Many landowners ask themselves this important question before signing an oil and gas lease. Landowners who own only the surface of their property are very disappointed to find out that they will receive no bonus or royalties from oil and gas production activities on their land. So, how can you tell whether or not you own the oil and gas rights?
The only way to properly answer this question is to obtain a title opinion from a qualified attorney with oil and gas experience. The attorney will obtain a full abstract of the oil and gas chain back to at least August 1859 (the date of Drake’s well and the date of the earliest severances of the oil and gas estates from the surface estate). The downside to this approach is the potential significant cost and delay associated with it. Oil and gas title searches are longer and more complex than regular surface title searches. Qualified oil and gas abstractors are in short supply and high demand. Full oil and gas title searches and title opinions from a qualified oil and gas attorney can take months to obtain and can cost thousands of dollars.
Moreover, this approach is somewhat duplicative. After leasing but before drilling, the oil and gas company will perform a full oil and gas title search (again, back to at least August 1859). Some companies will do some title work before offering a lease, but increasingly they wait until after a lease is signed before undertaking title examination; they often will offer a lease conditioned upon them obtaining an oil and gas title opinion showing clear title vested in the landowner.
Most landowners choose not to incur the significant expense (and delay) of duplicating the oil and gas company’s title work. Oil and gas companies generally do not rely on title work performed by on or behalf of the landowner and will perform their own title work, regardless of the results of any abstract, title search or opinion rendered on behalf of the landowner.
Things you should know:
1) Realize that deed language is not always determinative. Just because your deed doesn’t say anything about the oil and gas rights to your property, that doesn’t mean that you own your oil and gas rights. Title issues may exist from years ago which are not apparent on the face of your deed.
2) Be aware that, just because you had the “title” searched when you bought your property, in fact no one likely ever expressed an opinion regarding title to the oil and gas rights to your land. Standard title insurance policies and attorneys’ title certificates do NOT cover matters concerning oil and gas rights.
3) Realize that oil and gas rights could have been severed from the surface rights by conveyance (deed out) OR by reservation in the chain of title; prior severances may have occurred decades in the past, way outside of standard residential and commercial real estate abstract search periods.
Things you can do:
1) Engage the services of a qualified attorney to answer their oil and gas related legal questions. There simply is no substitute for the opinion of a qualified professional in this regard.
2) Before signing a lease, review with your attorney the effect of the warranty provisions of the lease on title issues and defects. Consult with your attorney regarding the relative benefit to you, the landowner, of providing a special (as opposed to general) warranty of title in the lease, and the need to address these issues concerning title defects and curative work.
3) Look at your deed. Does it have language indicating that oil and gas rights have been excepted or reserved from the conveyance? If so it is a red flag suggesting you may not own your oil and gas rights – consult your attorney.
Some landowners who have reason to suspect that they may not own the oil and gas rights to their property hire an attorney to order an oil and gas title abstract and render an opinion. If you don’t, other interested parties (for example, the oil and gas company, your neighbors, or other speculators) may identify the prior severance and seek to acquire the rights out from under you.