“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)
640.00
Acres, more or less
N
Tract #324
Tract #32-5
E
W
Tract #32-1
Tract #32-2
Tract #32-3
S
RECAP
SECTION OO , TOWNSHIP 0 NORTH, RANGE 0 WEST
_________ COUNTY, OKLAHOMA
640.00 ACRE TRACT
TITLE TO: 08/19/2010 10/30/2011
OWNER
Mack Properties
Rhoda M. Mecoy
Mark A. Wolfe
TRACT
NA
#'s
100.000000
6
100.000000
6
25.000000
5
LEASEHOLD
LAST BK/PG: 4296/201
LEASE OWNER/PCT.
4430/517
EXP
Leased
OPEN
OPEN
Schonwald Land - 100%
06-17-2014
Schonwald Land - 100%
REC 7/13/11
Sarah Ann Kell Revocable Living
Trust
Arthur L Kell Revocable Living Trust
25.000000
5
LEASED
25.000000
5
OPEN
Zona L. Terry Koebrick
21.000000
1
Leased
GB Energy - 100%
07-20-2014
Emma M. Thames
21.000000
1
Leased
GB Energy - 100%
07-20-2014
Jesse G. Terry
21.000000
1
OPEN
Scout Royalty
20.000000
7
OPEN
Carl and Virgie Terry
18.750000
1
OPEN
Ernest Ivie
Donald E. & Charlotte O. Monroe
Eugene F. Parenica
13.500000
7
OPEN
11.250000
7
OPEN
Dolores Pitt
11.250000
7
OPEN
Leona N. Horn
Keith Lee Terry
Joy Max Rinn Testamary
First National Bank
Megan Mex Rinn Dunn
10.500000
10.500000
10.000000
1
1
3
Leased
Leased
LEASED
GB Energy - 100%
GB Energy - 100%
Schonwald Land - 100%
07-20-2014
07-20-2014
09-13-2014
Tract 7-1
MINERAL OWNER
INTEREST
Emma M. Thames
9814 Carmalee
Houston, TX 77075
(1958)
15.00000%
Jesse G. Terry
Blanchard, OK
Zona L. Koebrick
1827 Celia St
Detroit Lakes, MI 56501
5208 Chateaux - Ridge Center
Rapid City, SD 57702
15.00000%
Carl & Virgie Terry (TIC)
Rt. 3
Chickasha, OK
(1998)
Leona N. Horn
2312 Oleander St.
Delano,CA
13.39286%
Keith Lee Terry
PO Box 531
Delano, CA
NET ACRES
21.00000
21.00000
15.00000%
21.00000
18.75000
7.50000%
10.50000
7.50000%
10.50000
LEASEHOLD
GB Energy, Inc.
P. O. Box 1673
Chickasha, OK 73023
3 yrs - 3/16
Exp: 07-20-2014
Bk - Pg: 4403 - 297
Depth Clause
Open of Record
GB Energy, Inc.
P. O. Box 1673
Chickasha, OK 73023
3 yrs - 3/16
Exp: 07-20-2014
Bk - Pg: 4403 - 299
Depth Clause
Open of Record
GB Energy, Inc.
P. O. Box 1673
Chickasha, OK 73023
3 yrs - 3/16
Exp: 07-20-2014
Bk - Pg: 4403 - 283
Depth Clause
GB Energy, Inc.
P. O. Box 1673
Chickasha, OK 73023
3 yrs - 3/16
Exp: 07-20-2014
Bk - Pg: 4403 - 286
Depth Clause
• 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 for
Drilling 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’ in
Alice 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-thanstringent 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?)
OK
Owner/
Owner
Operator
# (in
Name,
Co. IT
Address,
system
Phone #,
)
e-mail
36-985- Wild Bunch,
21
LLC
Five Park
Ave
Total $
Amount in
Suspense
for that
Owner
(e.g)
$1,975,748.1
5
Suite 7400
New York,
NY
10012-7400
(201)0997000
Clyde
Barnes PO
Box 1 Rt 3
Bowlegs,
OK 79999
$56,125.25
$ 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
(e.g.)
(e.g.)
(e.g.)
(e.g.)
(e.g.)
21
1
JB
122
1
SD
115
2
JJ
150
3
JL
308075
$785,953.80 Morris #1
309786
$476,925.51 Steve #2
310354-11
$712,869.35 Rob #1
302987
$56,125.25 Barnes #1
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)
TOTAL
First
Purchase
Date
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)
Payhold
Code # (1no W-2 on
file; 2-tax
Titlehold Code levy; 3# (1-No DOTO; check
2-Title Dispute; returned;
3-Owner dec'd; (up to 9
4-No D.O.
reasons or
returned; (up to more $ are
99 reasons $ is in
in suspense)
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