When is a limited title review a smart move, and when does it expose buyers to serious risk? In oil and gas acquisitions, business constraints or deal timelines sometimes push buyers toward "limited" title due diligence instead of a full patent-to-present review. While this can be a cost-effective and strategic choice in some cases, it can also result in significant losses if the underlying title is flawed.

Begin With the Basics: Qualify the Existing Title Documentation

The first step in any due diligence project should be to assess the seller’s existing title information. The quality, availability, and reliability of this documentation will ultimately dictate how much risk a buyer is taking on, and whether a limited review is even a viable option.

As long as buyers have access to adequate, reliable title documentation, the due diligence process can often be fast-tracked. Starting with well-supported information allows you to focus on confirming interests, rather than recreating title history from scratch. Unfortunately, not all deals can be evaluated that way. Proper documentation may not be available, or it may not exist at all.

This is why qualifying the seller’s title records is so important. Only after you understand what you’re working with can you construct the optimal strategy for conducting due diligence.

Know Where to Look: Sources That Support Fast-Tracked Review

Ideally, several reliable sources of pre-existing information should be reviewed before deciding on a due diligence strategy. These documents provide a foundational understanding of ownership history and current interest:

• Division Order Title Opinions (DOTOs)
• Recorded Assignments
• Payment and Accounting Records
• Production Records from the governing oil and gas authority

For undeveloped properties, buyers may use runsheets and supporting title abstracts to bring the title chain forward. These documents can help identify key events in the title history and flag potential red flags before drilling or investment occurs.

Even when time is limited, reviewing multiple types of source material helps reduce risk and build confidence in the asset’s ownership status.

In addition to primary documentation, other materials can support the assessment of title quality. These secondary sources are particularly helpful when evaluating older or poorly documented assets:

• Accounting records
• Lease purchase reports
• Division orders
• Public records from county courthouses or state agencies

Depending on the nature of the property, strategies can be devised to cross-reference these sources. By analyzing multiple distinct data points in conjunction with public records, buyers can gain a clearer picture of ownership—even when full patent-to-present title review is not feasible.

However, the level of overall certainty will vary based on the quality and quantity of the sources reviewed. It’s essential that buyers understand the trade-offs between cost and confidence, so time and money are not wasted on an ineffective title review.

A Real-World Example: When Limited Review Isn’t Enough

To illustrate the risks, consider the following example:

Company A takes a lease, but due to a lack of capital, they lease the tax parcel owner instead of running full title to confirm ownership. It turns out, the minerals on the parcel were severed 20 years earlier. The party leased by Company A only owned the surface rights; three other parties each own a portion of the mineral rights.

Company A subsequently operates for five years and then sells its sole lease to Company B, assuring them that the title is good despite their poor records. To keep costs down, Company B decides to perform a limited title review from the date of the lease to present—for the leasehold only.

In this case, Company B’s limited due diligence strategy does nothing to cure the underlying title issue. If and when a competitor leases the three mineral owners after Company B has drilled several wells, 100% of Company B’s profits from those wells will go to the mineral owners and the competitor.

This example highlights the severe economic consequences of applying the wrong due diligence strategy. Without verifying mineral ownership from patent forward, Company B never stood a chance of protecting its investment.

Balancing Risk, Strategy, and Business Objectives

Every acquisition is unique. That’s why the right approach to due diligence depends on the nature of the asset, the availability of documentation, and the buyer’s risk tolerance.

Before selecting a due diligence strategy, always:

1. Evaluate the quality of existing title documentation

2. Understand the title history of the asset

3. Let business objectives and risk tolerance inform the review strategy

Your title advisors should be able to clearly articulate the costs, benefits, and limitations of each option. A well-informed strategy not only protects your capital—it helps ensure the long-term value of the asset you’re acquiring.

Final Thoughts: Know Before You Drill

In oil and gas, what you don’t know can hurt you. Limited title due diligence can be an effective tool when applied to the right assets under the right circumstances. But when it’s used without regard to the facts on the ground, it can open the door to serious loss.

Before you move forward on a deal, make sure your diligence strategy is grounded in reality—not assumptions.

Do you have a question about how to approach your upcoming due diligence work? Feel free to contact us to discuss your options.