The title deed is a crucial component of the mineral leases on which oil and gas producers depend. Likewise, this document has important ramifications for the owner of the mineral rights that underlie a drill-site. Without a firm, enforceable agreement between these two parties, the smooth functioning of this age-old arrangement is jeopardized.
Of course, title deeds have important implications beyond the oil and gas industry, and many titleholders will never have to worry about mineral-related issues. However, it's crucial to take a closer look at the issues that may arise out of misunderstandings during the lease-granting and title-transfer processes.
A Brief Review of Title Deeds in the Oil and Gas Space
Under U.S. law, title deeds are integral to the orderly conveyance of real property. Without a clear chain of title, disputes can arise over the intent of each previous titleholder. In turn, this may call into question the most recent grantor's right to transfer the land. When said grantor owns a substantial mineral interest, this may jeopardize the arrangement that he or she intends to reach with the party or parties that wish to explore the subsurface zone for oil, gas or other minerals.
Types of Deeds & the Effects of Unnamed Grantors
There are multiple types of title deeds. The most secure of these is the general warranty deed, an all-encompassing framework that protects the grantee from any past, present or future disputes or claims. If a named grantor conveys landownership via a general warranty deed, any issues that relate to previous unnamed grantors become irrelevant. As such, the title remains without dispute.
By contrast, special warranty deeds only protect grantees from future claims against the property's title. If an unnamed grantor lurks in the past, this may not be sufficient to secure the title. Likewise, quitclaim deeds raise similar issues. Since quitclaim deeds make no guarantees as to the quality or status of the properties to which they attach, they do nothing to protect grantees from potential title defects. Naturally, such defects may include unnamed grantors in the chain of title. In fact, some unscrupulous grantors may knowingly use quitclaim deeds to transfer defective titles to unsuspecting grantees.
Determining the Nature of Mineral Interests
Since the mineral interests in a given parcel typically attach to its title, the presence of an unnamed grantor at some point in the chain of title may call subsequent mineral leases into question. However, mineral and surface interests aren't inseparable. Titles that no longer cover both components of a given parcel may not be fatally undermined by the issue of an unnamed grantor.
When a landman, title attorney or other actor discovers an unnamed grantor during the course of a title opinion review, he or she must move quickly to determine whether the mineral interests are included in the title. If the mineral interests are held by a second party, it's imperative that his or her mineral title agreement be checked for defects. As long as it's possible to establish a solid, unblemished chain of mineral ownership that stretches to a point prior to the defect in question, any subsequent lease should withstand scrutiny.
Notarization, Consideration and Other Legal Issues
To prevent misunderstandings or legal errors that could potentially jeopardize a lease or lead to lawsuits, it's crucial for all parties to a mineral agreement to understand the proper procedure for transferring and certifying property titles.
First, the transfer title must be signed and notarized by all applicable parties. Even if the transfer occurs between friends or family members, it's also essential for consideration to be exchanged. While this must involve at least a nominal amount of cash, the bulk can be ascribed to "other valuable interests" or something similar. Finally, the pertinent title opinion must leave no doubt as to the nature of the transferred mineral interest.
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