LAND RIGHTS

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Contents

Purpose

The Land Mineral Rights Module is part of the PPDM Land Model that is designed to provide and manage information related to the administration and management of the land assets and rights obtained by an Oil and Gas company, individual, or government body through purchase, lease or agreement.

Description

The Land Mineral Rights Module addresses all data related to title ownership and subsequent issuance of agreements that grant access to a “bundle” of mineral rights for a specified period of time. A bundle of rights may include one or many substances in one or many zones, and may be constrained by specific exclusions of a substance or zone.

Mineral rights are typically described geographically by describing the surface locations and zonal definition to which the mineral rights are referenced. Possession of a mineral right may not imply that the holder also has any surface or access rights.

Mineral titles are encumbered by proof of ownership in land demonstrated by various documents. Agreements may be in the form of mineral lease agreements or concessions. Another may be through a financial institution, such as a mortgage. Ownership in land may be registered through a government agency such as a land titles office In general terms, an encumbrance is a way of describing an interest in land, and is supported by a legal document or agreements.

Adherence to financial, operational, and reporting requirements are administered according to terms and conditions of an agreement or legislated governmental acts, regulations, and/or policies.

Key Business Processes

Four key business processes encompass the life cycle activities of Land Mineral Rights.

Landrightlifecycle.JPG

The key business processes for each life cycle are detailed below.


Pre-Acquisition

Pre-acquisition activities primarily involve the strategic planning and research that facilitates the decision to acquire an interest in granted rights by way of various types of land rights (lease, license, concession, etc.). Various business functions are part of this phase.

This phase requires an accurate and timely evaluation of many aspects of the desired granted right. In the evaluation process, data is compiled, interpreted, analyzed, and summarized. Examination of the common characteristics of similar land mineral rights is completed to determine the relative value, occurrence, or similarities. Land mineral rights may be related geographically, geologically, structurally, economically, environmentally, agriculturally, or politically. Other factors considered are land right value, risk, accessibility, regulations, availability of market or construction materials, exploitation potential, or historical similarities. Values, such as operating, transportation and marketing expenses, projected production volumes, and other measurements will be used in calculations when applying economic formulas.

The next key requirement is the determination of land ownership and what type of Business Associate the owner is (an individual, a company, a consortium, or a governmental body). A decision to proceed with the acquisition of a land right interest might then be initiated upon the completion of further economic evaluation and risk assessment.

Restrictions also must be identified and considered during the pre-acquisition phase. Physical, environmental, geographic, geological, economic, or political constraints may affect a Business Associate’s decision to proceed with acquisition of land mineral rights. Restrictions may be imposed by regulatory bodies or by nature, and may prevent or affect operations and consequently impose a high degree of risk or economic burden. An example of a very high-risk restriction could exist if the land mineral right lies within an extremely environmentally sensitive area that is under application to be classified as a world reserve.

Taking all the information gathered and compiled above, a Business Associate would run its economics, and the result of these calculations will then be combined with the predicted costs associated with the land mineral rights. A final decision should be made at this time to make the decision to proceed to the acquisition phase.

Acquisition

The acquisition of the land mineral right involves the preparation of a submission or request to secure the ownership, right, or interest through a variety of methods. If a land right is unleased and owned by a regulatory body, the submission of a posting request in the form such as a lease or license for an upcoming competitive public bidding process may be required. A direct negotiation with the relevant regulatory body or government may be necessary in the case of a land right such as a concession.

Land rights (leases, licenses, concessions, permits, etc.) are often issued in “standard” form agreements from a regulatory body or in an agreed upon form between Business Associates in the case of agreements issued by individuals or companies. These agreements have common elements such as: term (specified period of time), terms and conditions, geographical description of the location, subsurface description of substances and formations, lessor, lessee, address for service, payment instructions, associated fees (rental amounts, royalty rates, bonus consideration amounts, relevant taxes), restrictions (environmental, surface, political), and effective date.

Restrictions are also stipulated within the lease agreements and usually remain with the lease during its term.

Land mineral rights can also be obtained through meeting terms and conditions of a negotiated contract. A Business Associate can purchase or earn the right to land mineral rights through a contract such as a purchase and sale agreement or a farmin or pooling agreement. Transfer of ownership must occur from one Business Associate to another by way of an assignment or transfer that may or may not require registration with a regulatory body.

Maintenance

Maintenance business processes result from complying with the terms and conditions of the land right agreement (lease, license, concession, permit, etc.). Compliance is accomplished by meeting all financial obligations quickly and by performing all required duties.

An example of a financial obligation on a lease agreement would be to satisfy the delay rental. It may be a requirement that the payors split this payment among partners based on their share of ownership.

An example of a duty on a land mineral right would be to serve notification to the lessor when a transfer of ownership has occurred. Additional notices regarding the change of Business Associate responsible for the operation and maintenance of the lease may also be required.

In some cases, a commitment to perform some work may be a condition of the land right. This condition may be expressed as a requirement to drill a certain number of wells, shoot a defined number of seismic lines, or to spend a minimum amount of money on exploration activities. In each of these cases, the ability to be able to indicate precisely what seismic was acquired, which wells were drilled, or how many dollars spent in relation to the obligation is necessary.

Continuations or extensions beyond the primary term depend on the type of agreement or regulation requirements for a jurisdiction and could require preparation and submission of forms, reports, or correspondence to validate the request. Supporting data may also be required, such as the name of a well drilled with associated tests and production rates or geological/geophysical data that substantiates the existence of undeveloped reserves capable of production.

Tracking of changes in ownership or partner interests (interest sets) over time including the past, present, and what it might be in the future are an important part of agreement maintenance. This data is required to ensure that revenue and expenses are allocated accurately and notices are served to the proper individuals or partners.

Cost forecasts and revenue projections provide managers with critical information about how to manage a portfolio of land rights. Reports or maps that summarize what land is held, how much money has been spent already, or how much should be allocated for the next fiscal year comprise key components of the information needed by managers.

Relinquishment

Relinquishment comprises the information related to the research, planning, and execution stages of relinquishing granted rights through natural expiry or early surrender of the land rights. Natural expiry occurs when the primary term of an agreement has expired, and exploration and production efforts have been unsuccessful. A change in strategic plans can cause a Business Associate to cease their focus and concentration on exploration and development in a specified area of interest. This decision could initiate a quit claim, early surrender, or divestiture/trade of the land right.

Certain notifications are required to completely dispose of an interest in land and subsequently relinquish a land right. As an example, a notification to the lessor of an expiring lease agreement would be provided to indicate that a producing well had not been drilled during the primary term and that all registered encumbrances (caveats) would be withdrawn.

The preparation of release documentation is imperative to ensure that the ownership, right, or interest in the agreement from one Business Associate to another occurs. Some examples of release documentation for land mineral rights may include assignments, transfer documents, division orders, quit claim agreements, and withdraw and discharge of caveats.

All terms of a lease agreement must be complied with prior to its relinquishment. If these terms have not been complied with, a Business Associate may retain unknown liabilities.

A land mineral right can only be relinquished when the Business Associates have met all the required obligations, commitments, and regulations. They must use the proper method of disposition to be considered free and clear of any possible liabilities or future interests.

The PPDM Land Mineral Rights module and associated sub-modules (see Integration) provides oil and gas companies, governmental agencies, and data providers with a method and a data structure to manage and store vital information throughout the life cycle of a land mineral right.

Spatial Descriptions

Land parcels can be described in various ways, depending on where you are on the planet, and what regulatory agency you are dealing with. All spatial information, including information about mineral rights or zones, and the substances in then, is described in the SPATIAL DESCRIPTIONS. Please use SP_COMPONENT to link the land right to the appropriate spatial descriptions.

When describing the SPATIAL DESCRIPTIONS for a LAND RIGHT, create a row in SPATIAL_DESCRIPTION for each parcel of land that has a contiguous surface, subsurface, mineral and substance definition. Many land rights will only require one spatial description, but in some jurisdictions it will be common to require more than one entry. Land rights in Western Canada often contain these complexities.

The areal extent (on the ground) of a land right may be described by legal parcel definitions (common in North America), by geographic coordinates, such as polygons (common in offshore operations), or by narrative descriptions (related to some of the original colonial systems). Many methods for referencing the areal exent of a land right are supported.

The mineral extent of the land right (or any other object that requires depth, stratigraphic or substance information) is described in SP_MINERAL_ZONE. Note that you can capture qualifying information, to specify that the right extends to the TOP or BASE of a formation.

In some cases, the mineral rights are also is restricted by substance (which may be explicitly included or excluded, depending on how the lease is worded). This information is contained in SP_ZONE_SUBSTANCE. We urge the user to be explicit in this listing - list all the substances included and specifically list those that are excluded, if the agreement lists them. Inferring that a substance is not included because it is not shown on the substance "included" list can be misleading and dangerous. This can be very important to land managers!

A regulatory agency may use a specific definition to describe the zones; this information is contained in SP_ZONE_DEFINITION. As the regulatory agency modifies zone definitions, so that a new one replaces the old, relationships can be captured in SP_ZONE_DEFIN_XREF.

Tables

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