No matter how long they've lived on their properties or made use of their mineral rights, landowners need to have a full and nuanced understanding of the rights that property ownership entails. Unfortunately, not all land titles are alike: Whereas some titles have an unbroken chain that can be traced back through the mists of time, others come with hidden defects or encumbrances that can come back to haunt their current holders. Landowners who wish to lease their properties' mineral rights to mining and energy exploration firms must be particularly cognizant of the issues that may affect their ability to lease the property. A title examination of the mineral estate can provide the necessary framework to facilitate the leasing process.
What Are Title Opinions?
A title opinion is nothing more than the report that arises from a thorough title examination. A title opinion outlines the basic nature of the mineral rights and surface rights that the pertinent title proscribes and provides guidance for its holder. Landowners who wish to lease their mineral rights to exploration firms, make surface improvements or subdivide their lots are strongly advised to obtain a title opinion from an experienced legal authority before proceeding.
There are three major types of title opinions. Landowners can obtain any or all of these opinions before deciding what to do with their properties.
Lease Purchase Title Opinions
This type of title opinion is issued prior to the payment of any bonus associated with a drilling lease. It's designed to confirm that the lessee will fulfill the obligations of his or her lease and ensure that the chain of title remains unbroken in the future. A lease title purchase opinion is commonly required before any new leases can be originated. Over the course of a long-term lease arrangement that involves multiple parcels or successive property owners, multiple lease purchase title opinions may be collected and enforced.
However, it's not absolutely essential that a lease purchase title opinion predate a drilling lease. Many lease agreements simply require a drilling title opinion before the actual start of drilling. Regardless of its nature, the first title opinion of any lease agreement is known as the "original" opinion.
Drilling Title Opinions
Virtually all successful mineral leases require the issuance of a drilling title opinion. This must occur before drilling begins. Whereas lease purchase title opinions may be conducted by experienced landmen, drilling title opinions are typically forensic analyses of the entire chain of title and must be issued by experienced legal professionals. In his or her opinion, the title examiner carefully checks each "link" in the chain of title and ensures that absolutely no defects, encumbrances or inconsistencies exist. Regardless of the size of each individual drilling unit or the fractional share of mineral rights that the lessor owns, a drilling title opinion covers the entire leased parcel.
Division Order Title Opinions
Division order title opinions are more specialized and restrictive than drilling title opinions or lease purchase title opinions. If a given landowner enjoys undivided mineral and surface rights on a given property, a division order title opinion might not be necessary to ensure the smooth execution of a pertinent oil and gas lease. However, such an opinion is necessary in any case that involves multiple interests in a producing well. In effect, a division order outlines the compensation to which each party is entitled from a given well as well as the broader land area to which the arrangement applies. Needless to say, large parcels can support multiple division orders. Likewise, long-term leases often produce huge numbers of such title opinions.
Final Thoughts
This may sound like a lot to keep straight, but successful mineral lessors look at the major forms of title opinions as indispensable tools that collectively provide a useful foundation for long-term profit. Landowners who wish to exploit the resources underneath their land are likely to encounter all three of these title opinions during the course of their activities.
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