Insights

Camille Nichols

Recent Posts

Leasing

We understand the importance of accurately securing mineral rights. A sound development plan, includes verified ownership of the leased minerals. Most companies decide to: (1) either acquire the minerals outright (owned in fee simple) and let other operators lease and pool their minerals into their development programs, or (2) lease the minerals from the various owners in the locations and formations of interest. In either strategy, correctly identifying the mineral owners is key to the development process.

Below we’ve compiled the most common questions about the oil and gas leasing process.

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Insider, Land Management, Leasing

As veterans in the oil and gas industry, we know that learning the terminology is vital to navigating lease acquisitions and interpreting title research. Whether you are a newcomer or well-versed in the business, there is never a shortage of learning opportunities. At Cinco, we enjoy providing community and client education on the varied dimensions of land and title work.  We’ve compiled a selection of terms and brief definitions to conveniently help you refresh your knowledge.

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Land Management

When you are actively pursuing an opportunity in the oil and gas industry, whether it’s making an investment in an E&P company, buying minerals rights, or acquiring leases, having access to the right information and the right team to execute is critical from a value and timing perspective. While land management companies provide a multitude of benefits to the market, here are six greatest advantages they offer.

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Acquisitions & Divestitures, Mineral Buying

Title due diligence in certain transactions may seem like an onerous part of the deal, causing some to speed through it and overlook critical issues. Your due diligence process is the most effective insurance policy against title busts and loss of mineral value.  However, in our experience, we have seen some big mistakes made by mineral buyers that generate big regrets down the line.

Here are four big mistakes we see made all too often:

  1. Overlooking Location-Specific Risks
  2. Not Getting the Executive Rights or Other Rights to Lease
  3. Acquiring Partial Rights Only
  4. Skimping on the Diligence
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Land Management

Successful dealmakers and investors understand the value of getting the right information to evaluate a new opportunity. Likewise, in the oil and gas space, having a solid understanding of a prospective investment play will enhance the quality of the assumptions and help set realistic expectations. This is particularly true when it comes to mineral title, land title and other regional title issues. An informed buyer will always conduct an assessment of title complexity, potential ‘red-flag’ issues, and the length of time it will take to confirm title.

Questions that should be asked, for example, are:

  • How old is the title and what kind of access information will you have to work with during due diligence?
  • What are the costs associated with title due diligence and title curative?
  • How hard will it be to obtain fill-in acreage or hold on to your acreage post-acquisition?
The answers to these questions will vary widely and differ from state to state, or basin to basin, so obtaining the targeted information is important.  Our regionally-focused teams across the United States collaborate with clients to provide this kind of insight at the outset of a deal and throughout the asset management process. The following highlights a sample of common title characteristics of three of today’s most active regions.  
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Land Management

For energy professionals and investors with limited experience in the business of oil and gas land management, the details can seem daunting, or worse, be treated as an “afterthought” to other steps in the E&P value chain. The simple truth is, diligent upkeep of your land and title matters will pay great dividends, both in the short and long term. Poor land management, on the other hand, can lead to loss of acreage, interference with operations and, ultimately, put you at a disadvantage when it’s time to sell your oil and gas assets. 

The following three factors help extract maximum value from an E&P investment:

1) the quality of the title you acquired,

2) the efficacy of your asset management program, and

3) your divestment readiness.  

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Acquisitions & Divestitures, Due Diligence

Negotiating and executing oil and gas transactions are never simple endeavors. Transactions require careful analysis and decision-making on a range of issues to ensure you are making a deal that satisfies your objectives.

It is not always feasible to gather internal resources to support the oil and gas acquisition or divestiture process, particularly around title due diligence. Most deal terms provide for a relatively short due diligence period, thereby requiring a dedicated group of experts to examine the assets ahead of closing. Hiring an external party to get the job done will most likely be a necessity. When that occurs, it is important to know what you don’t know.

Here are some keys to getting the most value out of your title due diligence team:

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Acquisitions & Divestitures

When it comes to acquiring any type of asset, it’s important to keep your eyes open across all aspects of the business—from its past performance to its future potential earnings, and everything in between. This is particularly so when evaluating oil and gas acquisitions on the heels of several declining years, during which staff was lean, bankruptcies were common and things were left undone…leading to more physical defects, as well as financial problems. Thus, the need for careful and thorough evaluations performed by qualified professionals in land and title matters.

Tips to consider

Before finalizing that offer to acquire your next O&G entity, we suggest you take the following tips into consideration.

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Land Management, Leasing

Many landmen, companies and operators mistakenly assume that the application of oil and gas law is the same throughout all of the United States but when buying leases or researching title, it is extremely important to understand that every state has its own idiosyncrasies.  Pennsylvania is no exception, with relatively modern technical legislation and regulation, a backlog of pending litigation and existing precedent on many issues Pennsylvania is at odds with the law of most modern producing states.  Pennsylvanian law is full of potential leasing and title pitfalls, this article will discuss three such oddities: the Dunham rule, the apportionment rule, and how seated vs. unseated land affects title washing.

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Due Diligence

When conducting an acquisition due diligence review, it is important to understand the terms and conditions of the purchase, and the affect that the terms and conditions will have on the review. The definitions section of the Purchase and Sale Agreement (“PSA”) will define such terms and further guide you on how to effectively conduct your review. Terms such as pertinent dates, how to calculate net acres, excluded assets, title defects, and encumbrances are just a few items defined in this section of the PSA. When conducting due diligence, it is important to understand these definitions up-front, as the way they are defined will dictate how downward adjustments to the purchase price are applied.

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