Happy beginning of summer to everyone. I know it's not the official beginning of summer yet but when children start getting ready to leave for their break I just start to feel like it's summer already.Today I'm going to begin a series on some very fundamental areas of oil and gas law that are taking place here in Pennsylvania. We're going to start with the property law related to oil and gas drilling, and acquisition, and then I'll use that as a platform to begin talking about some contract and transaction issues that might be relevant to landowners and companies alike.
Land Title: Basic Actors
So, as I said, today is just going to be part of laying a foundation so we'll start with some very basic concepts. I'm sure all of you know that in order for someone to drill for oil underneath land they have to either own that land, own the minerals, or have an agreement to drill under the land, otherwise known as a lease. A lease can be either done individually or can be done as part of what's called a pool or unit. Pools and units allow oil companies to make sure that no matter where they're pulling oil and gas from, or which direction they're putting a horizontal lateral in the case of Fracturing, they are able to legally collect as much oil and gas as possible. it also helps to ensure that they're paying the correct people their fair share for what is pulled out of the ground.
It is at this point you might be thinking "well if you have these large tracts of land owned by many people each with their own leases that sounds really complicated." Bonus points for you for looking ahead. Ownership and correct royalty payments is hugely important for oil and gas companies. That's why they hire typically independent contractors known as landmen to do a lot of the legwork, or due diligence, to ensure all the ducks are in a row.
A landman is typically an independent contractor who is assigned a specific parcel or series of parcels of land by a company to research. The land man will use any resources at their disposal including online and in the courthouse resources to trace back title for a given area of land to ensure one of two things. There either trying to ensure that a mineral deed that is being executed is being signed by the correct mineral owner, or they're trying to ensure that royalties being paid under an executed lease are being paid to the correct owner in the correct proportion.
Who are landmen and title attorneys, and why do we need them?
The land title industry is wide and quite varied. Entities like banks, insurance companies, real estate agencies, and oil companies all need specialize employees who can decipher the often vast and confusing title documentation, and make sense of them. Being a landman doesn't typically require any kind of advanced degree beyond a high school diploma, though some advanced skills would certainly help because it can be quite complicated.
The role of the landman is to ensure that clear and accurate understandings of land ownership are known by parties to a land transaction. A mistake in ownership can cause massive headaches in the long run because companies may have to pay out twice on the same royalty values if they never paid the correct owner.
A landman's work product is what's known as an abstract. An abstract is, hopefully, a full and complete record of ownership, transfers, liens, taxes, out sales, and other other actions that may have affected a given piece of land over the last 160 years or so. One big thing to note is that an abstract IS NOT a legal opinion. Abstractors don't need to be attorneys, though attorneys can be abstractors. In either case, unless the abstract also contains a certified title opinion, it is not a legal opinion. This is significant because without a lawyer's signature the abstract is simply a set of records with a lay opinion as to ownership. That's not to say that landmen don't have professional standards for their work-product. The American Association of Professional Landmen (AAPL) is a trade group for landmen that provides a set of practice standards and ethics that its members are requested to adhere too.
A title attorney, on the other hand, is a licensed legal professional who has expertise and knowledge of real estate law in a given geographic area. Title attorneys typically take abstracts done by independent landmen or brokerage firms, and derive their own opinion as to the correct ownership reflected in them. Title attorneys carry large malpractice insurance policies because they are putting their signature on the certified title opinion and may be sought if an error is eventually found in their evaluation of ownership.
If you're a landowner, you'd most likely be interacting with a landman and not a title attorney. Title attorneys charge much higher fees and have much more value to large-scale companies who have a high volume of title research to be done. While the higher confidence of hiring a title attorney may seem like a positive trade-off for the money spent, a landowner with only a few parcels might do well to look for a landman who is also a licensed attorney. That way you can be confident not only in their skills as a landman and knowledge as an attorney, but you can also work on keeping the costs down by separating out legal opinions from legal research.
So that's a basic introduction to the land title terminology and what to look for if you're engaging in any kind of research with a land professional. Next time I'm going to cover a few of the basic types of agreements that a person might find in a title abstract and discuss the differences. That will lead us into looking at the different types of mineral agreements that you're likely to see and how they all make sense.
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