Division Orders - What they are and why they are important.
November 13, 2017
A Division Order is the document an oil and gas producer prepares that is a standardized reference to the lease terms. The document directs the disbursements of payments to the named interest owners in the correct proportions.
Oil and gas producers are careful to identify the mineral owners that have an interest in their production and the proportionate interest as compared to other owners. To identify the owners and determine the appropriate proportional interest, title opinions are completed by the producers.
Information that is displayed on the Division Order will match the information displayed on the revenue statements that will be received by the royalty holder. Check your Division Order to be sure that it correlates to the lease that was signed. If you are not receiving the correct interest per your lease, the Division Order might have been recorded incorrectly.
When asked to review and sign a Division Order from your operator, be certain the information is accurate and correct. Check all details carefully and ask Turrett for help if you need to have a review performed. Making sure your Division Order is correct is important because in certain states, the Division Order can supersede the Lease document and thus determine your revenue payments.
All of the fields in a Division Order are important and must be checked for accuracy. Of particular importance are the fields showing the Property Name, Owner Name, Type of Interest, and Interest. Property Name is the lease name and this ensures the Division Order covers the correct property. Owner Name should accurately reflect the owner of the royalty such as an individual or a family trust name. Type of Interest indicates whether the interest is a working interest or a royalty interest. The Type of Interest must be correct because this can lead to being paid your interest from revenue or after expenses are deducted. The Interest field will reflect your interest in the lease or well. This will typically be shown in the form of a decimal. A typical interest might be 0.1875, which is a 3/16 lease. As properties are split and passed down revenue interests get diluted and can have many leading zeros.
Division Orders have varied in complexity from company to company. Standardization became a priority and the National Association of Division Order Analysts (NADOA) introduced a standard form of the Division Order. The form has been updated from time to time to continue to serve the industry and participants. The latest form that was amended in January of 2017 can be found here: http://www.nadoa.org/forms/div_ord.pdf
The NADOA form is intentionally short and contains only the pertinent information for operators and owners. The form was designed this way to prevent confusion in the industry due to long, convoluted forms. The simplification of the Division Order helped to reduce errors and to reduce the instances of lease terms being changed through inaccurate translation of the lease facts or to renegotiate certain aspects of the lease.
The latest NADOA form is below.
These materials have been prepared solely for educational purposes to contribute to the understanding of oil and gas appraisal. These materials reflect only general concepts in the industry based on Colorado and may not apply to all circumstances. It is understood that each case is fact ‐ specific, and that the appropriate solution in any case will vary. These materials may not be relevant or apply to any particular situation. While every attempt was made to ensure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.