If faced with a short timeframe or budget to perform diligence, consider performing an audit of high-value upstream interests. Use the reserve report to select high value properties and engage landmen to review the Borrower’s land records and county real property records. A review of the Borrower’s records should include:
•Land Records
•Title opinions on producing properties
•Landman lease take-offs or mineral ownership reports for non-producing properties
•Oil and gas leases, joint operating agreements, and other material contracts. Is the Borrower in default of any Joint Operating Agreement (JOA) obligations and, if so, what are the ramifications? Are there assignment restrictions limiting the mortgaging or granting of security interest in properties? Are the oil and gas leases in the primary term or held by production?
•Lease files
o Division orders
o Royalty check stubs or revenue checks
o Landman notes and conveyance instruments
o Interviews with personnel in charge of land department