CPL Due Diligence & Title Opinions 3 — Questions and Answers
Question 1: A 'division order title opinion' is specifically designed to:
- Identify all parties who must sign surface use agreements
- Establish the decimal interest for each revenue owner prior to first production payment (Correct answer)
- Determine the royalty rate owed to the state for public lands
- Certify that all environmental permits have been obtained
Correct answer: Establish the decimal interest for each revenue owner prior to first production payment
A division order title opinion establishes the ownership percentages so the operator can properly disburse production revenues to each interest owner.
Question 2: The 'warranty clause' in a mineral deed primarily protects the grantee by:
- Guaranteeing that the mineral interest will produce oil or gas
- Obligating the grantor to defend the title against lawful claims (Correct answer)
- Eliminating all future royalty obligations of the grantor
- Ensuring the grantee receives a participating royalty interest
Correct answer: Obligating the grantor to defend the title against lawful claims
A general warranty clause binds the grantor to defend the grantee's title against all claims, strengthening the chain of title.
Question 3: Which of the following situations would most likely constitute a 'title failure' that triggers a lease's title failure clause?
- A surface owner refusing to grant an access road easement
- A court adjudication that the lessor owned no mineral interest at the time of leasing (Correct answer)
- An operator failing to pay delay rentals on time
- A co-tenant refusing to ratify the oil and gas lease
Correct answer: A court adjudication that the lessor owned no mineral interest at the time of leasing
Title failure occurs when a lessor is found to have held no title to the minerals conveyed in the lease, typically triggering refund of bonus and rental payments.
Question 4: When reviewing heirship affidavits during a title examination, the landman must verify that they:
- Are notarized by a licensed petroleum landman
- Identify all heirs and are executed by disinterested parties with knowledge of the decedent (Correct answer)
- Include a mineral deed from each heir to the company
- Are filed within six months of the decedent's death
Correct answer: Identify all heirs and are executed by disinterested parties with knowledge of the decedent
Valid heirship affidavits must be made by disinterested persons with knowledge of the family to establish title through intestate succession.
Question 5: A 'mother hubbard' or 'cover-all' clause in an oil and gas lease is intended to:
- Extend the lease term automatically upon first production
- Capture small strips or parcels inadvertently omitted from the property description (Correct answer)
- Grant the lessee surface rights across adjacent tracts
- Provide a blanket royalty rate for all hydrocarbons produced
Correct answer: Capture small strips or parcels inadvertently omitted from the property description
A mother hubbard clause covers small adjacent strips or parcels the grantor may own that are not specifically described, preventing gaps in coverage.
Question 6: In examining title to a tract, the landman finds a recorded 'lis pendens.' This instrument signals that:
- The property has been condemned for public use
- Litigation is pending that could affect title to the property (Correct answer)
- A lien has been perfected against the mineral interest
- The surface and mineral estates have been severed by court order
Correct answer: Litigation is pending that could affect title to the property
A lis pendens provides constructive notice that pending litigation may result in a judgment affecting ownership or encumbrances on the property.
Question 7: What is the primary purpose of a 'Paid-Up Lease' structure in oil and gas leasing?
- To pay all royalties in advance before production begins
- To eliminate the requirement for annual delay rentals by paying one lump sum at execution (Correct answer)
- To prepay the operator's share of drilling costs
- To cap the lessor's royalty at the paid-up amount
Correct answer: To eliminate the requirement for annual delay rentals by paying one lump sum at execution
A paid-up lease requires a single upfront bonus payment covering the entire primary term, eliminating the need for annual delay rental payments to keep the lease alive.
CPL Due Diligence & Title Opinions 3
A 'division order title opinion' is specifically designed to: