Geothermal Resources Council

1

• Geothermal Resources Council
• Geothermal Options, Leases, Easements and Rights
  of Way
• Vince Signorotti
• September 28, 2007

2
Lease Options

• Leasing vs. optioning
• No effective choice under federal system
• Advantages and disadvantages of each
• Timing
• Up Front Costs
• Speed
• Cooperation issues
• Bankruptcy issues 

3
Landowner Notice/Approvals

• Landowner approvals
• Biggest issues are timing and cost 
• Approvals regarding location and assignment are
  most commonly requested 
• Approvals regarding size, type of equipment, etc.
  also sometimes required
• Approvals regarding changes to development / site
  plan

4
Landowner Notice/Approvals (cont.)

• Drafting issues 
• "Consent not unreasonably withheld" doesnt cut
  it-- may have to litigate
• Ways around the problem
• Consultation vs. approval
• Pre-approved operating areas

5
Exploration and Drilling Commitments/Expenditures

• Delayed rental payments are designed to defer
  drilling obligation from year-to-year
• Permitting
• Offset wells
• Shut-in royalties

6
Unitization, Injection, Reclamation, etc.

• Cooperative units are vital to geothermal energy
  development
• No difference in value of an injection well
  versus a production well
• Sophisticated landowners and prudent operators
  will include comprehensive language for site
  reclamation

7
Title Insurance

• Purposes
• Insures priority of rights 
• Shifts risk of title-related loss to the title
  insurer (up to policy limits)
• Shifts costs of defense to title insurer 
• Lenders will require to protect their liens
  investors may require even for an equity purchase
• Who is insured
• Owners vs. loan coverage

8
Title Insurance (cont.)

• When to obtain? 
• Recommend that all owners/lessees obtain ASAP
  after a lease or easement is signed, and
  concurrently with any purchase
• Do one or more downdates at milestones
• Initial financing or equity deal
• Substantial completion or firm operation
• Type we need ALTA extended coverage
• Covers off-record matters (e.g., adverse
  possession / prescriptive easements)

9
Title Insurance (cont.)

• Covers encroachment and boundary conflicts
• Covers unpatented mining claims
• Will require a survey 
• Insurer may (and should) require an inspection.
  If inspection will be required, make them do it
  as early as possible, so no surprises at closing
• Amount of coverage
• Full amount vs. partial coverage
• Cost and regulatory issues 
• How many parcels?

10
Title Insurance (cont.)

• Lender may not allow less than full coverage
• Loss provisions of policy limited 
• Why pay full premium if dont receive "full"
  coverage?
• Coinsurance issues
• Endorsements
• Standard endorsements 
• Modifications of standard endorsements
• Mineral (including oil and gas) rights
• Will title company issue?
• Easements-- cover all

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Title Insurance (cont.)

• Patent reservations
• Pending improvements
• Land and improvements same as shown on survey
• Access to roads roads are public 
• Loss due to third partys extraction or
  development of water
• Contiguity 
• Leasehold coverage (since no leasehold policies
  anymore) 
• Custom endorsements for energy projects
• Coinsurance (owners policy only only certain
  policy forms)

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Title Insurance (cont.)

• Who knows what project is worth?
• Partial coverage 
• Apportionment (owners policy only only certain
  policy forms)
• E.g. "water" exception N/A to geothermal
• Value of personal property included in loss 
• If title defect arises for a transmission parcel,
  loss is calculated as if all parcels served by
  that transmission parcel had the same defect

13
Title Insurance (cont.)

• Additional lenders endorsements
• Reinsurance
• Depends on size of project 
• Title company may require (if over their limit)
  or insured or lender may require (if wants to
  spread the risk by using several title insurers)
• Primary and secondary liability 
• Direct access to reinsurers (ALTA reinsurance
  form allows) 
• Timing issue reinsurers may not consent to
  coverage/endorsements

14
Survey Diligence

• Recommendation Complete a full ALTA/ACSM survey
• When to do? 
• ASAP but generally done after prospect is
  entirely or almost entirely leased
• In a purchase scenario, before the purchase
  closes 
• In any case, do before project title policy is
  issued, before financing, or before equity
  investment, etc.
• Long lead time item 
• May disclose additional issues that need to be
  resolved-- where that resolution can also be a
  long lead time item 
• The gap example -- need to tie up additional
  easements

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Survey Diligence (cont.)

• As-built ALTA survey
• What to show
• Cover all lands within project boundaries, for
  which title work has been done   
• T-line, access and pipeline easements owned by
  developer
• May cover lands outside project boundaries (e.g.,
  substation junction with public road)
• See 2005 Minimum Standard Detail Requirements for
  ALTA/ACSM Land Title Surveys
• Selected items from Table A - Optional Survey
  Responsibilities and Specifications
• Show all existing improvements (including those
  owned by third parties)   
• May be able to limit to specified distance from
  our project improvements

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Survey Diligence (cont.)

• Use of an aerial
• Unit and participating area boundaries
• Other "custom" items
• Assessors parcel numbers
• Landowners names
• Proposed project improvements
• Overlays

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Survey Diligence (cont.)

• "Sensitive" areas that need to be avoided
• Flood zones
• Endangered species habitats
• Cultural resource areas
• Horror stories
• Errors in legal descriptions
• Transmission lines and access roads not within
  easements
• Gaps
• Corners 

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Easements and ROW

• Easement Grant Deed
• Transmission
• Pipeline
• Access issues
• Surface Use Agreements

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• Questions?