OIL AND GAS TITLE OPINIONS: STRUCTURING AND FORMAT Presented by: PAUL YALE Gray Reed & McGraw, P.C. Houston, Texas With Special Assistance From: KATIE ENGLISH BROOKE SIZER Associates, Gray Reed & McGraw, P.C. Houston, Texas BETSY RUMELY Attorney-at-Law Denver, Colorado State Bar of Texas OIL, GAS & MINERAL TITLE EXAMINATION COURSE June 25-26, 2015 Houston CHAPTER 17 PAUL G. YALE Shareholder Gray, Reed & McGraw P.C. 1300 Post Oak Blvd., Suite 2000 Houston, Texas 77056 [email protected] 713-986-7189 Mr. Yale is a Shareholder and the Energy Practice Area Head for Gray Reed & McGraw P.C. Mr. Yale has 38 years of legal experience working in both the domestic and international oil and gas industry, 27 years of which was spent with ExxonMobil Corporation and its predecessor companies. Mr. Yale was admitted to the Texas Bar in 1977 and has since become licensed in multiple US jurisdictions including North Dakota, Colorado, Utah, Oklahoma and Ohio. Mr. Yale is Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization. Mr. Yale received his undergraduate degree from Vanderbilt University in 1974 (cum laude) and his law degree from Southern Methodist in 1977. Mr. Yale is Chair of the Houston Bar Association, Oil, Gas and Mineral Law Section for 2015- 16. ii 2725328.1 Oil_________________________________________________________________________________________________________ and Gas Title Opinions: Structuring and Format Chapter 17 SPECIAL THANKS The author wishes to thank the following additional contributors to this paper and the accompanying presentation for their excellent suggestions, wise counsel and generous assistance: George Snell, Attorney at Law, Amarillo, Texas Terry Cross, McClure & Cross, LLP, Dallas, Texas Michelle Phillips, Land Advisor, Hess Corporation, Houston, Texas Christine Herron, CDOA, Division Order Analyst, Hess Corporation, Houston, Texas Bethany Payne, Division Order Analyst, Hess Corporation, Houston, Texas Lauren Bernard, Division Order Supervisor/ PPU, BHP Billiton, Houston, Texas Ryan Culberson, Land Supervisor, BHP Billiton, Houston, Texas Kacie Bevers, Steptoe & Johnson, PLLC, The Woodlands, Texas James Ormiston, Shareholder, Gray Reed & McGraw, Houston, Texas My other colleagues in Gray, Reed & McGraw PC’s Energy Group (Jonathan Worbington, Sandra Mazan and Alex Crawley (Associates) and especially to my Assistant, Sherry Colburn). TABLE OF CONTENTS I. INTRODUCTION ....................................................................................................................................... 1 II. COMMONALITY IN TITLE OPINION STRUCTURE AND FORMAT ........................................... 2 III. DIFFERENCES IN OPINION STRUCTURE AND FORMAT ............................................................. 3 IV. ORGANIZING COMMENTS AND REQUIREMENTS ..................................................................... 20 V. FORM TITLE OPINION ........................................................................................................................ 23 VI. TITLE OPINION WRITING STYLE .................................................................................................... 24 VII. CONCLUSION ......................................................................................................................................... 27 APPENDIX A: SAMPLE DRILLING TITLE OPINION ................................................................................. 28 APPENDIX B: SAMPLE DIVISION ORDER TITLE OPINION ................................................................... 31 APPENDIX C: PROPOSED MODEL FORM TITLE OPINION .................................................................... 34 APPENDIX D: ANOTHER SAMPLE TITLE OPINION ................................................................................. 40 APPENDIX E: FORM TITLE OPINION ........................................................................................................... 47 BIBLIOGRAPHY AND SUGGESTED FURTHER READING ....................................................................... 70 2725328.1 Oil_________________________________________________________________________________________________________ and Gas Title Opinions: Structuring and Format Chapter 17 OIL AND GAS TITLE OPINIONS: One obvious change from the past is the sheer volume and geographic diversity of oil and gas title STRUCTURING AND FORMAT examinations in the United States over the past decade. I. INTRODUCTION Advances in horizontal drilling and hydraulic fracturing and the opening of shale plays in basins An orderly mind, it has been said, “is reflected by throughout the United States have likely created the an orderly body; and an orderly body is reflected by largest demand for oil and gas title opinions in the orderly dress.1” An orderly title examiner’s mind, by industry’s history. analogy, should be reflected by an orderly title With the increased number of title opinions has examination; and an orderly title examination should come increased pressure within oil companies to make be reflected by an orderly title opinion. their internal processes dealing with title opinions more Few if any title examiners would take exception to efficient. It is easier and quicker to act on information the notion that an orderly, well-organized title opinion when a reader is reviewing a title opinion in a form that is more apt to serve the needs of the client than one the reader is accustomed to. This is even truer when a that is not. But title examiners and other industry reader must review a large number of title opinions or professionals disagree over how to best organize a title when multiple readers within the same company are opinion. looking at the same title opinion forms. There are many reasons for the widespread Technological advances also factor in. The author differences in title opinion forms used in the oil and is aware of at least one company who has attempted to gas industry today. Regional differences and the size put a system in place to link title opinions to its royalty and complexity of the area being examined account for check disbursements database. The theoretical some dissimilarities. Lawyers can have widely efficiencies and cost savings of such systems seem conflicting views on the subject and can be close- obvious. minded about changing their own forms. Competition For all these reasons more and more companies between law firms, conflicts of interests, and are requiring law firms to use a standard form title confidentiality concerns may chill exchanges of title opinion template. But efforts to standardize title opinion forms or otherwise dampen collaborative opinion forms by companies tend to be ad hoc and efforts to develop a more uniform approach. inconsistent. Lawyers, being anxious to please, often No wonder, then, that the oil and gas bar in Texas accept whatever form the client wants without further has failed to develop a model form title opinion discussion. Rigorous analysis can be preempted by template. Disorder, not order, reigns. But there have expediency. Best practices can be overlooked. been candles in the darkness. Over fifteen years ago an Therefore, the questions raised by George Snell article was written by George Snell for the State Bar of fifteen years ago (“A Model Form Title Opinion Texas Oil & Gas Section Report entitled “A Model Format—Is it Possible? Is it Practical?”) seem worth Form Title Opinion Format—Is it Possible? Is it revisiting. Has the time come for an industry wide Practical?”2 After pointing out the trend towards standard oil and gas title opinion format? The oil and standardized forms in the real estate industry, Snell gas industry has adapted model form leases, operating attached a proposed uniform title opinion template to agreements, gas purchase contracts, and drilling his article and issued a bell call for Texas oil and gas contracts. Why would a model form title opinion not practitioners to collaborate with him in developing a be attainable? more uniform approach. That bell call, however, Irrespective of the answer to that question this appears to have fallen on deaf ears. paper presumes that the oil and gas bar and its clients Or if ears were not deaf, perhaps they were can benefit from an exchange of ideas and best indifferent? Many lawyers might question whether practices with regard to title opinion structure and developing an industry wide model form is either format. Accordingly, following this Introduction, Part necessary or worth the trouble. The oil industry in the II of this paper lists twenty of the most common United States has survived so far without one. What elements of oil and gas title opinion formats found in has changed? Texas and elsewhere; Part III lists and discusses twenty common differences. Part IV discusses oil and gas title opinion comments and requirements and makes suggestions for organizing. Part V discusses a “Form 1 Dr. Harold Weatherby, Vanderbilt University, Freshman Opinion” (Appendix E). English, Fall 1970. Part VI addresses title opinion writing style. It is 2 George Snell, A Model Form Title Opinion Format - Is it difficult if not impossible to divorce a discussion about Possible? Is it Practical?, 25 STATE BAR OF TEX. OIL, GAS title opinion structure and format from a discussion of & MINERAL LAW SEC. REPORT 2 (Dec. 2000). 1 2725328.1 Oil_________________________________________________________________________________________________________ and Gas Title Opinions: Structuring and Format Chapter 17 writing