CHAPTER 5 TITLE OPINIONS: TYPES, BASIS, FORMAT, AND INTENDED AUDIENCE

• Jurisdiction: United States

Nuts & Bolts of Mineral Title Examination
(Apr 2015)

CHAPTER 5
TITLE OPINIONS: TYPES, BASIS, FORMAT, AND INTENDED AUDIENCE
Paul Upsons
Member
Poulson, Odell & Peterson, LLC
Denver, Colorado

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PAUL UPSONS is a Member of Poulson Odell & Peterson, LLC in Denver, Colorado. He practices in the area of natural resource law. After being admitted to the Colorado bar in 1994, he practiced as a transactional and litigation attorney for several years in the areas of water law, zoning, and land use. Since joining the firm in 2001, Mr. Upsons has practiced in the area of oil and gas law, including title examination and the preparation of oil and gas title opinions. He is the updating author of the chapter on Bonds in The Law of Federal Oil and Gas Leases, and has written articles for The Colorado Lawyer and The Rocky Mountain Landman. Mr. Upsons has given presentations on real property and natural resources law issues to various organizations, including presenting a paper at the Rocky Mountain Mineral Law Foundation's 2007 Special Institute on Mineral Title Examination. He obtained a B.A. degree from the University of Denver in 1991, with a double major in History and English, and a J.D. degree from the University of Denver Sturm College of Law in 1994. While in law school, Mr. Upsons won first place in the Colorado Bar Association's Natural Resources Writing Competition. He is admitted to practice law in Colorado, Wyoming, and North Dakota, and is a member of the Rocky Mountain Mineral Law Foundation and the Natural Resources and Energy Law Section of the Colorado Bar Association.

After examining the instruments that affect the lands under examination, the title attorney must prepare a title opinion. This paper describes the evolution of title opinions, the intended audience of title opinions, the basis of title opinions, and the different types of title opinions. It also includes an outline of a drilling and division order title opinion.

I. THE EVOLUTION OF TITLE OPINIONS

The length and complexity of drilling and division order title opinions have generally increased with the passage of time. Comparing a hypothetical title opinion from 1960 with a present-day title opinion illustrates why. In 1960, the surface and mineral estates of Blackacre may have still been owned by the original patentee, or by the patentees' children. If the mineral estate of Blackacre was subject to existing oil and gas leases, those leases may have been recently executed, with a relatively short history of assignments to consider. Due to the paucity of instruments and issues to discuss, the 1960 title opinion would have been fairly straightforward and short. If one fast forwards 55 years to the present, much has changed. The patentees' children have probably conveyed their interests to various grantees, who have then conveyed fractions of those interests to other grantees. Now, instead of four mineral owners per tract, there may be fifteen or more per tract. Some mineral owners may have died, with no recorded information as to the identities of their heirs or devisees. Over the last 55 years, some of the "classic" title issues have probably arisen in the chain of title. A Duhig issue may exist, if a party reserved a fractional mineral interest when there was a previous reservation of a fractional mineral interest in the prior chain of title. A stranger to the title issue may exist, if a spouse who owned no record mineral interest in the subject lands co-executed a deed that contains a mineral reservation. If oil and leases were taken in the 1970's or the 1980's, and if those leases were held by production, there is probably a long chain of assignments of leasehold interests, and questions regarding the interpretation of some of those assignments. If top leases of older leases were taken, there may be questions as to which leases are presently effective. There may also be a question as to whether an overriding royalty interest in a bottom lease burdens a top lease under an "extensions and renewals" clause in the instrument that created the overriding royalty interest. Because these types of title issues (and potentially many more) can multiply with the passage of time, the present-day title opinion covering Blackacre is probably considerably longer and more complex than the 1960 title opinion.

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The number of separately-owned tracts within the lands covered by a title opinion can also affect the length and complexity of the opinion. In North Dakota, for example, a title opinion will commonly cover a 1,280-acre drilling unit. Those 1,280 acres may have been transferred into private ownership from the United States in eight separate patents. If four of the patentees separately conveyed the east and west halves of their respective quarter sections to other parties, those eight separately-owned tracts became twelve. If the subject lands contain a residential subdivision, and if the minerals in each subdivided tract were conveyed along with the surface, then one 80-acre tract could become twenty or more separately-owned tracts. Additional tracts can also be created if assignments of leasehold interests are limited to just part of the leased lands. If the lands under examination consist of thirty separately-owned tracts, the title opinion is essentially a combination of thirty separate title opinions in one, with a combined division of production for the entire 1,280 acres. Having a multitude of separately-owned tracts within the lands covered by a title opinion can increase the complexity and length of a title opinion, as well as the time required to prepare the opinion.

Advances in word processing technology have also played a role in the increasing length of title opinions. Older typewritten opinions were fairly labor-intensive to prepare, so those opinions were understandably more succinct. The advantages offered by today's word processing technology, including the ability to create title opinion templates and to cut and paste large amounts of information, make it easier for today's title examiner to include more detail in a title opinion.

II. THE INTENDED AUDIENCE OF A TITLE OPINION

The intended audience of a title opinion depends on the type of title opinion that is being provided. The audience for an acquisition title opinion is typically either a prospective purchaser of an oil and gas leasehold interest, or the prospective purchaser of a mineral interest. The audience for a security or financing opinion is typically a lender. The audience for a drilling title opinion or a division order title opinion is an oil and gas exploration company, which consists of several sub-categories of audiences. Division order analysts use the ownership section of a title opinion to determine which parties to pay, and which interests to place in suspense. The legal department of an oil and gas exploration company is interested in the title examiner's discussion of how the resolution of outstanding legal issues will impact ownership and title security. The legal department is also interested in the title examiner's assessment of the risk of taking no curative action, and its assessment of the relative risks associated with pursuing alternative curative actions that promise different levels of title security. The landman of an oil and gas exploration company is another important member of the audience. The landman will evaluate the title issues discussed in the title opinion, and coordinate the curative action that the title opinion requires. The title opinion should provide enough information to allow the landman to assess the seriousness of a title issue, and the relative

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importance of the interest at stake. It should also provide clear instructions as to how to accomplish the required curative action. The title opinion should be drafted with each of these potential audience members in mind.

III. THE BASIS OF TITLE OPINIONS

The title opinion is based primarily on an examination of the instruments recorded in the county records. (State or federal records must also be examined if state or federal lands are involved.) The instruments from the county records may be obtained in several ways. The title examiner may perform a "stand-up" examination, which requires a journey to the county recorder's office (or an abstract company's office) to compile and examine the instruments. This examination may involve pulling books from the shelves, viewing instruments on a computer, or some combination thereof. Anecdotal evidence suggests that stand-up title opinions are being prepared less frequently than they were in the past. In many areas of the country, it is more common for title examiners to examine abstracts provided by an abstract company. The abstracter will prepare an index of all instruments that were recorded against a particular tract of land, and assemble those instruments in a volume, or a set of volumes. A CD or flash drive with the electronic copies of the instruments may also be provided. Working from an abstract allows the title examiner to perform the examination in his or her own office. Although this method of document acquisition may be less "organic" than a stand-up examination, it eliminates travel time for the examining attorney, and it results in a well-organized compilation of instruments. If the client does not hire an abstracter, it may have one of its own landmen compile the instruments from the county records and send those instruments to the title examiner. The landman will usually provide some form of runsheet or index with the instruments. The formality of this index may vary from landman to landman, but it is typically less formal than the index provided by an abstract company. There will be little difference between the instruments provided by the landman and the instruments provided by the abstract company, assuming that the...