Common DOI Management Issues: Similar Owner Names
“A rose by any other name” may have been true in Shakespeare’s day, but not today in a division of interest.
The primary duty of a division order analyst is to protect the financial interests of the company for which they work. Among many other ways, one way is making certain the correct owner is being paid (and billed, in the case of a working interest type owner). This can be difficult when similar naming conventions come into play.
The analyst must analyze the title source document carefully, paying very close attention to an owner’s name to make certain the correct legal name is used in the owner number set up. The best way to explain how similar names can present a problem for the division order analyst is to discuss specific examples.
Example #1: Charles Rhodes and Charlie Rhodes are both listed in a DOI imported from the Seller’s records in an acquisition package. The limited number of supporting documents provided by Seller for the well do not include any information about either of these names. Charles has a full address associated with him, but his account is coded with suspense code TP, meaning transfer pending (but the records provided don’t contain information about the notice of pending transfer). Charlie Rhodes has no address in the owner number setup, and he is coded NA for no address. The only thing the analyst can find is a notation in an Excel spreadsheet asking “combine Charles Rhodes and Charlie Rhodes interests?” Lacking any other options, the analyst reaches out to the landman responsible for the wells these owners are in. Just when the analyst is leaning toward combining the two interests under the name Charles (with the address), the landman responds to tell the analyst that Charles and Charlie are cousins! The landman also learned Charlie’s address from Charles, and learned that Charles sold his interest to a royalty-buying company. The copy of the recorded deed was mailed to the previous operator, the Seller, about the same time as closing on the acquisition, and got lost in the shuffle. Think of the mess that would have been created if Charlie’s interest had been combined with Charles’, thinking it was just two versions of the same name.
Example #2: Another type of owner name that needs special attention is names that are identical except for a Roman numeral. Example: Prudential Fixed Asset Income Fund I, Prudential Fixed Asset Income Fund II, and Prudential Fixed Asset Income Fund IV, and appearing in the same division order title opinion for a new horizontal well. The analyst must request owner number setups for the owners because, after research, the analyst found only a “Prudential Fixed Asset Income Fund” is set up in the system already, and is not tied to any active or inactive DOI. This inactive owner number has a Tax ID listed in it, but since a DOTO does not provide Tax IDs, the analyst will not know the Tax IDs for each of the new owner setups until their signed division orders (or signed IRS W9 forms, if company policy requires) are returned. Should the analyst have used this existing owner number in the system, to set up the DOI, planning to change its contents to match one of the three new owners, later—expecting its Tax ID to be the same as one of the three new owners? Luckily, the analyst did not, because when the signed division orders arrived, none of the Tax IDs matched the one in the existing owner record. It turned out that the owner number in the system was for Prudential Fixed Asset Income Fund III, but the “III” had been omitted from the owner number setup. Always include the Roman numeral in an owner number setup, even if other parts of the name must be abbreviated to fit the limited number of spaces in the database screen (too common with too many database systems).
Example #3: Then there are the trust account names. It’s not uncommon for the same family to create multiple trusts, each with a different trust date. An example would be The John C. and Evelyn A. Anderson Family Trust dated 5/1/1991, The John C. and Evelyn A. Anderson Family Trust dated 2/22/1996, and The John C. and Evelyn A. Anderson Family Trust dated 10/18/2004. These are three separate legal entities, each with its own trust agreement and internal requirements, and its own set of beneficiaries. As such, each must be set up in the database separately, because each will have its own Tax ID. The most important component in the name in the owner number setup will be the trust date. Everything else can be abbreviated, but the trust date must be included in the name that appears on the remittances. Among other problems created if it is omitted, IRS 1099 problems might arise.
The last example involves entries in a division order title opinion. The opinion sets out the following owners:
1. Essential Royalties LLC, Executive Rights holder for Affinity Services Inc.
2. Affinity Service Corporation, c/o Ambit Royalty Management LLC, Manager – Essential Properties*
*This interest is covered by certain Limited Powers of Attorney in favor of Ambit Royalty Management LLC, as Manager, which provide that payments attributable to such interests may be made in the name of Essential Properties in care of Ambit Royalty Management LLC.
First, the analyst should recognize that Essential Royalties LLC is not the same entity as Essential Properties. Second, Affinity Services Inc. is not the same legal name as Affinity Service Corporation. The title attorney would not have made a mistake that big. Third, Essential Royalties LLC is the legal holder of the right to receive royalties on behalf of Affinity Services Inc., or the title attorney would have styled the name differently. This name styling is based on the documents of record reviewed and analyzed by the title attorney. It is entirely possible that the unrecorded contract between Essential Royalties and Affinity Services Inc. includes the provision that Essential is to receive remittances on behalf of Affinity Services Inc., possibly referenced in the deed of record from Affinity to Essential.
The second owner listed above is more complicated. The name reads “Affinity Service Corporation” as the entity appearing to be entitled to receive remittances, but the attorney’s asterisk note says that payments “may be made in the name of Essential Properties in care of Ambit Royalty Management LLC”. The reason the attorney did not style it that way is because it is a decision the client company should make. The examined title documents indicate Affinity has agreed to allow Essential Properties to receive remittance on behalf of Affinity, but those remittances are to be mailed c/o Ambit Royalty Management LLC. A review of the “Materials Examined” section of the DOTO does not include any document between Affinity Service Corporation and Essential Properties, so it is unrecorded. The documents that have been listed involving these names must have indicated how payments may be made (as analyzed by the title attorney), but the word “may” indicates that without the unrecorded agreement, the Company might incur some degree of financial liability if the payee is not Affinity Service Corporation directly. All of this said, it will be a herculean task to cram all of this name into the name field of the owner number setup, if it is limited to less than 90 spaces.
Next week’s blog will be “Common DOI Management Issues: Address Variations.”