Replies to This Discussion

Permalink Reply by elizabeth person on October 18, 2013 at 9:39

When we get a Division Order from one of our companies, that tells us that the  well is a producing well and once we return our signed Division Order, with SS and with a signature of a witness, the checks will begin soon after. We have had no problem at all with anybody.

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Permalink Reply by Steve P on October 19, 2013 at 6:27

After signing DOs for  years, I've recently stopped signing them.  Instead, I write a letter  and provide my address and SSN, and I will tell the operator if I think, key word, that the interest is correct.  The DO can't alter the terms of the O&G lease, but it can and does impose new contractual terms - an indemnification.  So, if there is something wrong with the division of interest, or if my ownership is subsequently challenged successfully, and the operator has already paid me royalties, then legally the operator can hold me responsible for not only the repayment (that would arguably be fair) but also all of the operator's attorneys fees and court costs associated with determining who the proper owner is.

 

Companies large and small try and negotiate out of contracts any indemnification on their part, and try to impose indemnification on the other party.  why on earth would I want to grant an operator, who surely has far more resources than me, an indemnification?

 

So, in response to the comment on nothing has gone wrong - well, nothing goes wrong until it does.  That's when you need your contracts in good order.

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Permalink Reply by 1kw6x71km1v37 on October 20, 2013 at 5:47

"We have had no problems at all with anybody"

You either have not been around this business very long, or you are extremely lucky.

Steve P,

Usually a DO has an acreage interest figure plainly stated, sojust r atifying that probably does not make you culpable for any mistakes, since the operator offered up the decimal interest himself. It should be his mistake. One should never furnish his decimal interest unless the company figure is insufficient. In which case a landowner is going to have to commission a registered survey to force the operator to change the interest. In court or out, the last registered survey is the final say. An operator is never going to have the property surveyed again on account it would most likely show bias towards him in first survey, which he paid for. Go figure.

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Permalink Reply by Nacman on October 21, 2013 at 8:29

Like some others on this post, I am in Texas.  The State has a model DO which I have had several operators refuse to disburse payments unless I signed the model DO. I have even tried to strike the indemnification and they have objected claiming that the indemnity is provided for in the model DO so I have to sign to get my payments.  It appears the Louisiana is different.  Anyone else in Texas have experience(s) to share?

I would be interested if any Texas mineral owner has prevailed in getting payments without signing the model DO.

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Permalink Reply by Robert L Call on October 21, 2013 at 8:45

I have been a landman and division order supervisor for several decades.

No oil and gas lease or state law requires the signing of division order.  The party responsible for disbursing the revenue from the well prepares the division order and it has to account for 100% of the ownership in the revenue.  Most operators will mail division orders to all owner for whom they have addresses.  CHK's owner relations person is wrong in refering to a penalty.  IRS code requires that the owners be requested to furnish a SS or a Taxpayer ID number and sign a Form I-9.  Failure to furnish the SS or TID number requires the operator to withhold 30% of the owners revenue aand remit it to the IRS.  This is like withholding from a paycheck in that the amount is a tax credit in the owner's Federal Tax Return.

Review the division order to be sure your net interest is properly calculated.  If it is, furnish your SS or TID number and request the operator to put your account in pay status.  If it is incorrect, advise the operator you don't agree with the interest credited to you and ask them to explain how they calculated your net interest.

The signing of the division creates a production sales contract by which you direct the operator to sell your share of the oil and/or gas and pay you the net proceeds.  This contract can be revoked with 30 day written notice to the operator.

 

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Permalink Reply by elizabeth person on October 21, 2013 at 8:56

I agree totally with what Mr. Call said. We , as I said before, have never had any trouble with a company. We have even negotiated successfully for our monies on our acreage. When our grandfather sold land back in the 1920's, 30's and 40's, he always kept the mineral rights which have come down to us and we treat them with respect. As I said before, we have not had any trouble in all these years and we appreciate the people we have met through the years who have helped us.

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Permalink Reply by 1kw6x71km1v37 on October 21, 2013 at 9:11

I recall some leases which specified no division order was necessary, just furnish pertinent data to the operator and he is compelled to pay royalties. The problem with DOs used to be an oil companny would hang a lot of extra charges on the landowner or simply not pay up. Sue me if you don't like it was their mantra.

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Permalink Reply by Nacman on October 21, 2013 at 9:52

Do I correctly or incorrectly infer that the net proceeds after signing the DO is different from my net interest due?  Thanks

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Permalink Reply by d m on October 21, 2013 at 10:14

what is umo and do you have a lease and drilling has begun?? are you receiving monies?  if you are about to receive monies(royalties) you must submit the imformation before checks are issued or they have to keep 28% for fed taxes..  submit the imformation to them and then claim your income (per your tax person or company) at the end of the year or pay quarterly taxes .. hope this clarifies things..  if not read all mail that has been sent to you so that you are clear on the reasons why...  you will then understand hopefully!! don't panis--it is not a bad thing...  it's your money and they have rules to follow...  hope I helped d

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Permalink Reply by Robert L Call on October 21, 2013 at 10:16

If you have a mineral interest in Texas and the operator asks you to sign the "Model" form division order, ask them to show where in your oil and gas lease or cite the State statute that requires the execution of a division order to receive your revenue payments. 

Most recently I have been working the Bakken in North Dakota. ND state law requires that in the absence of a title defect royalty payments must begin within 150 days of the first day of production. The procedure is to prepare the ownership division of interest, obtain addresses and start payments as near as possible to the 150th day.  Mailing of division order forms is done as time permits with first priority to those owners in suspense due to title problems.  They are informed of the attorney's title requirement and curative documents requested.  Upon receipt of documents that satisfy the requirement, payment is released.  ND statute requires payment of 18% per annum interest on late royalty payments.  So, there is an incentive for the operator to get royalty payments started on time.

LN:  If you are an unleased mineral owner and did not consent to being a participant in the drilling of the well, any DO sent to you should show your before and after payout interest.  Request CHK to furnish you a payout report monthly or at least quarterly.  Check over the charges to the well/lease to make sure that they are all legitimate charges for that well/lease. 

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Permalink Reply by Krkyoldhag on October 21, 2013 at 11:28

Got a packet of DO's from them last week...called and wanted to know if it meant had more wells going on line? No but that I did not need to send them back.

If its got to do with IRS they have that already.

But these wells are sure not producing much money a month.

And I don't trust anything chk says or does.

And this was Division Orders so their explanation does not wash.

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Permalink Reply by 1kw6x71km1v37 on October 22, 2013 at 5:24

A Model Form Division Order has been generated either in house or by an industry-oriented clearing house for oil and gas accountants that is widely used by almost everybody. It is doubtful if private landowner interests were ever considered in the formulation of such documents. Operators will tell you that you have to sign a DO to get paid, but you don't unless your lease compels it.

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