, oil & gas, energy, public land, endangered species, water and other environmental and land use matters. He is considered a leading expert on natural resource permitting, NEPA and environmental issues facing industry and has written and spoken extensively on these issues. Bob has served as a Trustee to the Rocky Mountain Mineral Law Foundation and Chair of the ABA Committees on Mining, Public Lands and Resources, and Water Quality and Wetlands.

I. INTRODUCTION

The Rocky Mountain Mineral Law Foundation conducted its first Mineral Title Examination Special Institute in 1977. This is the fifth Mineral Title Examination Special Institute devoted solely to matters of mineral title. In fact, the first paper presented at the very first RMMLF Annual Institute in 1955 was an examination of mineral title. The attendance at this fifth RMMLF Special Institute on Mineral Title Examination has more participants than have attended some prior Annual Institutes! And for good reason - title is the very foundation of mineral development projects.

The mineral estate is the corpus of mineral development projects, and secure mineral title is essential to project fundamentals and modern financing requirements. Without "good" title, there is no project. As the scale of mineral projects has increased, so has the volume and importance of mineral title examination.

In 1977, when the first mineral title program was offered, a typical oil and gas well was drilled on a quarter section to several hundred feet in depth. Today, the title examiner will receive three to eight banker boxes of material for examination for a hydraulic fracturing well to be drilled more than a mile deep through multiple bearing formations and often covering two full sections. Much history is contained in those banker boxes.

Likewise, the consolidation of small underground mines within a mining district into a single large open pit operation involving many square miles had begun. Today, large high volume, low grade orebodies extend for tens of square miles, with a large land area devoted to mining, mineral beneficiation and processing, and the management development rock and mill sands, which lands also must be examined for land and mineral title.

With the CAPEX cost for a modern large mine with state of the art environmental controls exceeding One Billion Dollars and the cost of a modern oil or gas hydraulic fracture well between two and ten Million Dollars, good title is essential given the scope of these investments. Title work for large modern projects is a significant undertaking, involving teams of lawyers, landmen and other professionals. Likewise, although not covered in this Special Institute, water title represents an entirely separate issue that also must be evaluated.

Generally speaking, there are four types of title assurance in real property transactions: (1) warranty deeds; (2) title certificates under Torrens land registration system; (3) attorney title

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opinions based primarily on public real property records; and (4) title insurance.¹ This program focuses almost exclusively on mineral title assurance through title opinions and the general process and analysis involved in title opinion examination and preparation, including consideration of the business issues and risks associated with securing the corpus for the modern mineral development undertaking.

A common question is "Why not just buy title insurance?" There are several reasons. Most title insurance policies exclude and/or except minerals from the policy coverage and do not cover mineral title ownership. The mineral estate can be split from the surface estate, often termed a split estate, and with the mineral grant or reservation, or even the possibility thereof buried deep in the chain of instruments, the practice of excluding minerals from title insurance policies became common.

Title insurance policies specifically exclude defects and encumbrances in the title chain. Additionally, title insurance policies only insure the owner for a definitive amount of loss and for the specific loss occurrences stated in the policy. In contrast, a title opinion should identify and reflect discoverable defects of title, detail the impact of those defects and suggest methods of resolution in the form of required or suggested curative documents and procedures.² Title insurance will not salvage a modern mineral development project from deficient title.

II. THE ORIGIN OF TITLE

Black's Law Dictionary defines Title as the legal evidence of a person's ownership rights in property. Those ownership rights are the union of all elements constituting the legal right to control and dispose of property.³ In old English days, evidence of title was the actual possession of the land. Title was passed by a ceremonial act called livery of seisen wherein a part of the land (dirt or branch) was delivered by the seller to the buyer.⁴ Eventually, written documents began to take the place of this act of the earthen delivery.

The English Statute of Frauds and Perjuries of 1677 required all land transfers and encumbrances to be in writing.⁵ This practice and the underlying theory of written transactions evolved into the modern Statute of Frauds. Once contracts for land were required to be written, there was a need for public record systems to preserve the evidence of title.

In the United States, other than the original 13 states, some Spanish land grants and in Texas, title begins with the original grant as a patent from the United States,⁶ establishing that the sovereign conveyed legal title to the land, typically including the mineral estate. The mineral estate, or a fraction thereof, may be the subject of a separate sovereign or private grant, reservation or exception.

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III. THE TITLE OPINION AND ITS RELATIONSHIP TO MARKETABLE TITLE

A title opinion is a formal written statement of opinion by an attorney as to the current state of legal title to the land, minerals, royalty, or working interests.⁷ The title opinion advises the client of title defects and irregularities that might affect title and recommends curative steps for significant title defects, and is subject to limitations based upon the title documents reviewed and other reservations, qualifications and exceptions.

Except for title directly from patent, there likely is no such thing as truly perfect title as most title is not free of all flaws or defects, both of record and in fact.⁸ As such, Marketable title is the most common standard used in the examination of title.

Black's Law Dictionary defines Marketable Title as a title that the reasonable buyer would accept because it appears to lack defect and to cover the entire property that the seller has purported to sell. Williams and Meyers state a view of marketable title as "title which is free from reasonable doubt and will not expose the party who holds it to the hazards of litigation."⁹ Another common version of the marketable title formulation is that quality of title which meets the contractual obligation of a seller in the usual real estate contract.¹⁰ Despite this array of definitions and modern practices, actual marketable title can be elusive, and may be somewhat a function of the risk acceptable to the buyer and state law requirements.

Several states have Marketable Title Acts patterned after the Model Marketable Record Title Act from the 1960's.¹¹ The "Model Act" serves as a statute of limitation by barring any claims not filed within the period, and also as a curative statute by extinguishing title defects arising beyond the statutory period.¹² Pursuant to the "Model Act," a landowner with an unbroken chain of title of record...