From Lease Check to Division Order
With so many major players in the marketplace, the role of landmen has become very specialized. Due to this specialization, a large majority of landmen very rarely bring a project from the prospect stage to the oil sales. In an effort to provide landmen with a full circle understanding of the entire process, we have created this guide.
Before obtaining an oil or gas lease, your geologist will require a lease check. Performing a lease check is the first necessary step in this arduous process. Over the course of the lease check, you will be tasked with determining whether the land in question is a new oil and gas lease or if the land is part of an already pooled unit. The lease check will also provide insight into any other obstructions that may prevent your client from placing a well on the property.
In order to properly determine this, you will need to perform a cursory review of the title and any current production on or near the site. This is the only way you can confirm the lease is not held up by production on an existing well. This information is easily found by checking with the Texas Railroad Commission’s online data, or services like Drillinginfo.
Thankfully this process takes very little time( sometimes it only takes a few hours) and can save companies a lot of money in the long term.
Mineral Ownership Report
Once you have confirmed the lease is available and your geologist decides it is the right time to start leasing the prospect, you will need to create a mineral ownership report. The primary goal of this report is to clearly determine who to lease, what their contact info is, what their ownership percentage is and how to style the signature block. This is especially important in the cases of trusts, probates, and businesses.
After the leases have been taken, you will need to complete a drillsite runsheet on the property. A drillsite runsheet ensures that the correct people have been leased and that permission has been granted to start the process of confirming that there are no title flaws.
In order to ensure no title flaws exist, you will need to run the title all the way back to the sovereign ( The State of Texas, Republic of Texas, etc.). Your runsheet should anything you feel will expedite the attorney’s timeline on the drillsite title opinion including current tax information, ownership flowcharts, and plats. Doing so may help your client save money on attorney’s fees.
Drillsite Title Opinion
With your runsheet and all corresponding materials in hand, the examining title attorney will apply the applicable title standards of the state in which the property resides to confirm there are no flaws. Any flaws found during this process may adversely affect your client’s ownership of the oil and gas leases. If flaws are found, the attorney will require them to be addressed prior to approving the drillsite title opinion.
During this stage, you will need to collect all of the curative requirements. The curative requirements include preparing affidavits of heirship, locating and filing certified copies of probate, ratification agreements and subordination agreements from lienholders. Once you have gathered all the pertinent information, it is time to turn them back over to the examining attorney for a supplemental drillsite title opinion.
Side Note: If for some reason you are unable to collect all the requirements, the operation will either have to return to the search, waive the requirement or abandon the project.
Division Order Title Opinion
Once the title has been approved by all parties (the operator and non-operating participants) drilling can commence. If the well produces oil or gas, it is time to draw up a division title opinion. Division orders will be prepared from the final division order title opinion and sent out to all the parties receiving revenues from the production. A division title opinion will determine whom exactly gets paid and how much they get paid out for the oil or gas production.
Any and all instruments created after the oil and gas lease must be included in final drillsite title opinion along with the mineral ownership of any tracts pooled with the drillsite tract.This includes instruments such as overriding royalty agreements, farmout agreements and working interest assignments to name a few.
Due to the complicated nature of this process, it is vital to keep your client abreast of your progress and any obstacles you discover along the way. Keeping the lines of communication open will help you address issues as they arise and create a well-reasoned solution. Your client will thank you for your diligence during this whole process.
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