The Oil & Gas Division Order is one of most common legal instruments you will sign as a mineral owner (Some of the others may include a mineral deed and oil & gas lease)
Using the embedded player above, you can download the episode to your computer or listen to it here! Be sure to also subscribe on iTunes!
What is a Division Order?
- Definition: An instrument that documents your interest in a well and any products that are sold (hydrocarbons such as oil & gas, other products like CO2, etc.).
- Gives the interest owner a chance to examine what the operator says their interest is and if incorrect, provides a way to notify the payor / operator to correct it.
- Laws regarding the use of division orders varies state to state, will talk in general terms. Check your specific state law to understand how this might apply to you.
- A Division Order outlines things like:
- Effective date of production
- Payor’s name and address (operator or 1st purchaser/marketer)
- Property name (well name) and legal description
- Decimal ownership and type of interest (overriding royalty, royalty, working interest, etc.)
- Request for tax identification # to avoid 31% federal backup withholding
- Outline of change process (change of address, change of ownership, etc.)
- Statement that the terms of your oil & gas lease will not be altered by DO
- Payment timing and information (e.g. monies might be accrued until $25 or $100 reached or annually whichever occurs first before they will issue a check. Varies state to state).
- Usually the DO will be sent along with a form letter describing what to fill out and send back, what address to send it to.
- Usually will also include a w-9 form and ask you to complete and return to them so they can report any income to the federal government.
- Will require your signature, may ask for a witness.
- Will ask you to check your name, address, tax ID #, etc.
- In some states, it may not be necessary to sign and return DO in order for the operator to begin paying you royalties, if don’t send back in timely manner they will withhold 28% for federal backup withholding. Some states it may be required.
- Sometimes there will b e exhibits attached (e.g. if you own interest in multiple properties/wells, it may outline each well along with decimal interest in each well, pay status, etc.)
- Best practice is to fill out and return ASAP, make a copy for your records. Not always filed for public record.
- Authorizes payor to withhold payment pending resolution of title dispute regarding the interest.
- May include a statement that payee agrees to indemnify and reimburse payor (operator) for any amount paid attributable to an interest to which they are not entitled
- Advises owner that they may have other statutory rights under state laws where property is located.
Special Cases
- May include a statement “certifying ownership” of your decimal interest in production or proceeds as described in the DO.
- By signing (or accepting subsequent payments), you indicate your concorrance with payor’s determination of your decimal interest and that you are the rightful owner.
- Not being asked to certify your legal title in the property, only to your decimal interest in production or proceeds. Example: This is because owner of record may be in someone elses name (e.g. your relative) and they may accept an unrecorded affadavit of heirship outlining the intestate transfer of a very small interest in a property, but county records may still show it in previous owner’s name.
Other Special Clauses
- Provide operators with flexibility to accomodate unique situations. There may be others included, some examples can be found in the linked NADOA (National association of division order analysts) Model DO booklet. This booklet has a list of division order statutes by state so it is an invaluable resource!
Division Order Common Questions
Justin asks Matt the following questions (listen to the episode to hear the full answer!):
- The oil company said they are issuing division orders but I haven’t seen anything. How long does it take?
- How can I make sure the percentage on my division order is correct? Episode 3 covers how to calculate net revenue interest (NRI).
- I signed a division order with an incorrect interest, what are my options now?
- Let them know ASAP in writing…
- Check the state you are in (for statute or current case law), for example in Texas – court held that where operator prepares division orders which are erroneous and thereby benefits from such mistakes, the division orders are not binding. Your mileage may vary – check with an attorney if you have a question.
- My lease says fees cannot be withheld but the oil company says a division order is in effect. What does this mean?
- It depends! It is usually a good idea to consult with an attorney. In general, any provision of a division order which contradicts any provision of an oil and gas lease is invalid to the extent of the contradiction. That said, a division order may be used to clarify royalty entitlement terms in the oil and gas lease. So if you have cost free provisions in your oil and gas lease but your division order has language that allows the operator to make certain deductions, it may be a good idea to get help from an attorney to help make sure you are getting paid what you deserve.
Thanks for Listening!
To share your thoughts:
- Leave a comment or question below (we read each one and your question may be featured in a future episode)!
- Ask a question or leave us feedback via email or voicemail: (720) 580-2088.
To help out the show:
- Leave an honest review on iTunes or wherever you get your podcasts – we read each one and greatly appreciate it. Plus, you can get a shout out on a future episode!
- Subscribe on iTunes or wherever you get your podcasts
Thanks again – until next time!
