American Association of Professional Landmen

Disclaimer

The information presented in this book and during the workshop is intended solely as a general overview of selected issues commonly associated with land matters encountered by land professionals. AAPL makes no representations with respect to the contents hereof and specifically disclaims any implied or express warranties of merchantability, accuracy, precision and/or usefulness for any particular application or purpose.

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American Association of Professional Landmen

4100 Fossil Creek Boulevard

Fort Worth, Texas 76137-2791

Telephone: 817.847.7700

Table of Contents

Courthouse Records & Ownership Reports

Client Standards

Instructions to Brokers, Field Landmen and Attorneys

Instructions to Brokers or Field Landmen

Title Opinions—Form and Substance

Drilling Title Opinions

Division Order Title Opinions

Mistakes Often Made In Division Order Title Opinions

TITLE CURATIVE:

Affidavit of Possession

Assignments without “Tabulation” information

Curative Materials

Death

Delay Rentals

Delinquent Real Estate Taxes

Dissolution of a Corporation

Divorce Decrees

Execution, Defects in Same by Corporation or Trust

HBP (Held by Production) Leases

Liens

Objections

Encumbrances:

Unreleased Oil and Gas Leases:

Mortgages:

Easements:

Comments and Requirements

1. Affidavit of Possession

2. Affidavit of Identity

3. Parties to Be Pooled Comment:

4. Strangers to Title

5. Decedents' Estates

6. Easements:

7. Existing Pooling Orders

8. Old Wells

9. Pooling

10. Expired But Unreleased Oil and Gas Leases

11. Involuntary Unitization

12. Liens, Litigation, and Judgments

13. A Violation of the Duhig Rule:

Exhibits

Exhibit #1 – Legal Description and Certification Date

Exhibit #2 - Consolidated Working Interest Ownership

Exhibit #3- Surface Ownership

Exhibit #4- Mineral & Royalty Ownership

Exhibit #5 – Combined Oil & Gas Leasehold

Exhibit #6 – Leases & Assignments

Exhibit #7 – Assignment of Leases

Exhibit #8 - Possession

Exhibit #9 - Encumbrances

Exhibit #10 - Comments

Exhibit #11 – Objections and Requirements

Exhibit #12 – DOTO Unit Summary

Exhibit #13 - Production Revenue Standards Act

Exhibit #14 - NADOA Article

Exhibit #15 –Split Stream Division of Interest......

What we will cover today:

•Ownership Reports– The reasons for them; the forces driving them; their essential content; a suggested form for them; and tools to assist the Field Landman in assembling them in co-operation with, and to assist Lease Buyers, In-house Landmen, Attorneys and perhaps even Division Order Analysts.

•Drilling Title Opinions– The reasons for them; the influence the In-house Landman should have in determining their form and content; the essential elements of them, and a few of the mistakes you may find in them.

•Division Order Title Opinions–The reasons for them; the influence the In-house Landman should have in determining their form and content; the impact of their content on Division Order Analysts; and mistakes commonly made in them.

Ownership Reports:

Please jot down what you would expect to be the essential elements of an Ownership Report:

(and no fair peeking if a Field Landman is seated on either side of you).

______

______

______

______

______

______

______

______

p.s. The Number of Blank lines above may or may not be the number required to describe the essential elements (i.e. divisions) of an Ownership Report.

Now let’s take a look on the PowerPoint screens at what most Lease Brokers consider to be the essential elements and contents of an Ownership Report. (It is courteously suggested you jot these elements or division of the “O.R.” down on the blanks above [even if you have to erase some of your initial answers] and, next to each, a one-line description of what they probably should contain.)

1. The Plat
2. The Recap
3. Tract-by-Tract Ownership with The Number of the Tract (e.g. “17-2”), taken from the Plat entered on a Worskhseet Tab, A set of “Headers” at the top of this worksheet listing the Legal Description of that Tract (e.g. “NW/4 NE/4 and W/2 NE/4 NW/4”: “60 net mineral acres”); in a single vertical Column, the Names, and Addresses (dated) of each of , Tract #, NMAs

Courthouse Records & Ownership Reports

(From Manual Notes or Digital Images)

Client Standards

Instructions to Brokers, Field Landmen and Attorneys

In order to standardize Ownership Reports and Drilling and Division Order Title Opinions,World Oil, Inc. (“the client”) requiresthe use of certain procedures, formats, and guidelines as described below. All Field Landmen, Brokers, and Attorneys providingWorld Oil, Inc. with digital images ofland records, Ownership Reports, andTitle Opinions, all needed to determine surface, mineral and leasehold ownership, will submit these in World Oil’s preferred format.

World Oil, Inc. requires the following procedures, especially as they relate to the capture, communication and transmission of information and documents, to be conducted, first and principally, electronically by E-Mail with attachments, and then supported or replaced by overnight mailing of hard copies,only as made necessary by these procedures. This includes DVD’s of recorded instruments.

Instructions to Brokers or Field Landmen

World Oil, Inc. will determine:

• The Primary and Secondary Target Formations to be drilled and tested in the new well,
• The size and configuration of the Spacing Unit (640, 320 160, 80, 40, or 10 acres) which has been or is to be created to cover these formations,
• Any existing wells presently producing from the Primary Formation listed for the new well, and
• Any Spacing, Location Exception, Increased Density or Pooling Orders covering any of the existing wells presently producing from that Primary Formation
• Any AMI Agreements, JOA ‘s, Unit Declarations or other documentation affecting Leasehold ownership in that Spaced Unit

World Oil will send these determinations and documents, together with copies of the supporting Orders of the Regulatory Authority (Oklahoma=OCC, Texas=RR Commission), to its Broker or Field Landman.

Broker or Field Landman will secure and create:

1A copy of ALL of the pages of the Tract Index (printed on 11” x 17” paper, if possible, 8 ½” x 14” if necessary, or 8 ½” x 11” only if forced to accept the latter and then, only at gunpoint by the County Clerk) for the Section or Sections being examined. This will be used to make a “Protocol Index” by making notes of the frame numbers of the digital images, or, probably more accurately--the range of frame numbers –containing each page of the instruments of record, next to the Book and Pagenumbers listed for that instrument —probably on the margin at the left or right of the pages in the Tract Index.

2A single light-scribe-labeled DVD disc containing:

a)Digital images of all filings and Orders or the Regulatory Authority—e.g. 1002A s, Spacing, LocationExceptions, Increased Density, Pooling, and other Orders and documents sent to the Broker by World Oil

b)A hard copy of all the pages of the Tract Index, to be used to make a “Protocol Index” by placing

c)Digital images of all recorded instruments listed in the Tract Index from “Patent to Present” (i.e. from Inception to date of last search in the courthouse)—with each image of those instruments laid out in a single folder and in continuous film-strip order, labeled with the book and page numbers at which, and in the same order in which, those instruments appear on the Tract Index,

d)A digital copy of the Assessor’s Surface Tax Rolls in a separate folder,

e)A digital copy of the Tract Index in a separate folder, preferably in film-strip form.

f)A digital copy of the Ownership Report prepared by the Broker or Field Landman from the digital images shot in the courthouse, in a separate folder, listing:

(1) the full legal name (s) of all owners of surface, minerals and Leasehold in the Unit,

(2)last known address for each owner, of record, or from internet, local phone books, etc.

(3)the date the last known address appears in the records

(4) the Social Security Number or Employer Identification Number, if available
(e.g. in plain sight on Leases or other instruments of record such as Wills or Trusts)

(5)current or HBP Leases of that owner’s minerals

(6)surface acreage ownership and its tract legal descriptions,

(7)net mineral acreage ownership in tracts then in a Unit Summary

(8)decimal mineral interest to 6 places in 100% of the Spacing Unit, for each and every owner of any interest—first Leasehold, then Minerals, then Surface, in tracts then in a Unit Summary for the Spacing Unit being searched, then,

g)An electronic copy of the Ownership Report is e-mailed and a paper copy ofthe Ownership Report is sent by overnight mail to the Landman at World Oil who placed the order for a courthouse records shoot.

h)The light-scribed label on the top of the DVD disc will list:

(1)The name, current address, and name and direct office or cell phone number of the contact person responsible for having assembled the DVD disc for the client

(2)The Section, Township, Range, County(s) and State in which the courthouse search was conducted (in BOLD, minimum 10-point Arial font, in the followingorder—(viz. 28-8N-12E Hughes & McIntosh, OK), (and yes, I know, that some

(3)Brokers like to place T,then R,then Sin that order for databasesearch purposes, but that’s not the way World Oil wants to see it.)

(4)Length of the search (e.g. “from Patent at 1M /12 rec 5/12/1909 to 3127 / 455 rec. 10/12/08”) and

(5)Date of last search in the courthouse or by fax from the courthouse (e.g. “last search: 11/1/08”).

NOTE: The Broker or Field Landman may also be called upon to make paper copies of all the field shots to be sent to the examining Attorney in place of the DVD disc. World Oil will then have duplicate copies of the DVD disc sent to it from its Broker, after final edit, together with any Unit Declarations, AMI Agreements, JOA s, Memos of JOA s or any other documents of record affecting Leasehold title in the Unit, and then:

The Examining Attorney will prepare the Drilling Title Opinion as follows:

In Legal-Sized Format (8 1/2” x 14”) on a DVD disc, and later printed on Legal Size paper, using both Microsoft WORD and EXCEL in this order:

WITHIN THE FIRST TWO PAGES OF THE OPINION:

1The Name and Address of the Client
World Oil, Inc
000 West 0th Street, Suite 0000
Tulsa, OK 74000

2The Type of Opinion:
Drilling Title Opinion or
Division Order Title Opinion

3The Overall Legal Description of the Spacing Unit being examined—e.g.
“ LANDS COVERED BY THIS OPINION:
All of Section 28-8N-13E McIntosh County, Oklahoma consisting of 639.28 acres”
Or, assuming these LANDS are Spaced on Lay-Down 320 s
N/2 Section 28-8N-13E McIntosh County, Oklahoma consisting of 319.28 acres

Or, assuming these LANDS are Spaced on stand-up 80’s

W/2 SW/4
but NOT A TRACT-BY-TRACT BREAKDOWN OF THE UNIT JUST YET !

4The Dates and Time through which title is being certified.
In a single short sentence, state this set of facts for the Client (World Oil) to see immediately—e.g.
“Based on the items examined listed on attached Exhibit “A”, with the last instrument examined being that appearing at Book 1030 Page 353 as recorded on September 19, 2008 and subject to the Comments and Requirements listed in this Opinion, I find fee title to the captioned LANDS, as of September 28, 2008 at 5:00 p.m. CDT to be as follows:”

5Unit Summary.
Attorney lays out, on legal paper, in Microsoft Word, on the very first (or first few) page(s), the Unit Summary—that is, a Summary of ALL of the FEE ownership in the Overall Legal Description of the Lands Covered by this Opinion laid out as follows:

(1)Surface Ownership,

(2)Leasehold or Working Interest Ownership,

(3)Mineral and Royalty Ownership
with the Surface Title and each of the three divisions of the Mineral Title adding up to the same total number of acres in the subject Spacing Unit applicable to the target formation(s) in the proposed well, complete with the fractional interest calculations used to arrive at the gross working interests, net working interests, royalties and overriding royalties, and listing the Lease Numbers and Requirement Numbers used in the subsequent Lease Tabulations and Requirements sections of the Opinion.

6A list of the instruments and records examined.
This list should include all of the several classifications of these instruments such as:

a) abstracts,

b)courthouse records or document images of them,

c)abstracter’s tract index,

d)county or parish Clerk or Recorder’s tract index,

e)final decrees in probate, and

f) any other documents examined such as:

g) well completion report forms and spacing orders from the regulatory agency governing oil and gas exploration in the State where the well is located.
At least one “vein” of these instruments—usually, at least, the instruments recorded in the office of the county or parish Clerk or Registrar of Deeds—must demonstrate an unbroken chain of time from origin of title at grant or patent to “present” (i.e. the date of certification of title).

7A tract-by-tract breakdown of the same elements of title that resulted in the Unit Summary
This portion of the Drilling Title Opinion is the natural result of any substantial amount of acreage being combined from smaller pieces (e.g. the combination of, say, 4 of the “homestead” tracts of 160 acres into a single 640 acre Section) and, thereafter the breaking apart of these larger tracts into parcels of 2.5 acres or less and even smaller “city lots” and subdivisions as population centers continued to grow and encroach on the agrarian landscape.

8Encumbrances:
These are most often Mortgages for improvements to be situated on the land such as houses, barns for equipment storage, and the like. Many mortgages encumber not only the surface but the minerals as well and even the production of oil and gas from those minerals.

9Comments:
Here, the attorney writing the Opinion may disclaim any examination of certain records such as tax liens or money judgments taken in a Federal Court against one or more of the interest owners listed in the opinion and other State or Federal Rules or Statutes that might affect title—limiting the scope of the Opinion to just those items of public record in the office of the county pr parish Clerk or Registrar of Deeds.
But a careful examination of this exculpatory passage is called for on the part of the Client (i.e. you, the Landman) lest the attorney attempt to avoid any responsibility for the certification of title which would otherwise be covered by Errors and Omissions Insurance.

10Tabulation of Leases and Assignments:
Here the attorney writing the Opinion should provide the Client with a “tabulation” (actually a condensation) of the relevant elements of the Leases and the Assignments of those Leases, that tie to the amount of each Working Interest resulting from those Leases and the amount of the Overriding Royalties or other interests, such as production payments, carved out of those Working Interests and the subsequent transfer of those Working Interest to the present owners by the Assignments. This tabulation also provides the fractional interests of each of the owners of minerals, leasehold and overrides set forth in the Unit Summary mentioned above.

11Objections and Requirements:
Using much the same wording they would use in trying a case in a court of law, the attorneys writing these Opinions will state an “Objection” to something they find or even fail to find of record in the instruments they have examined that would impair or even break the chain of title to one or more of the ostensible present owners. This “Objection” is then usually followed by a Requirement which, hopefully, spells out the curative measures that need to be taken to cure or waive the Objection. It is this area that Landman and Attorney must reach something of a gentile agreement as to just how deep the knife must cut to remove the canker. Here both Landman and Attorney need to be at least reasonably familiar with the State Bar Association’s Title Standards governing the lands under examination and try to take advantage of them at every turn.
For example, the idem sonans rule listed in most Title Standards provides that no matter how many different ways a person’s name appears in the records examined—the perfect example being that of “Ray J. Johnson, Jr.”—so long as the variants appear of record for the requisite period of time—10, 20 or 30 years—it can be concluded that those variants represent one and only one person.

As to form or style of these objections and requirements, the Landman should ask of the attorney that she or he observe parsimony in structuring both the Objection and the Requirement, and that the Requirements provide a cure that will be at least reasonably obtainable by the Landman. In fact, asking the attorneys to limit themselves to 25 words or less in each Objection and Requirement, in most instances, would not seem unreasonable to this writer. If your attorney argues that this is too limiting a parameter to follow, then witness the “Synopsis of Requirements” that appears later in this text, listing not only the instrument, or the lack of it, appearing in the records examined, that is causing the problem or “Objection,” by its Book and Page number and date of recording, but also posting the number of net mineral acres involved to some idea of the magnitude of the problem, then providing a virtual “cookbook” remedy to cure it in the Requirements, seems very little to ask of a professional wordsmith—in spite of the fact that they were once paid that way in English Common Law—that is, by-the-word !