The Eroding Rights of Land Professionals

I am trying to get used to using the phrase “land professional” In lieu of landman since ladies are now an intricate part of the profession. There’s something about the phrase landladies or landwomen that just doesn’t sound quite right. And, although we are governed by the American Association of Petroleum Landmen (AAPL), the moniker just doesn’t seem to give the female persuasion enough credit or dignity. You are, of course, free to use whatever moniker you feel comfortable with. As for me, I’m going with land professional.

For me, it all started in Ohio with the Dundics vs. Eric Petroleum lawsuit. I am almost ashamed to say that I worked as a lease analyst for the project, actually being physically located in the office of Eric Petroleum in Austintown. It was a BP project, who had contracted with Eric to purchase hundreds of leases which they had acquired by means of independent land professionals working on commission and overrides. Problem is, I don’t think Eric anticipated the number of leases and the amount of money necessary in order to cover the up-front bonuses. It seems they got overwhelmed and decided to bail on the project, leaving the well-intentioned land professionals hanging. The matter would ultimately have to be settled in court.

The case went to court in 2017, was adjudicated, and appealed to the Mahoning County Court of Appeals, and ultimately to the Ohio Supreme Court the following year. At issue was “whether oil-and-gas professionals who help obtain oil-and-gas leases for oil-and-gas development companies must be licensed real-estate brokers when they engage in the activities described in R.C.4735.01(A)”. This statute basically questioned whether commission-based land professionals could engage in what was considered to be real estate or real property transactions. Ultimately, they upheld the judgement of the Seventh District Court of Appeals dismissing the appellants’ (Dundics et al) complaint. It was ruled that R.C. 4735.0l(A) contain “plain language” which prohibited oil-and-gas professionals from engaging in activities that required a real-estate license. It seems the commission-based form of payment had muddied the waters, and it took the Supreme Court of Ohio to clear them up.

Ultimately, with the judgement in favor of the defendant (Eric), the rule of law was now established that required most land professionals to hold an Ohio RE license, or one from another state that had reciprocal rights. The court ruled, in part, that State Law “precludes a person without a real-estate broker license from bringing a cause of action to recover compensation owed for certain real-estate activities”. It was now established that compensation based in this manner would become a real-estate transaction, and require land professionals to be licensed as such.

Exactly who did this affect? The Supreme Court ruled that “no one shall act as a real-estate broker without a license.” Real-estate broker was defined as “any person or entity who, for compensation or other valuable consideration, performs certain activities, including the lease of real estate, holding one’s self out as engaged in the business of leasing real estate and the procuring of prospects or the negotiation of any transaction which does or is calculated to result in the lease of real estate”.

The court established a broad definition of real estate, ruling that it includes leaseholds as well as any and every interest or estate in land situated in this state, excluding only cemetery interment rights. Attorneys acting “in the performance of the attorney’s duties” were also excluded as were bankruptcy trustees or executors of wills. As to others, they dismissed the argument that “the unique nature of oil-and-gas leases creates an ambiguity within the statute”, ruling that the language within the statute was not ambiguous and stating that “there is simply no exception in the statutes governing real-estate-broker licenses for oil-and-gas leases or oil-and-gas land professionals”. It seems that by litigation in 2015, the General Assembly had amended the recording statute for oil-and-gas leases in recognition that the leases and licenses created an interest in real estate.

Conclusion? It was adjudicated that an oil-and-gas lease falls within the definition of “real estate”, the negotiation of which requires a real-estate-broker license, and since the appellants held no such licenses, they were not entitled to compensation. That’s about as clear a statement as a court can make.

McDonald/Hopkins, a prominent real-estate law firm in Ohio, recommends that “landmen, land services companies and E&P companies conduct a thorough examination of their compensation arrangements in light of Dundics”. Some brokers responded by bringing their formerly independent landmen in-house as W-2 employees in order for them to be classified as “regular employees” of companies acquiring interests in real estate. They further stated that the “primary structure” for compensation of land professionals would now be unavailable, pending further legislation. Out with the old, in with the new, as the expression goes.

An amendment to legislation that passed in the final days of 2018 gave the industry some relief, exempting "land men" who negotiate oil and gas leases in Ohio from the requirement of being licensed as a real estate licensee IF they register with the Ohio Division of Real Estate and Professional Licensing and meet other requirements. Under Senate Bill 263, “land professionals” will be exempt from the requirement to hold a real estate license if they meet several criteria.

First, the professional must register with the Superintendent of Real Estate and Professional Licensing. To qualify for registration the land professional must be a member in good standing with a national, state, or local professional organization that has been in existence for at least three years and, as part of its mission, has an established set of standards of performance and ethics for oil and gas land professionals.

Secondly, the land professional must comply with a two-step disclosure process that is similar to the agency disclosure process real estate licensees must follow. The first disclosure must be made by the land professional prior to or at first contact with a property owner. The second disclosure must be given to the land owner prior to entering into any agreement regarding oil and gas leases or pipeline easements. In addition to disclosing that the land professional is registered with the Ohio Division of Real Estate and Professional Licensing and that they are a member of a professional trade association, the disclosure forms must include statements that: The oil and gas land professional is not a licensed real estate broker or real estate salesperson; That the landowner or other person with an interest in real estate may seek legal counsel in connection with any transaction involving the land professional; and That the professional is not representing the property owner. It should also be noted that this exemption does not allow a land professional to engage in activities related to the purchase or sale of real estate including a fee simple, the sale of oil and gas interests or other real estate activity. We have already established that, under existing Ohio law, persons who are the “regular employees” of oil and gas companies are exempt as are attorneys performing such acts in the course of legal services.

Relief, yes. But our rights have still been eroded. Fact is, it is more difficult now to conduct oil and gas business in Ohio than ever. Previously, the state had been known to be extremely friendly to the industry. Governor Kasich was instrumental in both allowing and encouraging exploration of the Utica Shale, an event Aubrey McClendon once described as being “the biggest thing to hit Ohio since the plow”.

The precedent was now set for other states to follow suit. Soon Florida passed its own legislation setting licensing requirements for land professionals. An active Florida real-estate sales associate license is now required not only to list or sell a property but also to engage in “leasing, lease options and renting”. Throw out the renting angle and you now have an issue for land professionals who wish to do business there.

Besides OH and FL, North Carolina and Maryland have “registration” requirements for landmen. North Carolina Gen. Stat 9 113-425 states that “a person may not act, offer to act, or hold oneself out as a landman in this State unless the person is registered with the Department”, in this case referring to the NC Department of Environmental Quality, which has the right to revoke a registration or impose civil penalties is someone “falsely represents himself as a registered landman or engages in other fraud or deception…related to oil and gas interests”. Maryland Code Bus. Occ. & Prof 10 5-101 is similar in that it also requires registration for individuals who negotiate with landowners for the acquisition of mineral rights in oil or gas. Further, it requires such registration be provided to property owners prior to negotiation or acquisition of mineral rights.

The above-references legislation in no way cripples the industry. However, they are just another piece of needless governmental regulation that is prevalent nowadays. Of equal, if not greater, importance is the threat posed by recent legislation in Texas.

Already of record in Texas one will find Section 535-400 (Registration of Easement or Right-of-Way Agents) requiring registration with the Texas Railroad Commission by filing an application and submitting and undisclosed fee therewith. Among other things, applicants must be 18 years old or more, US citizens, meet “honesty, trustworthiness and integrity requirements” and must comply with fingerprinting and education requirements of the Act. All reasonable enough.

Just last week however, the Attorney General opined that those wishing to negotiate or acquire wind energy rights-of-way must also receive a TREC (Texas Real Estate Commission) license in order to conduct business in the state. Historically, TREC has taken the position that persons negotiating wind leases were exempt from licensing requirements. However, the position seems to be evolving, and not in the direction we wish. Keep in mind, an AG Opinion is not binding law. However, a TX court could well look to this as being persuasive in making an eventual ruling in the case, should it ever be adjudicated.

The verdict? The AG believe a person negotiating a wind lease is required to hold a TRED license. Surely solar, cell tower and related industries will incur the same scrutiny. The good news? TX law allows an exception for transactions “involving the sale, lease, or transfer of a mineral or mining interest in real property”. Consequently, land professionals engaged to lease or buy minerals are not required to be licensed. Can anyone be assured that this too will not be challenged? Although the oil and gas industry is currently protected, let us not lose sight of the number of land professionals currently involved in wind or other similar projects outside of oil and gas. They are affected land professionals too.

Ready for some more disturbing news? Less than two months ago, the Louisiana legislature began debating to significantly narrow the state public records law, a move that has been described as covering “everything from the Governor’s office to the public library”. Although not aimed at the oil and gas industry, it would surely affect such, considering that county or parish records would fall within this domain. Restrictions have been put forth to restrict all such records to State residents only. Can you image LA with nothing but local land professionals? It would surely delete the talent pool, no?

Numerous scholars and citizen watchdog groups have begun to speak out regarding the issue. Senator Heather Cloud (R) is introducing legislation to “provide exceptions”. Others have pointed out that the language is so broad it could be used to “block access to the majority of existing public records”. LA already has an unfavorable reputation regarding public records. As per David Cuillier, co-director of the Advancement of the First Amendment at the University of Florida, “Already Louisiana ranks very low in its compliance with the law and transparence, its about 43rd in the country by our research”. Again, there has been no direct mention of restriction as to Parish Courthouse records yet, but there is no doubt it falls within the spectrum described above.

None of the legislation discussed herein constitutes a direct or immediate threat to our industry. Rather, they are examples of a disturbing trend that is eroding the rights of land professionals throughout a number of states. One must hope it is not a foreboding vision of future restrictions. Big government is, in my humble opinion, not our friend.