“there are only three true friends in life: an old dog, an old spouse, and ready money.”...
TRANSCRIPT
“There are only three true friends in life:
an old dog, an old spouse, and ready money.”
Benjamin Franklin
What we will cover today:• “OPM”—Other Peoples’ Money and how
oil and gas production generates it.
• How the Title to this Personal Property—OPM—is determined by Real Property Records.
• How OPM creates a “Float”; the Fiduciary Responsibilities for handling that “Float” and the Legalities and Ethics involved in handling the “Float”.
THE LANDMAN’s ROLE IN THE DIVISION
ORDER PROCESS:
The FIELD LANDMAN and the Ownership Report
• The Field Landman gathers the basic Ownership data from Abstracts or a Title Index and recorded instruments or copies of them kept by Abstractors or County Clerks, and usually both from the latter two.
• The Field Landman or one of the Lease Broker’s personnel then assembles this Data into an Ownership Report which, hopefully, lists the Full Legal Name of the Mineral Owner and any variants, the last known address of the Owner, and the age of that address.
A suggested
FORM for
OWNERSHIP REPORTS:
(see “Toolkit” on URL)
N
EW
• The Ownership Report may then be passed to another Landman—often just called the “Buyer”—WHO THEN supplements the Ownership Report with more current addresses for owners, their phone numbers and possibly the Owner’s e-mail addresses as well, to cut down on “phone tag” to contact and Lease them.
The In-House Landman
• Once Leases are purchased by the Lease Broker, the role of the In-house Landman begins, primarily by establishing contact with a Title Attorney and setting up the Drilling Title Opinion. And it is here that the In-house Landman has the first and best opportunity to exert the most beneficial influence in the entire Division Order Process
• And the Landman is well advised to follow the wisdom of an old Latin admonition:
No, not: Carpe diem !
but, rather:
Carpe duco !
Carpe duco!
• duco : to lead on the march, marry a wife, command. (“Command” a wife ?)
[emphasis mine]
• duco : to lead, draw, esteem, consider. • duco : to draw, shape, construct
spend (time)…
• duco : to charm, influence, draw in.
• duco : to calculate, count, reckon. consider.
Landmen as related to Lawyers• Rule #1: You, the Landman, are the client—not the
other way around !
• Rule #2: You, the Landman, should be given a sample of the Title Attorney’s earlier work before working for you to make sure it includes all the necessary ingredients (e.g. a clear and ample Tabulation of all the Leases and any Assignments of them and complete Fractional Interest Calculations that lead to the decimal interest of each Owner.
• Rule #3: You, the Landman, should demand that all Requirements in the Opinion be written with an Alternative to Marketable Title that will afford you the opportunity to choose Defensible Title.
MARKETABLE TITLE DEFINED “A marketable title is one free from
apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record.”
(From a State Bar Association’s Title Examination Standards Handbook)
And I hereby strongly suggest that any Landman working today without a current copy of the Title Examination Standards for the State(s) in which she or he is reviewing any Title Opinion is “not playing with a full deck.”
DEFENSIBLE
VS.
MARKETABLE
TITLE
And let me make this perfectly clear:No, the Affidavit of Death and Heirship does
NOT create Marketable Title—only, possibly, Defensible Title, and you, the Landman, must assess and accept the business risk that one or more of the Yokums, Hatfields, McCoys or any of Pappy’s progency may try to lay claim to this 2.75 net mineral acres you just Leased from Mammy and Lil’ Abner. But if the interest is small (2.75 / 640 = 0.004296875) consider this as a way out of the box—and insist on it FROM YOUR ATTORNEY as a way of creating Defensible Title.
The Reasons forDrilling Title Opinons
Reasons for the “DTO”1.To determine the amount and % of Leased
acreage held by each Working Interest Owner (“Lessee”) in the Drilling and Spacing Unit.
2. To identify any Unleased Mineral Owners in the Drilling and Spacing unit.
3. To determine if any of the Leases taken or Unleased Mineral Owners have any defects in their titles that will render them less than Marketable Title, and to describe possible ways in which those defects can be “cured” in the form of TITLE REQUIREMENTS.
Requirements In Any
Title Opinion
“Well, we shall simply make the words mean what we want them to mean.”The character, ‘Alice’ inAlice in Wonderland, by Lewis Carroll
(After the White Rabbit reads her a very long contract.)
Why can’t a Lawyer be more like a Landman? (paraphrase of libretto in
“My Fair Lady”-an adaptation of)
Pygmalion by George Bernard Shaw
The Impact of Marketable Title• Attorneys writing Drilling or Division Order Title Opinions will
word their Requirements to achieve MARKETABLE TITlE.
• Why? In order to avoid liability under their Errors and Omissions Insurance.
• But there is an alternative to the stringency of Marketable Title—DEFENSIBLE TITLE.
• And here is where the Landman needs to step into the picture as early as possible—and follow the advice in that old Latin phrase quoted earlier: Seize Control by demanding alternative “curative” document or measures that will give you at least Defensible if not fully Marketable Title, if you choose to tale the Business Risk.
The Reasons for a Division Order
Title Opinion
Division Order Title Opinions:• Determine the full Legal name of the person
or entity owning an interest in an oil and gas well and, hopefully, where they are presently located.
• Determine, to a minimum of 6, and probably more like 8, decimal places, the exact proportion of production proceeds that is potentially payable to that person or entity.
• Determine any defects in the title of each person or entity that would prevent them from being paid without recourse against the purchaser of the production from that well.
In regard to the “title defects” just mentioned, please see “50 Common Title Problems” by Tim Dowd in the Division Order “Toolkit” in the URL to be sent to you by e-mail from AAPL headquarters.
What to Look for In DOTO s
• Please take a look now, on pages 14 through 18 in your Text, at the 23 Common Mistakes often made in Division Order Title Opinions
And let’s look at several of them in detail, as Landmen, as to whether we have all the essential ingredients in these DOTOs to pass them on in confidence to our Division Order Department and those of us who have the ultimate responsibilty for pulling the trigger that discharges large sums of money to a multitude of owners-Division Order Analysts.
What the Division Order Department May Accept without Blinking
• Beginning on Page 20 of your Text is a collection of a number of routine title problems that prompt some less-than- stringent Title Requirements and may be waived or at least mitigated by the Division Order Analyst since they show little or no jeopardy of a complete or even partial failure of title on the part of the owner or because of the situation involved.
The Division Order Process
• Beginning on Page 23 is an encapsulated description of the all of the Participants—Landmen, Attorneys, Accountants, Information Technologists, First Purchasers, Division Order Analysts and finally the Owners of an interest in a producing oil and gas well—and the cooperation among and between them necessary for the proper function of the Division Order Process.
Analysis of the DOTO
• The responsibilities of the Landman
• The responsibility of the DOA s and their dependence on the competence of IT professionals and the understanding of Accountants as to what ultimately drives their functions in the Process.
The “First Purchaser”
• The “First Purchaser” is defined as the party or company that deducts and pays the gross production or “severance” taxes—and thus inherits the responsibility of distributing oil and gas production proceeds not only accurately but promptly as well.
SUSPENSE !
• The Legislative strictures of promptness and the Business strictures of accuracy.
• The way in which these strictures work with and against each other to cause large sums of money owed to vast numbers of Owners to accumulate in what is called
SUSPENSE.
The Division Order
• The document that is neither a conveyance nor a contract, with limited powers of indemnity for the issuer, and which may well backfire on the First Purchaser if issued to the wrong party, or on the wrong Form.
Headache Remedies for the First Purchaser—or “Palliatives”
• The “sort of” palliative of Escheat and the complications of payment to multiple State Unclaimed Property Divisions or their Treasuries or Tax Commissions.
• The more effective palliative of Interpleader—and the relief from some of the strictures of time that it provides
THE FLOAT
• No, not that kinda’ FLOAT—it’s the “float” that consists of OPM (Other People’s Money), you know, like the kind you deposit in your Bank!
THE FLOAT
•How to use and CONTROL it !
•Why is it Legal?
•Why is it Ethical?
Suggested Headers for Suspense Reports from IT-at- OWNER Level:
State of Well
Location (e.g. CO, OK,TX?)
Owner # (in
Co. IT system
)
Owner/ Operator
Name, Address, Phone #,
Total $ Amount in Suspense
for that Owner
$ Amount in Suspense for the Owner in Descending
Order by Well or Unit # & Name
IT # and Name of Well
or Unit
Number of days
in suspense
Titlehold Code, or Paycode Reason
Division Order
Analyst Assigned
to this Owner/
Operator
OK36-985-21
Wild Bunch, LLC (e.g)
(e.g.) (e.g.) (e.g.) (e.g.) (e.g.)
Five Park Ave
$1,975,748.15 $785,953.80
308075 Morris #1 21 1 JB
Suite 7400 $476,925.51309786 Steve #2 122 1 SD
New York, NY $712,869.35
310354-11 Rob #1 115 2 JJ
10012-7400(201)099-7000
Clyde Barnes PO Box 1 Rt 3Bowlegs, OK 79999 $56,125.25 $56,125.25
302987 Barnes #1 150 3 JL
Suggested Headers for Suspense Reports from IT-at- LEASE Level:
State of Well
Location (e.g. CO, OK,TX?)
Lease or Well # (in
Co. IT system)
Unit # (if used. E.g. in waterflood unit) (sub # to Lease# in
Co. IT system)
First Purchase
Date
TOTAL Amt in
Suspense Over 60
days
Operator Name,
address., ph # E-mail (& # in Co. IT
system)
Well or Unit Name & #
(used by the public
authority--e.g. COGCC,
OCC, TX RR Com)
Titlehold Code # (1-No DOTO; 2-Title Dispute; 3-Owner dec'd;
4-No D.O. returned; (up to 99 reasons $ is in suspense)
Payhold Code # (1-no W-2 on file; 2-tax levy; 3-check returned; (up to 9 reasons or more $ are in suspense)
ECONOMICS
• The Malthusian Theory and why
ECONOMICS is called the
“The Dismal Science”
• The Big News up to sometime in 2010:Horizontal Drilling for Shale and the Natural Gas and High Gravity Liquids it Produces….
The
Internal Combustion Engine