CHAPTER 6 PUTTING THE SUBSTANCE OF THE OPINION ON PAPER

• Jurisdiction: United States

Nuts & Bolts of Mineral Title Examination
(Apr 2015)
CHAPTER 6
PUTTING THE SUBSTANCE OF THE OPINION ON PAPER
Sheryl L. Howe
Shareholder
Welborn Sullivan Meck & Tooley, P.C.
Denver, Colorado

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SHERYL L. HOWE is an attorney with the Denver law firm of Welborn Sullivan Meck & Tooley, P.C., where her practice focuses on oil and gas, including title, transactions, and royalty issues, along with a variety of other real property matters. She has practiced law in Denver since 1982 and has worked on oil and gas and natural resources matters throughout her legal career. Ms. Howe received her B.A. with honors from the University of Iowa in 1979. She attended the University of Colorado Law School and received her Juris Doctor in 1982. She is licensed to practice law in Colorado and Wyoming.

Table of Contents

I. Introduction

II. Overview of Contents of a Title Opinion

III. The Opinion is a Snapshot of Ownership at a Certain Time

IV. Ownership Schedules

A. Preparing the Ownership Schedules

B. Footnotes in the Ownership Schedules

C. Spreadsheets

V. Title Comments and Requirements

A. The Purpose of Comments and Requirements

B. Format of Comments and Requirements

C. Deciding What Comments and Requirements Need to be Included in the Opinion

D. Organizing Comments and Requirements

E. Drafting the Comments

F. Drafting the Requirements

G. The Client Makes the Decisions about Waiving Requirements

H. Summarizing Comments and Requirements from Prior Opinions

VI. Call the Client Regarding Major Title Defects

VII. Conclusion

I. INTRODUCTION

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When you have finished examining all the documents and chaining the title, it's time to prepare the opinion. Your title chain and notes from the examination will have all the information you need to prepare the title opinion.

This paper will describe how to prepare the title opinion, including how important the ownership schedules are, and how to prepare comments and requirements. The goal is to provide a practical summary of how to write a title opinion.

II. OVERVIEW OF CONTENTS OF A TITLE OPINION

The title opinion includes the following information:

(a) surface, mineral and leasehold ownership of the property;

(b) encumbrances which may affect title to the property, including taxes, mortgages and liens, easements and rights-of-way, and unreleased mineral leases;

(c) the status of surface, mineral and leasehold title to the property, including specifically any title defects;

(d) required actions to cure title defects and to enable the company to meet its objectives;

(e) title comments giving helpful information for company personnel.¹

III. THE OPINION IS A SNAPSHOT OF OWNERSHIP AT A CERTAIN TIME

The title opinion necessarily will show ownership and the status of title as of a particular time. This date is the certification date of the opinion, and it will be the same as the certification date of the abstract, status report, or other title materials provided to the title examiner, or the date the records are certified to for a stand-up examination. If any records are available on line, such as the North Dakota Recorders Information Network (NDRIN), you may want to search those to update the certification date of the abstract to a more current date. It is important to state these certification dates in the title

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opinion. You will need to know the certification date if the title opinion is updated in the future.

There are other dates on which the examiner will focus while analyzing the title. For example, the examiner will ask, who owned the minerals on the date the lease was executed? You have to focus on how title was owned at certain points in the chain of title, to be sure the leases or other documents were taken from the correct owner at that time. But the title opinion will show title as of the certification date of the title materials provided to the examiner.

IV. OWNERSHIP SCHEDULES

A. Preparing the Ownership Schedules

The ownership schedules are the key part of the opinion, because they state the title examiner's main conclusions. I like to calculate the ownership schedules before I start drafting the opinion, soon after finishing the title examination and chaining the title. As you review the chain of title and make your conclusions regarding ownership, you will find points to note that may become comments and requirements in the opinion. It is helpful to keep a separate list of these issues as you work on the ownership schedules.

The title opinion will usually cover surface, mineral, and oil and gas leasehold ownership. There may be variations from these categories, in an acquisition title opinion or other specialized opinion. A drilling title opinion or a division order title opinion (and these are often combined into one opinion in current practice) will include surface, mineral and oil and gas leasehold ownership schedules.

If mineral ownership breaks down into different parcels within the lands covered by the opinion, it is customary to define tracts in the opinion, with a description of all of the tracts at the beginning of the opinion. I was taught by a client that it is also customary to number or letter the tracts beginning with the NE/4, then to the NW/4, then SW/4 and SE/4 of the section, similar to how the sections are arranged in a township.

The surface owners and mineral owners will be listed in the ownership schedules. If there are several tracts, the mineral ownership is listed for each tract separately.

The oil and gas leasehold ownership schedule shows the owners of the right to drill for and develop oil and gas on the lands covered by the opinion. It also shows owners of non-cost bearing interests in the leases and lands, such as royalty and overriding royalty interests. Title examiners have different methods of showing leasehold ownership. I prefer to show all of the working and net revenue interests in the lands or tract on one schedule, which totals 100%. An example is as follows:

OIL AND GAS LEASEHOLD OWNERSHIP;

Owner	Working Interest	Net Revenue Interest	Lease
ABC Oil Company	50.000000%	43.750000% WI	1
(50% WI × 87.5% NRI OGL)
XYZ Resources Company	25.000000%	20.000000% WI	1
(25% WI × 87.5% NRI OGL) -- (25% × 7.5% ORR)
NOP Development Company	25.000000%	20.000000% WI	1
(25% WI × 87.5% NRI OGL) -- (25% × 7.5% ORR)
John Doe	3.750000% ORR	1
(7.5% ORR × 50% WI)
United States of America	12.500000% R	1
(100% MI × 12.5% R)
Totals:	100.000000%	100.000000%

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It is helpful to include the arithmetic for the calculations relating to each interest, and to identify the lease applicable to each interest. This information makes it easier to understand the ownership schedule, and, if questions arise later this information helps the examiner and the client more quickly understand the ownership.

The oil and gas leasehold ownership schedules may be limited by depth or formation, they may be divided into a schedule for before payout and one for after payout of a well, or they may be limited to production from a particular wellbore. If any of these limitations apply, the ownership schedules need to be clearly labeled to show the limitations, and usually in such cases there will be several oil and gas leasehold ownership schedules. Unless the client has asked you to do otherwise, the oil and gas leasehold ownership schedules together, as a whole, should cover all depths, before and after payout, and all interests in the lands covered by the opinion.

Occasionally a client will request that you not cover ownership below a certain depth, or that you exclude an existing well from the opinion, in which case these limitations need to be clearly noted in the ownership schedules. The problem with these limitations is that if later the client decides to drill to a deeper depth, or wants to know who owns those rights, the abstract or other title materials need to be reexamined if the complete ownership picture was not reported in the original opinion.

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The format set out above is one way to show the oil and gas leasehold ownership. Other title examiners show leasehold or working interest ownership, royalty ownership and overriding royalty ownership in separate subsections of the oil and gas leasehold ownership schedules.

Whatever format is used to show oil and gas leasehold ownership, it is important to include enough information regarding overriding royalty...