Throughout the STACK and SCOOP, mineral buyers have been actively acquiring mineral interests, and as such, mineral buying is at an all-time high. Mineral buying is speculative business with many unknown factors, with the primary one being the financial risk of a mineral purchase as an investment. There are also numerous possibilities of title defects and risks. When buying minerals, title risks should be seriously considered and when possible, mitigated.
Mineral buyers are well versed at controlling and minimizing financial risks by performing financial analyses and building pro formas to assess future revenue prospects. Petroleum engineers are often contracted to perform analysis as to the location, the geology, and the predictable decline in well production over the course of time.
There are various differences in the deployment of capital by mineral buyers. Some groups only purchase directly in the middle of the play while others are more inclined to spend their capital on the edges or fringe. Regardless of where minerals are purchased, mineral buyers all have title concerns and work diligently to ensure their title is at least defensible, if not marketable.
To become informed about the title risks inherent in a mineral tract so that value and risk can be comprehensively analyzed, the mineral buyer can and should obtain a certified title opinion from an attorney who is experienced and knowledgeable in oil and gas law, mineral title, and other nuances that affect mineral conveyancing.
Like the way a residential home buyer uses a home inspection report, a mineral buyer can use an attorney’s certified title opinion to assess ownership, title defects, and future risk. A knowledgeable mineral buyer can use such information in the opinion to have title defects cured before closing, perhaps negotiate a lower price, or abandon the deal if the cost of curing the defects is not worth the investment. A title search performed by a Landman, which seems more economical, may not reveal the more complex and difficult title issues that have the potential to prevent or severely limit the development potential of the purchased assets, thus costing much more in future lost revenues.
There are numerous instances of where a Landman fails to check for certain elements in his or her search that a knowledgeable oil and gas attorney, while providing a title opinion, would not overlook. Intestate law, liens, severed estates, interpretation of language in deeds, and old HBP leases; all of which can create significant title problems when overlooked.
A mineral buyer that chooses to obtain a certified title opinion prior to purchasing mineral rights will be informed about the defects and encumbrances that are present in the official property records of the county where the minerals are located. The attorney will also provide to the mineral buyer solutions for curing the title defects and an assessment of the risk of each defect.
In Oklahoma, one of the leading and most experienced law firms for mineral title examination is Hampton and Milligan. Established in Oklahoma City in 1982, Hampton and Milligan specializes in oil and gas law, title examination, and real property law to counsel oil and gas operators, companies, and landowners in the complex business of oil and gas production and acquisitions.
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Compiled and Published by GIB KNIGHT
Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of OklahomaMinerals.com, an online resource designed for mineral owners in Oklahoma.