When selling oil and gas properties, it’s crucial for an Operator to ensure that the title is clear and free from defects to maximize the transferred interest. This “curative” process involves addressing any title issues to prevent the Buyer from defecting assets or sparking any other legal or financial problems before closing. By careful due diligence, a Seller can ensure compliance with the warranties under their Purchase Agreement and a subsequent successful sale.

The most comprehensive option is to obtain title opinions or updates to prior title opinions covering the assets being sold. The opinion(s) should confirm record title ownership in the Seller, including the specific working interest(s) being warranted, and detail any defects in the chain of title that need to be corrected. Such defects could include a myriad of estate or heirship issues depending on the state where the assets are located, such as unrecorded probate proceedings, insufficient heirship affidavits, or missing distribution deeds. Where gaps in ownership appear, it may be necessary to conduct heirship research. Curative for such gaps might include initiating probate proceedings for unadministered estates or, depending on the state, filing heirship affidavits. Commonly, estates may be probated, but the proceedings are not filed of record in the county where the property is located. In such cases, the title can be perfected simply by obtaining and filing a certified copy of the proceedings, where the estate was probated in another county of the same state in which the property is located, or exemplified proceedings, where the estate was probated in a different state.

The deeds or assignments in the chain of title may also contain any number of errors, such as incomplete lease schedules or ambiguous grant language, for which corrective instruments or stipulations may need to be drafted and filed for record to perfect title.

It is also necessary to carefully analyze the underlying lease agreements, as they may include terms or restrictions on lease assignments, such as obtaining lessor consent or the lessor having a preferential right to purchase. If federal or state leases are being transferred, the governing agency may have very specific requirements for effecting and recording lease assignments. Examination may also reveal a variety of errors in the underlying leases. For example, an insufficient land description may require a lease amendment, or it may be necessary to obtain lease ratifications from additional parties. A thorough title examination will also reveal any encumbrances on the assets, such as mortgages or tax liens, which need to be cleared or subordinated before sale. Ultimately, what constitutes a “defect” may be governed by the terms of the Purchase Agreement. In certain circumstances, operators may prefer to issue payments based on signed division orders rather than costly and time-consuming clean-up.

By careful due diligence, an oil and gas Operator can prevent title issues from arising during a sale and ensure a smooth transaction. Proper title curative will protect both the Operator and the Buyer from future legal disputes or financial liabilities. The RR&A team is experienced in assessing risk and curing title defects, including those detailed above, and is ready to assist you in your next transaction! Contact us today.