For federal oil and gas leases, examination of the title documents is vital for the operator to understand the ownership and identify any title defects or other potential business risks prior to commencing drilling operations. For a recently issued federal oil and gas lease, examining title is likely to be a straightforward and quick process. On the other hand, examining title to a federal oil and gas lease issued several decades ago, covering multiple sections, and previously developed, is likely to be a complex and time-consuming process. In either event, a title examiner must look at several different sources to get a complete picture of chain of title and be able to confirm the term and status of a federal oil and gas lease. This article provides a summary of the sources necessary to examine title to a federal oil and gas lease.
1. BLM Records
a. BLM Lease File. The most obvious source of title is the lease file maintained by the Bureau of Land Management (“BLM”). The lease file contains documents relating to the lease sale, a copy of the lease, rental receipts, lease status notices, any filed assignments, and other documents, such as those relating to communization agreements. Federal regulations require that an assignment of record title or a transfer of operating rights be filed on prescribed forms and approved by the BLM to be a valid conveyance recognized by the United States.[1] Federal regulations also require that transfers of overriding royalty interest, production payments, and similar interests to be filed with the BLM,[2] although such assignments are not approved by the BLM.
The examiner should be aware that a lease may have been created by segregation from another lease—for example, by assignment of 100% of record title interest in a portion of the leased lands or by commitment of less than all of the leased lands to a federal unit. In such instances, it is important to also examine the original lease file from inception until the time that the original lease was segregated into the new lease to understand the complete chain of title and confirm the term and status of the new lease. For example, there could be an overriding royalty interest or other burden on production in the original lease file that is applicable to the new lease.
BLM lease files are not online and must be reviewed at the relevant BLM office.
b. Online Sources. In addition to reviewing the BLM lease file, there are several online sources that provide useful information and should also be reviewed when examining title to federal oil and gas leases. The first three sources below can be accessed on the website for BLM’s General Land Office, glorecords.blm.gov for most states (or links to the relevant state websites can be found on the website), while BLM’s LR2000 system can be accessed at www.blm.gov/lr2000/.
i. Patents. A patent search should be conducted to determine if any patents have been granted on the lands in question and, if so, to determine if any mineral and other interests were reserved. In the case of a federal oil and gas lease, oil and gas ownership and rights should have been reserved by the United States.[3]
ii. Historical Index. The historical index for a township provides information in table form regarding all actions and authorizations for a township until a certain date in chronological order. This information includes the serial number, date, and affected lands for each authorization or use. For instance, the historical index provides information regarding land withdrawals, patents, issuance and termination of leases, and rights-of-way.
iii. Plats. The BLM maintains a master title plat in addition to other possible use plats (such as oil and gas, coal, and potash plats, etc.) for each township. These plats indicate which lands are currently owned by the federal government, agency jurisdiction, and rights reserved to the federal government on private land, such as a mineral reservation in a patent. Additionally, plats are useful tools to determine what rights may exist on the lands, such as rights-of-way, fences, land management areas, and other uses, and should include the relevant federal oil and gas lease. As a practice tip, a plat may contain notations on the side of the plat, such as secretarial orders affecting the entire township, that can be easily overlooked when examining the plat.
iv. LR2000. The BLM’s LR2000 system is a highly useful resource that provides reports on BLM authorizations. Of these reports, a geographic index report listing the authorizations for a specific section of land and serial register pages are commonly used by title examiners. Serial register pages are essentially a snapshot of the BLM authorizations, including the relevant federal oil and gas lease, and contain relevant information, such as its status (active, expired, etc.), affected lands, acreage amounts, relevant dates (e.g., the effective date and expiration date), and other useful information, such as if production was achieved and any communitizations involving the federal lease. Additionally, the serial register page indicates the current record title owner and any operating rights owner recognized by the BLM and may contain entries relating to recent assignments that have not yet been included in the lease file.
2. County Records
County records are another necessary source to examine the complete chain of title and confirm the term and status of a federal oil and gas lease. In most states, filing documents with the BLM does not provide constructive notice. Instead, constructive notice is provided to other parties by recording the instrument in the appropriate county office. Because certain documents must be filed with the BLM (as noted above), this often results in two separate chains of title—one in the federal lease file, and the other in the county records. Frequently, these chains of title do not entirely match each other. This can be problematic if, for instance, the amount of interest assigned in an instrument included in the federal lease file contradicts the interest conveyed in a counterpart county document. Often, however, the two chains of title are useful to explain gaps that appear in the other chain of title, such as missing assignments or mergers, and to understand the intent of parties when their intent may be unclear by reviewing just one of the chains of title.
As noted previously, assignments filed with the BLM must be on prescribed forms. Because of this, parties are limited as to what can be included on these assignments. County documents have the advantage that they do not need to be in a certain form, beyond any statutory or other legal requirements and any requirements for the the document to be recorded in the county, such as signatures being acknowledged by a notary or including a legal description. This flexibility allows parties to include additional provisions in the instrument and to incorporate other documents by reference, such as an unrecorded purchase and sale agreement between the parties (although states vary in their treatment to referenced unrecorded agreements). Additionally, parties can record assignments in the county that are not recognized by the BLM, such as wellbore assignments, term assignments, or assignments containing reversionary rights. Although the BLM does not recognize these types of assignments, these documents are binding between the parties and on third parties who have constructive notice.[4]
3. Other Records
Finally, it is important to review any relevant states regulatory or commission sources. State regulatory or commission websites vary depending on each state. Records that can be found at these sources may include administrative orders (such as pooling or spacing orders), well files, and production records. These records are an important source to understand the history and status of the lease. For example, the BLM lease file may indicate that a federal oil and gas lease achieved production during its primary term and is held past its primary term by production. In such instances, it is important to review the production records to ensure that there is still sufficient production on the leased lands (or lands communitized or unitized with the leased lands) to continue holding the lease.
In summary, whether the records are straightforward or complex, by reviewing the sources above, a title examiner can be confident that they are obtaining a full picture of the title and status of a federal lease oil and gas lease and can identify any potential pitfalls that exist.
[1] 43 CFR § 3106.4-1. See e.g., River Gas Corp. v. Pullman, 960 F. Supp. 264, 266 (D. Utah 1997) (“It is well established that a party must receive the approval of the Secretary of the Interior in order for an assignment of a government lease to be valid.”).
[2] 43 CFR § 3106.4-2.
[3] Patents may also be recorded in the county records. However, the BLM maintains the original copies of patents, while copies in the county were often recorded on patent “forms.” Due to human error, at times the wrong county form was used and the county copy conflicts with the BLM copy—e.g., the copies may conflict as to what rights were reserved by the United States . Because of this, the title examiner should rely on the patent copy maintained by the BLM.
[4] Although county documents do not need to be on prescribed forms, it is common to see BLM form assignments recorded in the county records.