16 Feb 2016

Tough Title Problems in Need of a Cure? Do It Now.

When the energy market is on fire like it was in recent years, exploration and production companies are moving fast. They are leasing, putting units together and drilling wells at impressive speed. Along the way, they ensure that title is secured by performing pre-lease title searches, obtaining certified title opinions from attorneys and curing title defects. When there is a tract along the way that presents serious title problems, that tract is often set aside and not included in immediate drilling plans. When there is a tract along the way that presents serious title problems, is NOT set aside and IS included in immediate drilling plans, there is trouble, stress and, inevitably, delays. Delays are bad and they cost money.

During this current period of decreased activity, exploration companies can benefit from tackling those tough title problems in order to secure title BEFORE it is needed. Curative actions that typically take months to a year or more to resolve can be tackled now in contemplation of future plans and under much less stress.

For instance, in West Virginia, there is a statutory mechanism that allows an operator who has leased any fractional interest in a tract to potentially obtain a court-ordered lease for the interest of unknown, missing or abandoning heirs – many states have a similar statutory device. The benefit of obtaining such a lease is twofold: it allows operators to lease those dead end interests and conduct operations, but also, the presence of such a leased interest or interests makes an otherwise defected asset much more valuable to a potential buyer – one less defect to lower the sales price. Another device that can solve similar issues is the partition suit. In West Virginia, any co-tenant has a statutory right to partition. If an exploration company has purchased any fractional interest in a tract, it may petition the court for partition.

Another area that can take a little extra time to remedy is the area of estates. Does your title contain a will that directs the executor to sell everything and yet, your oil and gas interest was never sold? Who owns it? If the executor is deceased, who has the authority to execute a deed or lease? This may need to be fixed and can be fixed, but may require a petition to the probate court of your jurisdiction depending upon the language of the will.

Sometimes, exploration companies get a title opinion from an attorney that says “prosecute an action to quiet title” or similar language in regard to a particular defect. Not necessarily an insurmountable obstacle.

These are just a few examples of tough title problems that it may make sense for you to tackle during this period of decline in activity. When the recovery comes (and it will), having these problems resolved will put exploration companies ahead of the game. If selling is the best option, cured title defects are money in the bank.