Mineral Rights Ownership – What Is A Division Order?
September 25, 2017
Owners of mineral rights have the choice of either keeping their minerals and earning royalties by leasing them or selling their mineral rights. If you choose leasing over the sale of mineral rights, you may at some point receive a division order. This is good news if you do, because it means you may soon be seeing some royalties from your interest in your mineral estate.
What Is A Division Order?
A division order is a contract between a company drilling for oil and gas and the people who own the rights to the minerals. It is a financial document that owners receive after they have agreed to lease their mineral rights to someone else. It is sent once the land has been explored and the company decides to drill with the intent of starting production. Division orders are mailed to all owners involved who have chosen to keep their estates and have agreed to lease rather than sell their mineral rights.
The Purpose of A Division Order
If you have decided against selling mineral rights and chosen instead to lease them, a division order is an important document that you will want to review carefully. This is a financial document that ensures that every person who owns an interest in a mineral estate being drilled for production receives the right payment in accordance to the size of their interest.
Since there may be many, sometimes hundreds, of owners who are leasing their rights to the drilling company, the drilling company must first establish the rate of payment to each owner before they start production. This ensures that all owners receive their entitled royalty payment.
Division orders do not modify the terms of the mineral rights lease; they only serve to document the distribution of royalty revenue among all interest owners. The document you receive should include the name and address of the company doing the drilling, a description of the property being drilled, your type of interest, and your Net Revenue Interest (NRI), which is the amount you will be paid for the interest once production begins.
What If You Receive A Division Order?
If you have opted to lease over selling your mineral rights and have received a division order, it means that production will soon begin and you should start to receive royalty payments in the near future. The order is usually sent within a month of a well completion.
It is important that you carefully review the terms within the document, including the NRI listed to ensure it reflects your actual interest in well production. If you have questions about anything or dispute your NRI, you should notify the company immediately before the agreement deadline to resolve the dispute.
Since it can be somewhat complicated to determine whether the calculated NRI is correct, it is best to discuss the matter with an attorney familiar with the leasing and sale of mineral rights.
If you have recently received a division order referring to your mineral rights lease, congratulations - royalties may be coming your way soon! Review the document immediately with the company’s division order analyst or with lawyers experienced in the lease and sale of mineral rights. Once you have agreed with the terms of the division order and production starts, you should begin to see the benefits of keeping rather than selling mineral rights!
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