EDUCATIONAL ANIMATIONS

FAQs

What is a "landman"?

An oil and gas landman performs a variety of services to oil and gas operators. Landmen examine title to surface and mineral interests, negotiate oil and gas leases with mineral owners, corrects defects in the chain of title to leased minerals, and provide other services required by industry clients. It is the landman's responsibility to correctly determine mineral ownership and to lease interests that will benefit his client's exploration program.

What is a female landman called?

Landman is a generic term in the industry and is used by persons of either sex to describe their vocation and responsibilities.

Are there different types of landmen?

Yes. In house landmen are full or part time employees of an oil company, work in company offices, and oversee field landmen and other industry professionals working on company projects. In house landmen are responsible for all facets of drilling oil and gas wells, from initiating title examination to well completions. Field landmen are the face and voice of their clients, the oil companies. Field landmen perform title examination, lease negotiation, and other duties, under the direction of in house landmen.

Why do oil and gas companies hire landmen and land service companies?

As does everyone, oil and gas companies have budgets. It is impractical for companies to employ all the landmen necessary to assemble leases covering the acreage required for specific drilling projects.

As an exploration project matures from the title examination and lease acquisition stage to the drilling and production stage, an oil company will require fewer and fewer field landmen; a situation accommodated by the systematic release of field landmen to maintain equilibrium of personnel-to-task.

Land service companies, such as PennPacific, maintain a roster of qualified field landmen from which they select personnel to meet a client's requirements. Service companies are often referred to as "lead brokers" and the subcontracted landman may be referred to as brokers; these are generic terms in our industry.

What does a landman do in order to identify a mineral owner?

An oil and gas firm contacts a field landman about a pending project. In house landmen provide the field landman with plats of the area of interest and lease buying authority. Buying authority includes the maximum net mineral acre bonus consideration and production royalty that the client is willing to pay and the minimum number of years acceptable for the primary term of a lease. The field landman then examines public records to establish mineral ownership in his client's area of interest, makes contact with mineral owners, and enters negotiations for oil and gas lease acquisition.

What occurs once a field landman identifies a mineral owner?

Once mineral ownership is established the field landman, pursuant to the directives of his client, will contact the owner to make a lease proposal; the terms of which will be within parameters set by the client. Factors that influence lease proposal terms include current and projected commodity market prices and conditions, physical location of the tract, geological features, and availability of production infrastructure, such as pipelines.

What if I own minerals, in part or in whole, but not the surface, of the tract on which the oil and gas operator takes a lease? See note below.

Land consists of two "estates" - the Surface Estate and the Mineral Estate. In most instances the persons who own the Surface Estate also own part or all of the Mineral Estate. One way to describe with whom a landman will negotiate an oil and gas lease is by the following example:

EXAMPLE: Owner "A" owns all of the Surface Estate and an undivided one-half of the Mineral Estate in a 10-acre tract, with Owner "B" owning only an undivided one-half of the Mineral Estate in the same tract. To insure that his client has all of the Mineral Estate under lease, a field landman will have to negotiate with both Owner "A" and Owner "B" for separate oil and gas leases. In this example, each lease would cover an undivided one-half of the Mineral Estate, i.e., each oil and gas lease would cover an undivided 5 net mineral acres of the 10-acre Mineral Estate in the tract.

NOTE - SCENARIOS IN THIS FAQ SECTION ARE NOT OFFERED AS OR INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE OR COUNSEL. EXAMPLES HEREIN ARE USED FOR ILLUSTRATIVE PURPOSES ONLY. CONSULT LEGAL COUNSEL ABOUT ISSUES IN YOUR JURISDICTION.

If I own all the Surface Estate but not all of the Mineral Estate, can I prevent the owner of the balance of the Mineral Estate from leasing his minerals to an oil and gas operator? If I do not execute an oil and gas lease covering my Mineral Estate interest in the tract can I prevent development of the tract for oil and gas? See note below.

In most jurisdictions the Mineral Estate is superior to the Surface Estate. The answer to the first part of the question is either "No" or "Not likely." With regard to the second question, in most instances the partial owner of a Mineral Estate interest may execute an oil and gas lease covering his interest [only] irrespective of whether the owner of the Surface Estate executes an oil and gas lease.

NOTE - SCENARIOS IN THIS FAQ SECTION ARE NOT OFFERED AS OR INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE OR COUNSEL. EXAMPLES HEREIN ARE USED FOR ILLUSTRATIVE PURPOSES ONLY. CONSULT LEGAL COUNSEL ABOUT ISSUES IN YOUR JURISDICTION.

After a lease form is agreed upon and executed by the mineral owner are other steps necessary prior to drilling a well and establishing production?

Yes. Inasmuch as the chain of title to virtually any tract of land is never perfect, oil and gas operators engage an attorney to examine the title to the Mineral and Surface Estates to ensure that all mineral owners have been leased. The attorney will author a "Title Opinion" which identifies defects in title and makes requirements that must be fulfilled to "cure" defects in title. Field landmen contact the parties necessary to correct title defects to perform corrective measures set out in the title opinion requirements. Once all requirements in the title opinion have been satisfied the in house landman will "clear" the title for operations.

What is Lien Subordination?

Many oil and gas leases cover interests already subject to a mortgage or other type of lien. Most liens are created by borrowing funds to purchase a tract of land, to build a house on the land, or to otherwise improve the property.

When an oil and gas operator wishes to develop a lease it will ask the owner of a lien on the property to subordinate that lien to the oil and gas lease. Because a single well costs millions of dollars to drill and to complete, operators obtain subordinations of each lien that existed on the date the lease was taken. In the event a borrower defaults on a loan the operator wishes to be certain that his lease will be isolated from lender action resulting from the default.

Obtaining a subordination involves several steps. Many lenders require a landman to provide proof of the borrower's consent for the lender to deal with a landman. The landman will contact the borrower to request execution of a consent form, usually provided by the lender, which advises the lender that the borrower is aware of the process. After it is obtained, the landmen will send the borrower's consent form [and a service fee, if any] to the lender in exchange for a subordination of lien.

Frequently lenders sell mortgages to other institutions. Often notice of such sales do not appear in the public record; which forces a landman to ask a lessor to whom he is making mortgage or similar payments. Such questions may appear intrusive but in fact there may be no other way for a landman to determine what entity should grant a subordination.

Do oil and gas companies take leases solely to "hold my land"?

No. Oil and gas operators work on large, expensive projects; they invest hundreds of millions of dollars in a prospective area. While it may take several years to lease sufficient land to make a development area economically viable, oil companies do not take leases merely to "hold land." Every dollar that goes into the geological conception and lease acquisition in a prospective area is money that an operator would like to recoup as soon as possible; inaction only costs the oil and gas operator money.

When will the oil company commence operations?

There is no definitive answer to this inquiry. Factors that determine when an operator commences operations on a lease include current and projected commodity market prices and conditions, physical location of the tract, geological features, and availability of production infrastructure, such as pipelines.