Evan Block & Drew Potts AAPL Code of Ethics Section 1 It shall - - PowerPoint PPT Presentation

Evan Block & Drew Potts

AAPL Code of Ethics

 Section 1

 It shall be the duty of the Land Professional at all times to

promote and, in a fair and honest manner, represent the industry to the public at large with the view of establishing and maintaining goodwill between the industry and the public and among industry parties.

 The Land Professional, in his dealings with landowners,

industry parties, and others outside his industry, shall conduct himself in a manner consistent with fairness and honesty, such as to maintain the respect of the public.

AAPL Code of Ethics

 Section 2

 Competition among those engaged in the mineral and

energy industries shall be kept at a high level with careful adherence to established rules of honesty and courtesy.

 A Land Professional shall not betray his partner’s,

employer’s,

• r

client’s trust by directly turning confidential information to personal gain.

AAPL Code of Ethics

 Section 2 (Cont.)

 The Land Professional shall exercise the utmost good faith

and loyalty to his employer (or client) and shall not act adversely or engage in any enterprise in conflict with the interest of his employer (or client). Further, he shall act in good faith in his dealings with the industry associates.

 The Land Professional shall represent others only in his areas

• f expertise and shall not represent himself to be skilled in

professional areas in which he is not professionally qualified.

The Rules in Action

 Although the Code of Ethics only contains two (2)

rules, it covers a broad range of topics and situations.

 The

Standards

• f

Practice contain fifteen (15) provisions and expand upon the Code of Ethics.

 In

• rder

to illustrate some possible real-world scenarios, today’s presentation will follow the (fictional) story of Landman extraordinaire, Ron Swanson.

A little about Ron...

 Ronald Ulysses Swanson is an avid fan of

bacon, woodworking, and whiskey.

 He is an ordinary man with an extraordinary

mustache.

 He has two ex-wives, both named Tammy,

which he avoids at all costs.

A little about Ron...

 After an extended and lackluster career in public service,

Ron has decided to become a Landman.

 Ron, having never asked for directions or help in his life,

has determined to forego any education related to his new

• profession. Ron has never read the Code of Ethics or the

Standards of Practice for Landmen.

 Relying solely on his wit and charm, Ron talks his way into

a land position by promising his new boss a year’s supply of steaks and scotch.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Bribery?  Failure to become educated in profession?  AAPL Standard of Practice 1

AAPL Standards of Practice

 Standard 1

In justice to those who place their interests in his care, a land professional shall be informed regarding laws, proposed legislation, governmental regulations, public policies, and current market conditions in his area of represented expertise, in order to be in a position to advise his employer or client properly.

What Ron Did Wrong

 Bribery

 “Negotiating” his way into a land position with steaks and

scotch is questionable, but not inherently a violation of the Code of Ethics.

 Failure to Become Educated

 Ron has clearly violated Standard of Practice 1, as he has made

no attempt to familiarize himself with the laws, regulations, and standards applicable to his new profession as a Landman.

More about Ron...

 Ron’s new employer, Pawnee Resources, assigns Ron to a prospect, and

instructs him to broker leases with four (4) unleased mineral owners: John Maple, Trey Hugger, Leslie Pope, and Ann Derkins.

 Ron wants to appear professional, and decides to have business cards

• made. He has noticed many of his co-workers’ business cards include

“CPL” or “RPL” after their name. Ron has no idea what this means, but assumes he should include it on his own business cards.

 Ron has business cards made that read as follows: Pawnee Resources Ronald U. Swanson, CPL/RPL/RL Experienced Landman

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Use of CPL and/or RPL?  “Experienced Landman”?  AAPL Standards of Practice 13 & 14

AAPL Standards of Practice

 Standard 13

The land professional shall at all times present an accurate representation in his advertising and disclosures to the public.

AAPL Standards of Practice

 Standard 14

The land professional shall not aid

• r abet

the unauthorized use of the title “Certified Professional Landman (CPL),” “Registered Professional Landman (RPL),” “Registered Landman (RL), “P.Land” (Canadian designation) and “CPL/ESA.”

What Ron Did Wrong

 CPL/RPL

 Ron is neither a CPL nor a RPL. His use of either of these

titles is strictly prohibited by Standard of Practice 14.

 “Experienced Landman”

 Ron has yet to finish his first day as a Landman. He is by

definition inexperienced. Including “experienced” on his business card is not an accurate representation, and violates Standard of Practice 13.

More about Ron...

 Ron travels to his assigned prospect, and stops at the home of John and Sarah

Maple, ranchers who recently moved from Canada to Texas in search of warmer

• weather. The Maple Ranch is within the prospect and unleased.

 Upon meeting the Maples, Ron discovers they are originally from Canada. Ron,

for no apparent reason, dislikes Canadians and Canadian Bacon, and believes both should be prohibited within the United States.

 Ron informs John and Sarah that he does not have the authority to execute a

lease with “foreigners,” and promptly leaves without obtaining a lease.

 The Maples are outraged by Ron’s refusal to lease their land, and contact their

local news station. The story is broadcast on the nightly news, and prompts Michael Moore to produce his latest documentary, “Crude & Prejudice,” in which the energy industry is negatively portrayed.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Refusal to Lease?  AAPL Standards of Practice 2, 3 & 5

AAPL Standards of Practice

 Standard 5

The land professional shall not deny equal professional services to any person for reasons of race, creed, sex or country of national origin. The land professional shall not be a party to any plan or agreement to discriminate against a person or persons on the basis of race, creed, sex or country of national origin.

AAPL Standards of Practice

 Standard 2

It is the duty of the land professional to protect the members of the public with whom he deals against fraud, misrepresentation, and unethical practices. He shall eliminate any practices which could be damaging to the public or bring discredit to the petroleum, mining

• r environmental industries.

AAPL Standards of Practice

 Standard 3

In accepting employment, the land professional pledges himself to protect and promote the interests of his employer or client. This obligation of absolute fidelity to the employer’s or client’s interest is primary but it does not relieve the land professional of his obligation to treat fairly all parties to any transaction, or act in an ethical manner.

What Ron Did Wrong

 Refusal to Lease

 Ron has denied John and Sarah the opportunity to lease their

land because of his disapproval of their country of origin, a direct violation of Standard of Practice 5.

 Ron failed to protect the interests of his employer, Pawnee

Resources, by refusing to take a lease on the Maple’s land, thereby violating Standard of Practice 3.

 Furthermore, Ron’s actions have served to discredit the

energy industry, a violation of Standard of Practice 2.

More about Ron...

 Incredibly,

Ron

• nly receives

a reprimand from Pawnee Resources, and is allowed to continue his leasing efforts.

 Ron visits Trey Hugger, another unleased mineral

• wner within the prospect. Trey is interested in leasing

his land, but expresses fear that drilling operations will diminish the land’s natural beauty and tranquility.

More about Ron...

 Ron is determined to take a lease, and quickly informs

• Mr. Hugger that he has a “background in geology” and

can tell that Mr. Hugger’s land is unlikely to be a

• drillsite. Ron genuinely believes his statements are

correct, but his only “background” in geology is his collection of pyrite.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 “Background in geology”?  AAPL Standard of Practice 6

AAPL Standards of Practice

 Standard 6

A land professional shall provide a level of competent service in keeping with the standards of practice in those fields in which a land professional customarily engages. The land professional shall not represent himself to be skilled in nor shall he engage in professional areas in which he is not qualified such as the practice of law, geology, engineering or other disciplines.

What Ron Did Wrong

 Geologist

 Ron has represented himself as someone with an

expertise in geology, a profession in which Ron is not skilled or qualified. By representing himself as skilled in geology, Ron has violated Standard of Practice 6.

 Note that Mr. Hugger’s reliance on Ron’s representations

is not determinative; Ron’s representation of skill is a violation on its own.

More about Ron...

 Ron next meets with Leslie Pope, another unleased mineral

• wner within the prospect. During lease negotiations,

Leslie states she “won’t take less than $1000 an acre.” Pawnee Resources has authorized Ron to pay up to $2000 an acre bonus.

 Ron tells Leslie that he can only agree to $1000 an acre if

she “donates” $500 to help him travel to and compete in the National Whittling Championships. Leslie agrees, the lease is executed, and Ron is $500 closer to winning the coveted Grand Whittler Award. Ron never tells Pawnee Resources about this “donation.”

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 “Donations”?  AAPL Standard of Practice 10

AAPL Standards of Practice

 Standard 10

The land professional shall not accept any commission, rebate, interest, overriding royalty or other profit on transactions made for an employer or client without the employer’s or client’s knowledge and consent.

What Ron Did Wrong

 “Donations”

 The execution of the lease has resulted in Ron obtaining

$500 he would not otherwise be entitled to. Although Ron was sly in labeling his request as a “donation” and kept the transaction separate, he has nevertheless

• btained a profit on a transaction made for his employer

without his employer’s consent.

 Ron has violated Standard of Practice 10.

More about Ron...

 A few weeks after executing her lease, Leslie Pope

contacted Pawnee Resources and inquired as to when she would receive her bonus check. This was a great surprise to Pawnee Resources, as it had given Ron a blank, signed check to deliver to Leslie upon signing a lease.

 After investigation, Pawnee Resources discovered Ron had

cashed the check and “invested” the money with his local

• bookie. He promises Leslie will receive a much larger sum
• f money in the near future as a result of his “investment.”

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 “Investing” Lessor’s Bonus Payment?  AAPL Standard of Practice 11

AAPL Standards of Practice

 Standard 11

The land professional shall assure that monies coming into his possession in trust for other persons, such as escrows, advances for expenses, fee advances, and other like items, are properly accounted for and administered in a manner approved by his employer or client.

What Ron Did Wrong

 “Investing” Bonus Payments

 Ron did not obtain permission from either Pawnee

Resources or Leslie Pope to “invest” her bonus payment, not to mention the probable illegality of his investment.

 Absent the permission of both Pawnee Resources and

Leslie Pope, Ron has violated Standard of Practice 11.

More about Ron...

 While driving to meet with the final unleased mineral owner, Ann

Derkins, Ron receives a phone call from Eagleton Resources, a local competitor to Pawnee Resources. The rivalry between these two brokerages has raged for years.

 Eagleton tells Ron they are aware he is leasing in the area for Pawnee

Resources and asks Ron if he will attempt to purchase Ann Derkin’s mineral interest for Eagleton prior to leasing her mineral interest. Eagleton promises Ron “work in the future” if he agrees, and (of course) Ron agrees.

 Ron meets with Ann Derkins, makes no mention of leasing her

interest, and convinces her to execute a mineral deed in favor of Eagleton Resources. Afterwards, Ron calls his boss at Pawnee Resources and tells him Eagleton Resources purchased Ann Derkins mineral interest before he could obtain a lease from her.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Purchasing for Eagleton?  AAPL Standard of Practice 8

AAPL Standards of Practice

 Standard 8

The land professional shall not acquire for himself or others an interest in property which he is called upon to purchase for his principal, employer or client without the consent of said principal, employer or client. He shall disclose his interest in the area which might be in conflict with his principal, employer or client. In leasing any property or negotiating for the sale of any block of leases, including lands

• wned by himself or in which he has any interest, a land

professional shall reveal the facts of his ownership or interest to the potential buyer.

What Ron Did Wrong

 Purchase for Eagleton

 Although Pawnee was only seeking a lease, and Eagleton was

seeking the fee mineral interest, both brokerages were attempting to obtain an interest in the same property.

 By helping Eagleton purchase the minerals, Ron has hindered

Pawnee’s chances at obtaining a lease on the property.

 Ron has violated Standard of Practice 8.

More about Ron...

 Ron’s boss at Pawnee Resources was furious when he discovered Ron

failed to lease Ann Derkins. As punishment, Ron was pulled from leasing, his day rate cut in half, and banished to an isolated County Clerk’s Office, where he was instructed to run title on a new prospect.

 A few days later, Eagleton Resources called Ron and described the

“future work” they had previously promised. By coincidence, Eagleton was preparing to develop the same prospect as Pawnee. Neither Eagleton nor Pawnee knew of the others involvement in the area. Eagleton asked Ron to start running title on the prospect, not knowing Ron was already doing just that.

 Ron continued running title, sending identical abstracts and runsheets

to both Pawnee and Eagleton, each of which paid Ron for his services.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Runsheets for Eagleton & Pawnee?  AAPL Standard of Practice 4

AAPL Standards of Practice

 Standard 4

The land professional shall not accept compensation from more than one principal for providing the same service, nor accept compensation from more than one party to a transaction, without the full knowledge of all principals or parties to the transaction.

What Ron Did Wrong

 Runsheets for Eagleton & Pawnee

 Ron was providing identical services to two principals

and being paid by each of them for that work. Even if both Pawnee and Eagleton had been aware of this arrangement, the Standards of Practice do not permit double payment for the same service.

 Ron has violated Standard of Practice 4.

More about Ron...

 While running title, Ron discovers that his great-aunt

• wned a mineral interest in one of the tracts in the

prospect, but died ten years ago. Ron investigates and learns his great-aunt died intestate, and Ron was her sole

• heir. Ron realizes he has inherited the mineral interest,

even though his interest is not reflected in record title.

 Without

disclosing his discovery to either Pawnee Resources or Eagleton Resources, Ron continues to prepare an abstract for the tract in which he inherited a mineral interest, and sends completed runsheets to both brokerages.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Services on Lands Personally Owned?  AAPL Standard of Practice 7

AAPL Standards of Practice

 Standard 7

The land professional shall not undertake to provide professional services concerning a property

• r

a transaction where he has a present or contemplated interest, unless such interest is specifically disclosed to all affected parties.

What Ron Did Wrong

 Failure to Disclose Ownership

 Under Standard of Practice, Ron had a duty to disclose

his ownership interest in the tract as soon as he became aware of his ownership interest.

 Because Ron continued providing professional services

regarding the tract without disclosing his ownership interest to Pawnee Resources or Eagleton Resources, Ron has violated Standard of Practice 7.

More about Ron...

 One day Ron accidentally mails two identical abstracts to

Pawnee Resources, one addressed to Pawnee Resources and the other addressed to Eagleton Resources.

 Ron’s boss at Pawnee Resources is irate, immediately

terminates Ron’s employment with Pawnee Resources, and reports all of Ron’s ethical violations to the AAPL.

 The AAPL contacts Ron and asks him to submit a written

statement confirming or denying the ethical violations he is accused of committing. Ron refuses to comply.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Presentation of Evidence?  AAPL Standard of Practice 9

AAPL Standards of Practice

 Standard 9

If a land professional is charged with unethical practice

• r is asked to present evidence in any disciplinary

proceeding or investigation, or has direct knowledge of apparent unethical misconduct of another member, he shall place all pertinent facts before the proper authority

• f the American Association of Professional Landmen.

What Ron Did Wrong

 Refusal to Present Evidence

 Ron has really done it this time. While being charged

with multiple violations of the Standards of Practice, Ron has managed to violate yet another Standard by refusing to provide evidence regarding his alleged violations.

 Ron has violated Standard of Practice 9.

More about Ron...

 Now unemployed, Ron is broke and desperate.  Ron contacts and informs Shady Oil Co. of the

location of the prospect that he had been working, and invites Shady Oil Co. to lease the mineral interest he inherited within the prospect.

 Shady Oil Co. gladly leases Ron’s mineral interest, and

plans to drill the tract.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Conflicting Business Activity?  AAPL Standard of Practice 12

AAPL Standards of Practice

 Standard 12

The land professional shall avoid business activity which may conflict with the interest of his employer or client or result in the unauthorized disclosure or misuse of confidential information.

What Ron Did Wrong

 Conflicting Business Activity

 Ron has provided a competitor to his former employer with

confidential information (location of prospect) and possibly hindered his former employer’s drilling program (leasing to Shady Oil Co.).

 Even though Ron was not employed by Pawnee Resources

when his actions occurred, Ron has not waited a reasonable amount of time before acting on information he acquired while working for Pawnee Resources or acquired a waiver from Pawnee Resources.

 Ron has violated Standard of Practice 12.

More about Ron...

 Shady Oil Co. does drill the tract leased from Ron, but each well is a dry hole.

Shortly thereafter, Shady Oil Co. files bankruptcy due to mismanaged funds, never having paid bonus on Ron’s lease.

 Ron is distraught, and while savoring his ninth glass of scotch one evening,

concludes that Pawnee Resources is responsible for his troubles.

 In the midst of his scotch-fueled rage, Ron drives to the headquarters of

Pawnee Resources, where he intends to vandalize the building. Unfortunately, Ron slips outside the building, dropping his lit cigar and bottle of scotch. When the two meet the ground, a ball of fire erupts, and the building burns to the ground.

 Ron is charged with and convicted of “Negligent Destruction of a Commercial

Building,” a felony in Ron’s state.

Ethical Violations?

 Based solely on the preceding facts, has Ron

committed any ethical violations?

 Felonies & Other Serious Crimes?  AAPL Standard of Practice 15

AAPL Standards of Practice

 Standard 15

The land professional shall not participate in conduct which causes him to be convicted, adjudged or otherwise recorded as guilty by any court of competent jurisdiction

• f any felony, any offense involving fraud as an essential

element, or any other serious crime.

What Ron Did Wrong

 Felony

 Ron has clearly lost it. Standard of Practice 15 prohibits

engaging in conduct that constitutes a felony.

 Ron should probably look for a new line of work.

Questions or Comments?

 Drew Potts

 Apotts@kmwenergylaw.com

 Evan Block

 Eblock@kmwenergylaw.com