CHAPTER 19 ETHICS AND EFFICIENCY IN MINERAL TITLE EXAMINATION
| Jurisdiction | United States |
(Jan 2014)
ETHICS AND EFFICIENCY IN MINERAL TITLE EXAMINATION
Lohf Shaiman Jacobs Hyman & Feiger PC
Denver
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DAVID G. EBNER is a Shareholder with Lohf Shaiman Jacobs Hyman & Feiger PC in Denver. Mr. Ebner negotiates and documents exploration and production deals around the world. He has devoted a substantial amount of time to coal, uranium, and hard rock transactions over the years, but the majority of his practice now focuses on oil and gas. For the past decade, he has worked on increasingly unusual transactions, especially custom production sharing agreements with foreign governments and sophisticated vendor finance transactions for domestic drilling, but he still does title opinions, farmouts, and other everyday oil and gas work. Mr. Ebner relishes the challenge of taking complicated business transactions and distilling them into clear, logical documents. He enjoys the chance to work with clients who know and appreciate high quality documentation prepared under tight time constraints, as well as the chance to work with other members of the relatively small natural resources legal community, many of whom are personal friends. Mr. Ebner graduated from Brown University in 1973 and Harvard Law School in 1976. He has served as chair of the Mineral Law Section of the Colorado Bar Association, president of the Rocky Mountain Mineral Law Foundation, AMAX Distinguished Natural Resources practitioner-in-residence at the University of Denver Sturm College of Law, and as an adjunct faculty member at the University of Denver teaching the negotiation of Natural Resources Agreements.
Thirty years ago, Jeff Morgenthaler could advise title examiners:
Do not question the conclusions of the last title examiner unless they are patently screwy. Accept his conclusions, state that you are doing so, and get on with it. If he has made a requirement that you feel is unnecessary or a comment you feel is history or showoff, delete it from your opinion without remark.1
This was an arresting statement even in 1982, suggesting that red flags, internal inconsistencies, and other concerns that fell short of a "patently screwy" threshold ought not only be ignored, but actually ought to be used as the foundation for new title opinions. At first blush, it just seemed wrong that lawyers should willfully ignore possible problems, without undertaking a zealous effort to uncover the truth.
On reflection, though, it became clear that Jeff's message was not a call to careless, slovenly behavior, but instead another aspect of his overarching view that title examiners should take a practical approach to their task. People were aware of the conclusions reached in the prior opinion without starting lawsuits, oil companies drilled wells and allocated production proceeds, and everyone lived a life of blissful contentment: why then should a title examiner go out of her way to disrupt this harmony? How much time and money should be spent chasing a possible error or satisfying an examiner's curiosity, if there is no obvious reason to believe something wrong?
But today the harmony is being disturbed by larger horizontal well spacing units, which can cover more than an entire section of the government survey and which almost always involve lands in more than one vertical well unit. In these situations, the examiner frequently is given a stack of prior vertical well opinions to be integrated and updated in preparing a new title opinion for the larger horizontal well unit. When considered together, the prior opinions may directly conflict or present inconsistent information, leaving the examiner with a clear sense that something is amiss somewhere. Looking at these prior opinions thus becomes an exercise in distinguishing the "patently screwy" from the merely troubling. At the same time, the larger horizontal units change the stakes in making these decisions, since the horizontal wells are many times more expensive than the earlier vertical wells and are drilled with a truly astonishing density, resulting in breathtaking aggregate production values.
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Modern drilling techniques present many more opportunities today for discovering inaccuracies in prior title opinions, giving rise to ethical concerns in deciding how to deal with the prior opinions and how to prepare the new opinion. Where inaccuracies are discovered, the oil company, already impatient with the time required for updating title to such large tracts, faces the increased time, effort and cost involved in reviewing hundreds of pages of previously reviewed documents and in determining how the prior opinion conclusions were reached. That, in turn, opens one of the fundamental questions that distinguish ethical systems: is ethics about the outcome to all or the outcome to each?
Identifying Past Errors and Avoiding New Errors
It is hard to find a title opinion without an error. Most commonly, the errors are insignificant, like misspellings, omitted or extra spaces, or formats that are out of alignment. The hallmark of these common errors is their obvious nature--they can always be detected by good proofreading, whether by the author, a support staff member, or any other cold reader. This is simply everyday copy editing that can be done by any literate person with an ear for language, but if that proofreading isn't done, and often even when it is done, errors will appear. Because the errors are so obvious, they're embarrassing, but they don't generate any real risk, since they're self evident.
Another class of errors involves those that might not be apparent to a copy editor, but which are obvious to an experienced landman or title examiner willing to give a little thought to the matter. Readers who know how an opinion should work can spot burdens that appear in the assignment history, but don't appear in the burden tabulation, or overriding royalties that are shown as borne by all working interest owners, but actually are disproportionately borne. Recognizing that such mistakes happen, some law firms insist upon a cold reading by another title examiner in the firm before an opinion is transmitted, while solo practitioners often work with landmen or are extra careful in their own proofreading to achieve the same end. These errors are of greater concern, because, while they can be spotted by experienced readers who take the time to think, not all readers have such time.
The common trait of all these easily catchable errors is their transparency: they can be identified solely by looking at the opinion itself, without the need for any additional information. In theory, every one of these errors can be caught, although they still crop up with annoying frequency in actual practice.
More troubling problems lie outside these easily catchable categories: errors that cannot be identified except by reference to external materials, and even then often only with extensive analysis and manipulation of those materials. These errors can be simple, like a missed reservation clause, or hard, like a misapplication of a rare common law principle, but their common trait is they cannot be identified without knowing the contents and circumstances of the concerned instrument.
That means, in the first instance, that the title examiner must receive the instrument or, in the case of early instruments, an accurate abstract thereof. Sometimes, in the heat of trying to complete the task in the quickest and least expensive fashion, a company or title examiner may fire off an abstract request without carefully considering the instruments that should be included
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or excluded. Are security interests in fiber optic cables located within easements ever going to be necessary? Perhaps, in opinions prepared in contemplation of surface mining, but not usually where oil and gas drilling operations are contemplated. The best preliminary test for instrument inclusion asks how the company would like the information in those instruments to be presented in the opinion; if the oil company does not want a section on encumbrances burdening improvements in easements, then the instruments should not be requested in the first place. Including those instruments in the request increases the cost and the bulk of the materials, while including the information in the opinion makes the opinion itself longer and more complicated than it needs to be.
On the other hand, requesting too little can be even more dangerous, especially if the limitations are hastily copied from a previous request, without pausing to consider the present circumstances. For example, it's not unusual to exclude coverage of subdivision surface, at least where that surface will not be used for drilling or production facilities. This can cut out hundreds of pages of deeds and mortgages that are wholly irrelevant to planned operations. In the heat of the moment, however, that instruction may be shortened to "no subdivision materials." If that occurs, the examiner may not see the deeds by which the developer first conveys lots to builders; if there is no mineral reservation in those deeds, the minerals will pass to the builders, but the examiner won't know it. From there, the examiner certainly will not see the deeds by which the builder conveys individual lots to home buyers, sometimes with and sometimes without reservations. The resulting division of production will be a disaster, but the most striking thing is that, based solely on the materials in the abstract, the division will appear perfect. Minerals were in the hands of the developer and, because the subdivision deeds were not contained in the abstract, the minerals will appear to stay in the hands of the developer. Even worse, the developer may have conveyed part and reserved part of the minerals in those early builder deeds, so that there is an ongoing stream of mineral conveyances by the developer to key...
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