I have good title - Where is my money?

Many questions arise concerning the approval of title for:

1. Acqquring an oil and gas lease.

2. Drilling a well, and

3. Production payments.

To simplify things, I refer to the title required to purchase an oil and gas lease as "Buy Title."

Buy Title is generally taken back to the approximate date of the first mineral reservation in the county - and then go back a little further. For example, in my home county, I take the title back to the first arms length transaction prior to 1900. In that manner, I can generally assure myself that all mineral conveyances/reservations will be captured in my examination of title to purchase an oil and gas lease.

Prior to a well being drilled, the Operator will order a "Title Opinion" from an attorney, who gives an opinion of the condition of title subject to certain comments and requirements. An oil company can not go out and purchase a title insurance policy on the drilling of a well. First, it would be prohibitively expensive and second, no insurance company writes that type of insurance.

The Title Opinion is based on either an Abstract of Title, or a runsheet with copies, generally prepared by a field landman. The Abstract goes back to the initial conveyance from the sovereignty and contains every document affecting the tract of land. I have personally prepared runsheet with copies that totaled over 7,000 pages.

The last Title Opinion that we worked, was over 126 pages of comments and requirements. Many people will say that the property has been in my family for 90 years. For example, if in 1889 a man and wife had the property and died, and afterwards 13 children executed a deed to the property, the deed was valid to those who had signed. What would happen if they had 14 children, the last one being a minor at the time of the conveyance and nobody ever went back to get the minor to join in the conveyance after the minor reached majority? Here is what happens. You actually own 13/14 of the surface and minerals. It is VERY difficult to adversely possess against a co-tenant, so it is almost certain that you do not own what you thought that you owned. That is just ONE example of hundreds that could make a title difficult, completely ignoring the issues of surveying.

Now that we have the drillsite Title Opinion rendered and the Operator makes a well, ANOTHER, supplemental runsheet is furnished to the examining attorney. At this point, he renders a "Division Order Title Opinion", which sets forth to whom and in what amounts the proceeds are to be disbursed, again subject to his comments and requirements, which either have to be satisfied or waived in order to send out Division Orders.

It's a bit more complicated than you think, especially when you think that you own all the minerals. Let us say that the oil company had three partners on different sharing percentages with different obligations to incentive royalty pools and royalty to originating geologists/geophysicists. Not impossible by any means, but it can get rather complicated and certainly time consuming.

In our lease form, we require payment within 120 days of the date of first production, or the lease will terminate. That is one reasonable alternative.