Video · 5 minutes · captions on
Division orders in Texas
Transcript
Introduction
Before an operator pays your royalty, it may send you a division order to sign. Texas law lists exactly what that paper may contain, and what you can strike. A division order is an agreement, signed by you, that tells the payor how to distribute the proceeds from the sale of oil and gas.
What a division order is
It says who is paid. What share you own. And how the production is valued, and when you are settled with. A payor may require you to sign one before it pays. But the list of what it may contain is short. The law says a payor may require a signed division order containing only these seven things.
Seven things it may contain
A: the effective date. B: a description of the property and the type of production. C: your decimal or fractional interest, the type of interest, and your certification of title. Unless you agree otherwise, it may also ask for a month's notice of any change, and for you to repay the payor if you turn out not to own the interest. D: permission to suspend payment until a title dispute is resolved. E: your name, address and taxpayer ID. F: how production is valued, and when settlements are made. And G: a notice that you may have other statutory rights.
Extras you may refuse
Operators often add extras. Here are three. One lets the payor take gathering, compression and processing costs, whether or not your lease allows it. A term that contradicts your lease is invalid to that extent. Another waives interest on late payments. That is not on the list, so you may refuse it. A third says the order amends the lease. By law, a division order does not amend any lease.
What happens if you refuse
What if you refuse? That depends on what you refuse. If the order has provisions beyond the list, and you will not sign because of them, the payor may not withhold payment solely because of your refusal. But if the order has only the listed provisions and you refuse to sign, the payor may withhold payment, without interest, until you do.
It cannot change your lease
Whatever a division order says, it is not your lease. The statute is plain: such a division order does not amend any lease or operating agreement between the owner and the operator. And signing one does not relieve the lessee of its duties under the lease, including the duty to market your production as a reasonably prudent lessee. The decimal is the one number on the order that moves every check. Rebuild it from your lease before you sign.
Rebuild the decimal first
Your royalty fraction, times your net mineral acres, divided by the acres in the unit. One quarter, times five, divided by twelve-eighty, is 0.00097656. If the order differs, ask how the payor got its number. Pooling and a different unit size can explain a gap.
Signed already?
You can also change your mind later. Either you or the payor can end a division order on thirty days' written notice. And it binds only for the time, and to the extent, that it has been acted on and used for settlements and payments.
Five steps before you sign
So, before you sign, five steps. One: read every clause against the list. Two: rebuild the decimal from your lease. Three: strike the extras and initial each one, with a line saying you do not agree. Four: send it back by a method that gives you proof of delivery, and keep a copy. Five: check that the next statements carry the same decimal, and compare them with the state record.
Ask how they got the number
If the decimal differs from yours, ask before you sign. Please tell me how you calculated the decimal interest in this division order, and send the net mineral acres and the unit acres you used. Keep the answer with your copy of the order.
What to do next
Rebuild your decimal in a minute with our free decimal interest calculator. The sources for this video are on screen.