Buying and selling real estate isn’t as simple as buying groceries or clothes. There are lawyers and other third parties involved. Also both buyers and sellers have to complete certain processes to make the transfer smooth. The oil and gas industry is no exception, as buying and selling mineral rights is not that simple either.
One of the terms you’ll hear in the buying and selling of mineral rights and royalties is ‘clear title.’ If you’re part of such a transaction, it’s important to understand clear title meaning.
Clear Title Definition
According to Investopedia, a clear title is a title to a property without any kind of lien or levy from creditors or other parties. A clear title means there are no questions about the rightful and legal ownership of the property. The person or entity with a clear title is the sole owner of the property in question.
A clear title is also sometimes called a clean title or free and clear title.
Now, this clear title definition is for the real estate industry, but it’s pretty much the same for the oil and gas industry as well. The clear title may be related to the property, i.e., clear title to mineral rights.
Clear Title in Oil and Gas Industry
For companies and entities who have an interest in oil and gas (mineral rights), looking for a clear title is an important step. In fact, it’s one of the earliest things to check off the list before any kind of exploration or extraction even begins.
Ensuring a clear title of ownership for mineral rights is necessary for a variety of reasons:
- Possible Disputes: The main purpose of ensuring a clear title is to avoid any potential disputes to the ownership of the property. Anyone claiming to be an owner later on when the work has begun can result in immediate cessation of the oil field and lawsuits in court. Another possible dispute may be the land being already leased to another oil or gas company.
- Law Violations: The parties need to ensure that they aren’t breaking any laws of the state.
- Timely Curative Steps: Even if the title isn’t clear, detecting the problems can allow the parties to take timely measures to make it clear. This can save the parties a lot of hassle going forward.
The onus of ensuring a clear title mainly falls on both the buyer and seller or lessor and lessee. They should ensure that they, in fact, have the right to make the transfer and finalize the sale.
Disputes can result in delays in drilling and production processes. That can result in a daily loss of millions for the oil or gas company and the loss of royalties for the owners. Not to mention, the exorbitant fee of lawyers to settle the dispute.
In many states rich in oil and gas deposits, land ownership may be distributed among many parties. Not all parties may be documented on the title of the property. Not all parties may even be alive.
Moreover, for oil and gas companies, it’s important to ascertain who has surface rights and who has mineral rights, regardless of which rights exactly they are purchasing or leasing.
Who Clears a Title?
The process of ensuring a clear title for the land ownership or mineral rights is called ‘title examination.’ Typically, law firms and attorneys take on this job to ascertain a clear title on behalf of the parties involved in the transaction.
It’s their job to determine and complete the due diligence of authenticating ownership rights. They may review the title records and trace different transfers that the property has been subjected to. They draw down the lineage of ownership to see if there’s any dispute at any stage.
If they find faults in the deeds or a possible ownership dispute, they can recommend and carry out curative measures to clear the title. This is called curing title defects.
In many cases, the dispute may arise because of separation or divorce, or perhaps heirs of a dead owner not being documented properly.
In addition to finding ownership disputes, title examination also involves ensuring there are no outstanding financial liabilities on the owner, e.g., unpaid taxes or loans.
It’s always best to use a law firm or lawyer with direct experience in the oil and gas industry. Although title research and title examination are also part of real estate transactions, when it comes to mineral rights, things can be a little bit different. A lawyer with knowledge of oil and gas fields-related laws, especially those about mineral rights, can do a better job.
Similarly, it’s advisable to use an in-state attorney who can get easy access to public documents. Make sure they can physically meet the parties involved in the transaction.
How Much Does it Cost to have Clear Title?
It’s important to note that title examination and title clearing are two separate things. A clean title would result in costs only for the title examination. However, an unclean title would also require curative measures for clearing it, which is an additional cost.
The total cost of the process may vary case by case. Furthermore, one or both parties may bear the cost. It may be in the interest of an oil company to pay for title clearing. These are for curative measures for a lucrative land.
An attorney can give you a quote for such services. Costs may also vary depending on where the land or property under question is.
Now that you understand its meaning, you know that it’s a must for all parties involved. Especially in the buying and selling of oil and gas mineral rights. It can later result in problems for both parties. For instance, production may halt, or royalty payments may stop because of a later revelation of unclear title.
Therefore, it’s important for either party to hire competent attorneys for title research and examination. This can ensure that the transaction is completely legal and that all rightful owners are on the table.