CURING TITLE DEFECTS PURSUANT TO TITLE OPINIONS
| Jurisdiction | United States |
(Feb 1992)
CURING TITLE DEFECTS PURSUANT TO TITLE OPINIONS
Phillips Petroleum Company
Houston, Texas
TABLE OF CONTENTS
Objective and Purpose of the Title Opinion
Role of the Examining Attorney and the Marketable Standard
Role of the Landman/Division Order Analyst (Client) and the Business Risk Standard
Considerations in Drafting the Opinion
Who Will Use the Opinion?—The Investigative Team
The In-House Landman
The In-House Attorney
The In-House Division Order Analyst
The Independent Landman/Broker
Interactions of the Investigative Team
How Knowledgeable is the Key Contact?
Years of Experience
Formal Education
Type of Experience
Knowledge of Pertinent Law
How Will the Opinion be Used?
Identification of Acceptable Business Risk
Permanent Record of Curative Actions and Documents
Suggestions for Drafting Title Opinions and Title Requirements
Indicate the Relative Impact of Title Defect on Ownership Interests
Provide the Rationale Behind the Setting of the Requirement
Trust Your Instincts
Be Specific When Appropriate
Offer Alternatives
Show Ownership Calculations
Ensure Accuracy
[Page 10B-ii]
Solicit Review and Confirmation of Findings
When Writing Supplemental Opinions Show How Prior Defects were Resolved
Provide an Historical Synopsis
Communicate Problems Verbally
Expressly State All Assumptions
Stay Focused
Limit Usage of Legalese
Landman/Division Order Analyst Considerations in Providing Information to the Examining Attorney
Formal Request
Title Information
In-House Files
Unrecorded Conveyance Documents
Contact List of Investigative Team Members
Curative Options Available to the Landman/Division Order Analyst
Title Requirement Categories
Critical Requirements
Necessary and Proper Requirements
Temporarily Waivable Requirements
Waivable Requirements
Types of Curative Actions
Curative Documents
Affidavits
Affidavit of Heirship
Affidavit of Identity
Affidavit of Use and Possession
Surface Use Affidavit and Inspection Report
Affidavit of Non-Development and/or Non-Payment of Rentals
Corrective Documents
Corrective Deed or Corrective Assignment
Stipulation of Interest
Ratification
Division Order
Amendment of an Oil and Gas Lease
Documents Divesting or Disclaiming Any Rights
Quitclaim Deeds
[Page 10B-iii]
Disclaimers
Quitclaim Assignment
Release of Oil and Gas Lease
Release of Deed of Trust
Miscellaneous Documents
Subordination of Mortgage
Tax Certificates
Releases of Liens
Permanent Easements
Tenant's Consent Agreement
Conclusions
Reference Guide
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[Page 10B-1]
Drilling and Division Order Title Opinions1 are promulgated to provide an historical analysis of the facts relevant to the ownership of a particular tract of land resulting in two specific end products. First, the ownership interests at the point in time examined are set forth clearly and concisely. Secondly, a listing of the problems identified during the analysis which may alter or impact the ownership interests is included. These problems are commonly referred to as "title defects" and must be resolved to ensure the ownership interests as calculated and established within the opinion are correct. The purpose of this paper is to identify the roles of the key players in this process, the manner in which the title defects are explained and the approaches to solving the defects from the point of view of the client who in most cases is represented by a landman or division order analyst.
OBJECTIVE AND PURPOSE OF THE TITLE OPINION
Role of the Examining Attorney and the Marketable Standard
When a client or company is planning on investing a fairly large amount of money in a property by drilling, it must first assure itself it has properly secured the appropriate oil and gas rights. The most common and safest approach is to have qualified legal counsel review all title records and transactions to develop a factual summary of the title history of the particular tract of land involved. Included in that process is a review of the legal documents and contracts by which the company claims to have secured the drilling rights and the rights to a portion of the production. The individual preparing this summary (known in the oil and gas industry as "rendering the opinion") is referred to throughout this paper as the examining attorney.
[Page 10B-2]
The role of the examining attorney is to establish the ownership of the property rights to be identified within the scope of the opinion. Normally this will include the mineral, surface and leasehold ownerships. The attorney conducts a detailed review of all title documentation, oftentimes literally hundreds of documents, using the title standards of his2 profession to accurately calculate the ownership interests and identify potential pitfalls for the client or company who hired him. There is nothing comparable to the type of intense scrutiny performed by the attorney in this effort. Because the review is so encompassing, the attorney becomes an expert on the title of the property. Over time, many people will rely heavily on the expertise of that individual attorney.
The examining attorney is obligated to provide his client with the highest quality product deliverable. In fact, only the examining attorney is qualified to assess the facts since only he has become intimately familiar with all the title data. In a way, this is the ideal situation for any professional — only the examiner will have the benefit of all the research completed, so few people will be able to question his conclusions.
How does the examining attorney know how far to go in setting down the facts? He must write his opinion to the standard known as "marketable" or "merchantable", which is defined as "a title so free from reasonable doubts that a prudent, informed purchaser would be willing to accept it."3 Most companies are willing to spend a reasonable amount of money to hire an attorney to perform this type of title review, thus providing the company a greater degree of assurance of its right to pursue a heavier capital commitment, such as a drilling investment.
Role of the Landman/Division Order Analyst (Client) and the Business Risk Standard
The people who may be in the unique position to question the conclusions of the examining attorney are those individuals who have also become familiar with the title to the property either by direct involvement at the time the oil and gas rights were secured or in the process of attempting to satisfy or "cure" the title defects identified by the examining attorney. These individuals are the landmen and division order analysts who act as the investigative team attempting to solve the title defects identified by the examining attorney.
[Page 10B-3]
The marketable standard used by the examining attorney establishes the breakdown of ownership interests which will occur if all title defects as set forth in the opinion are satisfied. It is the responsibility of the landman or division order analyst working with other company employees and industry participants to determine to what lengths they are willing to go to bring title from where it is at the point in time the opinion was rendered to where it will be before they proceed with further capital investments on the property. This standard is often referred to as the "business risk" standard and differs from company to company and from deal to deal.
CONSIDERATIONS IN DRAFTING THE OPINION
Who Will Use the Opinion? — The Investigative Team
When the examining attorney is hired to render a title opinion, the first question he must ask is who will be the person working with this opinion. The answer to this question will directly impact the approach the attorney takes and the degree of detail set forth in the opinion. There are generally four possible answers: the in-house4 landman, the in-house attorney, the in-house division order analyst and/or the independent landman/broker5 . Any or all of these players are referred to in this paper as the investigative team.
The In-House Landman
The in-house landman is the individual who in most instances originally contacts the attorney and requests the drilling title opinion. The landman is responsible for acquiring, managing and divesting the oil and gas rights held by the company which involve many activities in addition to securing and curing title opinions. Sometimes the landman is the same individual who was involved in acquiring the leasehold, so he may have some detailed knowledge of the title of the property. In other cases, this individual may have never been involved with the property. In either case, the landman is normally the examining attorney's key contact from the point the attorney is hired until the opinion is actually rendered. Usually the landman is also responsible for making sure the title defects are corrected within the parameters set by the company both as to business risk and as to timing.
[Page 10B-4]
The in-house landman can also be employed by a major oil and gas company, by a substantial independent company6 , or by a small independent company7 . Historically, the major companies have been less willing to take risks and more willing to expend funds in this effort. They generally desire a very detailed and thorough title opinion. The small independent companies are at the other end of the spectrum and want to make sure the greatest majority of their capital dollars end up in drilling operations so they are willing to take a greater risk of title failure and expend relatively fewer dollars in the effort. The substantial independent companies are somewhere in between. In all cases, however, it is still the responsibility of the examining attorney to provide a factual title opinion to the marketable standard; however, the degree to which the examining attorney is asked to aid in making the business risk decisions goes up as the company size goes...
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