CHAPTER 16 CURATIVE DOCUMENTS AND TOOLS

• Jurisdiction: United States

Nuts & Bolts of Mineral Title Examination
(Apr 2015)
CHAPTER 16
CURATIVE DOCUMENTS AND TOOLS
Angela L. Franklin
Partner
David B. Hatch
Associate
Holland & Hart LLP
Salt Lake City, Utah

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ANGELA L. FRANKLIN is Partner with Holland & Hart LLP, in Salt Lake City, Utah. A Wyoming native from a multi-generational oil and gas family, she has over 23 years' experience representing oil, gas, and mining clients in virtually all types of acquisition, divestiture, exploration, and production transactions. Angela has extensive experience with title examination of private, federal, state, and Indian lands throughout the Rocky Mountain region and rendering drilling, division order, acquisition, and financing opinions. In addition, she advises clients in complex acquisition and divestiture transactions and prepares transaction agreements. Angela counsels clients and prepares a variety of upstream agreements including farmout, exploration, joint operating, participation, pooling, and unitization agreements. She has extensive knowledge of federal exploratory units and issues associated therewith. She assists clients' land and division order departments with all aspects of curative work, day-to-day operations, and leasing and conveyancing issues. She represents clients on matters involving well permits, spacing orders, force pooling, and field rules. Angela is admitted to practice in Wyoming and Utah. She has received numerous recognitions, including Best Lawyer in America 2014 Salt Lake City Oil & Gas Law Lawyer of the Year; Best Lawyer in America in Oil and Gas Law (2007-2013); Mountain States Super Lawyer in the area of Energy and Natural Resources (2008-2012); and recipient of the "Best Published Article in an AAPL Publication" Award: American Association of Professional Landmen (2005). She is an active member of the Rocky Mountain Mineral Law Foundation, American Association of Professional Landmen, and Utah Association of Professional Landmen. She has authored numerous papers and publications on behalf of the Rocky Mountain Mineral Law Foundation and the American Association of Professional Landmen on such topics as comparison of state laws on leasing, exploration, and production; curative documents and tools; pooling issues; and communitization agreements. Angela spends her free time with her family.

DAVID B. HATCH is an attorney with Holland & Hart LLP in Salt Lake City. He grew up in a multi-generational oil and gas industry family. Prior to law school, he worked as a ranch broker and an in-house landman for an independent oil and gas exploration company. His in-house background helps him understand his clients' business risks and how to provide more helpful and efficient counsel. In his legal career, he has focused his practice on all aspects of land with an emphasis on oil and gas title and transactions. He has experience with title examination on private, federal, state, and Indian lands and has rendered title opinions in Utah, New Mexico, North Dakota, Wyoming, Montana, and Nevada. In addition, he advises clients in complex acquisition, divestiture, and financing transactions and has considerable experience with federal lands and leases, drafting oil and gas contracts and agreements, performing title curative, and analyzing and researching complex federal and state specific title issues.

You have a defect now what do you do?

I. INTRODUCTION¹

This paper addresses common types of title defects encountered in title examinations and opinions and how to cure such defects. Title defects are usually identified in a title opinion rendered by a title attorney for a company and its landman; however, title defects are also often identified by the landman at earlier stages. Title curative is most frequently a joint effort of the attorney and the company or field landman. The attorney is responsible for identifying the defect and drafting and/or approving the curative document. The landman is also relied upon by the company to identify the defect and draft the curative document. Additionally, a company landman typically has a more complete knowledge of the company's holdings and future operations while the title attorney's knowledge may be limited to the lands and leases being examined. If the defect covers lands and leases outside of the coverage of the opinion, the landman (and title attorney if possible) should be cognizant of the need to include the additional

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lands and leases in the curative document and, most importantly, the impact the curative may have on the company's interest in the additional lands and leases. In the world of title curative, "one size does not fit all." It is important to understand at the outset that each title defect must be analyzed on its own legal and factual basis and within the context of the applicable state's laws.²

Each time a title defect is identified, the following questions should be addressed:

1. Whose and what interest does the title defect affect? This should be answered in the opinion; it should identify specifically whose interest is affected by the defect and what amount of the interest is affected.

2. Does the title defect need to be cured now? The type of opinion will give some indication of the urgency of the curative. If the purpose of the opinion is for acquisition of leasehold or mineral interests and the defect affects the seller's interests, it is easier to have the seller cure the defect now rather than waiting until years later and the seller no longer has any desire to assist in obtaining the curative. The seller will be motivated only so long as it has a financial stake in getting the curative done. If the opinion is for drilling purposes and the defect does not adversely change the company's working interest or net revenue interest, then it may be reasonable to wait to see if production is actually achieved before embarking on the curative efforts. If the opinion is for division order purposes, a title defect may require the suspension of production proceeds affected by the defect, frequently, being a great incentive for non-operators and royalty and overriding royalty interest owners to clean-up their title defects. Financing title opinions will require curing of any defects that adversely affect the secured party's net revenue interest.

3. What is the risk to the company if the defect is not cured? Although a title attorney's job is to identify every defect, some defects are of such a nature that failure to cure the defect will not cause any present or future harm to the company. The title attorney should give some indication as to the significance of the defect; this will be conveyed in the language of the requirement - "must" versus "suggest". If possible, a title attorney should indicate if there are reasonable alternatives to curing the title defect that can give the company some additional assurances. The ultimate decision to cure or not cure, however, is the company's decision and its willingness to assume any risk associated with not curing the defect.

This paper is not intended to be a "cure-all" paper. It is, however, intended to provide guidance and generally address the advantages and disadvantages of the various curative documents and curative actions available to the attorney and landman. Each state has its own set of statutes and case law creating many variations to the general rules for the curative documents and actions discussed below. Before embarking on a course of action, the applicable state's statutes and case law should be examined to determine the right approach to the title defect for the company.

II. CURATIVE DOCUMENTS

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A. General Rules

This portion of the paper assumes that all curative documents will be executed in compliance with the laws of the applicable state.³

1. Parties. The name shown in the document and in the signature block should be identical to the name in which title is held. If there are discrepancies in the chain of title as to a party's name, the instrument should include a representation identifying each variation and that the party is also known as each name variation.

2. Execution

Attorneys-in-Fact. The power of an attorney-in-fact to execute a document will be defined in the Power of Attorney and will be strictly construed. ⁴ Several states require recordation of the Power of Attorney in the county where the property is located. ⁵

Corporations. The appropriate officer or agent to execute a document on behalf of a corporation will be governed by the state in which the corporation is incorporated. Typically, a document should be executed by the president or vice president. However, the agent/officer's power and authority is set forth in either the corporation's governing documents (articles of incorporation and bylaws), statutory laws, ⁶ or a resolution of its board of directors. If required, the officer's signature should be attested and a corporate seal affixed.

Individuals. An individual executing a document should be an adult and competent to execute the document on his own behalf.

Limited Liability Companies. Typically, a document should be executed by a manager or, if there is not a manager, then by any member. ⁷ Similar to corporations, it is the LLC's governing documents (article of organization and

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operating agreement) and the state of organization's laws that determine who has the authority to execute the document on behalf of the company.

Limited Partnerships. The general partner of the limited partnership is the appropriate party to execute the document unless the authority is otherwise restricted in the partnership agreement. ⁸ A document executed on behalf of a limited partnership will also be governed by the state in which the partnership is organized.

Partnerships. Typically, a document can be executed by any partner unless otherwise restricted in the partnership agreement. ⁹ A document executed

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