.0Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

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F I S C A L I M P A C T R E P O R T

SPONSOR Bandy

ORIGINAL DATE

LAST UPDATED

2/17/07

3/01/07 HB 925/aHENRC

SHORT TITLE Title Insurance Info on Mineral Leases

SB

ANALYST Wilson

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Energy, Minerals & Natural Resources (EMNRD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of HENRC Amendment

The House Energy & Natural Resources amendment adds the requirement that binders must also

contain information as to the existence of mineral leases.

Synopsis of Original Bill

House Bill 925 will require all title insurance policies issued in New Mexico to include copies of

all recorded oil, gas and mineral leases relating to the insured property. It will require each title

policy to contain a statement that no other recorded mineral lease documents exist and

furthermore that the title policy does not insure mineral rights.

FISCAL IMPLICATIONS

There is no fiscal impact.

SIGNIFICANT ISSUES

The PRC noted title insurance policies in New Mexico do not insure mineral rights, whether

House Bill 925/aHENRC. – Page

2

owned or leased. This bill will therefore require title agents to incur additional work that does

not pertain to their duty under 59A-30-11 to determine the insurability of a title. Furthermore,

recorded mineral lease documentation can be extremely voluminous and complex and often

involves searching the records of the State Land Office in Santa Fe and the U.S. Bureau of Land

Management as well as of the County in which the property is located.

The time and expense involved in performing many title searches and examinations will increase

substantially, leading to increased title premiums and lengthened real estate closings. It will also

greatly increase title agents’ and insurers’ legal exposure to errors and omissions in their title

searches.

EMNRD provided the following:

Under New Mexico law, an owner of oil, gas or other minerals has the right to use so

much of the surface of the land as may be reasonably necessary to produce the minerals,

even if someone else owns the surface. The owner of the surface cannot exclude the

mineral owner or prevent it from using the surface for oil, gas or mineral operations.

Presumably this bill is designed to provide disclosure of oil, gas and mineral leases to a

surface purchaser so that the purchaser will know that his or her title is subject to those

rights.

Recently, State Parks Division (SPD) negotiated surface use agreements with two

separate oil and gas operations after SPD purchased the surface estate. Although SPD

was aware of separate mineral interests to the property, it did not have copies of the

leases. HB 295 will help by providing copies of the leases to holders of title policies.

The bill, however, will provide incomplete, and, in some cases possibly provide buyers

with unreliable assurances that the lack of mineral leases signifies the property is free of

any mineral claims. A sophisticated purchaser with access to legal counsel will know

how to determine from the exceptions noted on existing title insurance forms that

someone else may own mineral rights and may have rights to use the surface for mining

or drilling. An unsophisticated purchaser may be mislead by the statement that there are

no leases recorded affecting the property, not realizing that the owners of the minerals

have the right to use the surface for mineral development themselves even if the minerals

are not leased, or to make future leases to third parties without the knowledge or consent

of the purchaser of the surface. Furthermore, having copies of existing leases will not

necessarily tell the surface purchaser what rights the lessees have to use the surface.

Some mineral leases contain specific provisions with respect to surface use, but many do

not, and the absence of such provisions does not mean that the lessees do not have

surface rights.

While the bill, by providing a surface purchaser with copies of existing oil, gas and

mineral leases, may make it easier for the surface owner to discover who has rights to use

the property for drilling or mining, it will not directly provide them with that information.

Mineral leases are frequently assigned, and the bill does not require the title insurance

companies to furnish copies of lease assignments. So it will require additional research

to discover who has rights to the property. Furthermore, the leases existing at the time of

the surface owner's purchase may expire, and the mineral owners may make new leases

to other parties, before the issue of surface access arises.

House Bill 925/aHENRC. – Page

3

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

This bill relates to HB 827 in that both deal with "split estates;" that is situations where surface

and mineral interests in the same land are owned by different owners. HB 827 regulates the

terms on which an owner of oil and gas right may use the surface. HB 925 requires title insurers

to make certain disclosures regarding oil, gas and mineral ownership and leases to purchasers of

the surface.

DW/nt