CHAPTER 15 PUTTING IT ALL TOGETHER: INCORPORATING THE INFORMATION OBTAINED FROM A TITLE EXAMINATION INTO A TITLE OPINION
| Jurisdiction | United States |
(Sep 2007)
PUTTING IT ALL TOGETHER: INCORPORATING THE INFORMATION OBTAINED FROM A TITLE EXAMINATION INTO A TITLE OPINION
Attorney at Law
Poulson, Odell & Peterson, LLC
Denver, Colorado
Paul Upsons received his undergraduate and law degrees from the University of Denver. He practiced as a transactional and litigation attorney in the areas of water law, zoning and land use for several years. He is presently a partner with the firm of Poulson, Odell & Peterson, LLC, where he has worked for six years in the area of oil and gas law, with a focus on drafting title opinions. He has published articles in The Colorado Lawyer and The Rocky Mountain Landman, and is the updating author for the chapter on Bonds in the Law of Federal Oil and Gas Leases. Mr. Upsons has given presentations on natural resources and real property issues to various professional organizations. He is admitted to practice law in Colorado and Wyoming, and is a member of the Rocky Mountain Mineral Law Foundation.
Once the instruments affecting the lands under examination are obtained, the examining attorney must prepare a title opinion based on those instruments. This paper describes the different types of title opinions, and explains the format of a drilling and division order title opinion. It also briefly addresses farmout agreements as an example of a non-record title consideration that can affect the information contained in a title opinion.
I. THE DIFFERENT TYPES OF TITLE OPINIONS
A. Drilling Title Opinions
A drilling title opinion is prepared prior to the commencement of drilling operations. Its primary purposes are to discuss potential legal obstacles to drilling, such as unleased mineral interests and defects in title to the operator's working interest. Drilling title opinions also focus on matters such as surface ownership, easements, zoning restrictions and lease stipulations that affect the timing or location of drilling operations. A drilling title opinion does not address title issues that pertain solely to the allocation of proceeds of production, and it does not contain a division of production section which summarizes the parties' net revenue interests.
B. Division Order Title Opinions
A division order title opinion is prepared after a well is drilled, typically when it becomes evident that the well is capable of producing in paying quantities. The division order title opinion contains a division of production section which sets forth the net revenue interests of the owners of royalty, overriding royalty and working interests. Title comments and requirements focus less on issues affecting the surface estate, and more on issues affecting the oil and gas leasehold interests. The opinion should provide enough information and analysis of the title defect to allow the client to evaluate the relative urgency of instigating curative action, and the propriety of placing proceeds of production in suspense until the title defect is cured.
C. Drilling and Division Order Title Opinions
Drilling and division order title opinions are the most comprehensive title opinions. They combine the elements of a drilling title opinion and a division order title opinion. All forms of title defects are discussed, including those pertaining to surface, mineral and leasehold interests. The opinion will distinguish between those requirements that must be satisfied prior to the commencement of drilling operations, and those that must be satisfied prior to the distribution of proceeds of production.
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D. Division Order Summaries
Division order summaries are prepared when: (1) separate title opinions for different tracts have previously been prepared; (2) the tracts are subsequently pooled; and (3) the client wishes to know how proceeds of production should be disbursed from a well drilled in the pooled area. Division order summaries can also be prepared to provide a division of production table for an entire participating area within a unitized area, if title opinions have previously been prepared for each tract in the participating area.
The division of production table contained in a division order summary apportions the proceeds of production on an acreage basis. Title comments and requirements from the underlying title opinions are not reiterated, but the division order summary is made subject to the satisfaction of those requirements. The comments and requirements contained in a division order summary are typically limited to issues pertaining to the successful pooling or unitization of the lands under examination.
E. Acquisition Title Opinions
Acquisition title opinions are typically prepared to determine title to an unleased mineral interest that the client is interested in leasing, or to determine title to a particular leasehold interest that the client is interested in purchasing. As such, acquisition title opinions focus on defects that pertain to the mineral interests to be leased or the leasehold interests to be acquired.
F. Security or Financing Opinions
The security or financing opinion is prepared in connection with a loan transaction that is secured by the borrower's interest in an oil and gas lease. The opinion focuses on whether the lender will have a paramount lien on the leasehold interest. As such, the opinion deals with title issues that affect the borrower's interest. It sets forth the borrower's interest in the lease and the royalty and overriding royalty interests that burden the borrower's interest. Other liens and encumbrances that burden the borrower's interest are also discussed, including liens on personal property that can be ascertained from a search of Uniform Commercial Code records.
G. Supplemental Title Opinions
A supplemental title opinion is prepared when an existing title opinion is too old to be relied upon as an accurate reflection of the present title. The relevant public records are searched since the effective date of the underlying opinion. The supplemental opinion reflects any changes in ownership, and discusses any title issues that have arisen since the effective date of the underlying opinion. It also addresses whether the requirements that are contained in the underlying opinion are satisfied, partially satisfied or unsatisfied. New title issues are addressed in an "additional title comments and requirements" section.
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II. THE FORMAT OF TITLE OPINIONS
Although the format of title opinions can vary from one law firm to another, most title opinions are similar in terms of their organization, layout, and the general categories of information that are discussed. The following is a description of the format of a typical drilling and division order title opinion. A sample drilling and division order title opinion is also provided at the end of this paper.
A. Legal Description
The title opinion begins with a description of the lands under examination and the acreage content thereof. If any resurvey lots are covered by the opinion, the acreage content of each resurvey lot should be provided. If all of the lands under examination are not owned in common, the opinion divides the lands into separate tracts and provides an ownership summary for each tract.
B. Materials Examined
The materials examined section describes the information that the attorney examined in preparing the title opinion. It describes the examination of the county records and the date to which the county records were posted at the time of the examination. It also describes the examination of the county treasurer's records for tax payments, the examination of the district court records for judgments, liens and probates, and any non-recorded instruments that the client provided to the examining attorney. Any additional searches conducted by the examining attorney (such as a search of the...
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