Mewbourne sent us the division orders for their new hoss wells. They’ve already paid us for back production. Now we get the division orders in the mail, which they want us to sign and send back, with the proposed royalty decimal interest.
My question is specific to this case, but also general:
How do they come up with this decimal interest number?
Is there any use in pushing back to try to get a better number?
Is negotiating ever a thing, or is it way past the point of any negotiating when the wells are already producing, and you’re already getting paid?
I’m just trying to do the smartest thing here and not blindly do things without knowing my options.
So I’m waiting to mail back the signed division orders until I hear from somebody more experienced & knowledgeable here.
Thanks in advance for any insights.
PS: Just to add that these wells are in Eddy county, which is why I am posting here, even though this is also a more general question, too.
The net revenue interest (nri) is not an arbitrary number that the operator makes up. It is based on your ownership of net acres, your royalty under an oil and gas lease and the size of unit.
For example, if one owns 10 net acres at a 3/16 royalty in a 640 acre unit, the nri is 10/640 x 3/16 = .00292968.
The ownership is what it is. You may have been able to negotiate a higher royalty in your lease if you signed one. (keep in mind the lease may be from a grandfather or some other ancestor.) At this point, the nri is what it is.
A Division Order is provided when there is already an existing lease with previously agreed to terms holding your minerals. This means that all terms are already set and were previously negotiated. When a division order comes through it is important to review how the Operator got to the NRI decimal (I usually ask directly for confirmation of their calculation) to make sure it is correct and it is also important to check your original lease terms to make sure that the royalty percentage is as agreed to and to confirm if deductions beyond tax are allowed or not.
Division Orders sent when a new operator is taking over ongoing production are easy enough to confirm as they should mirror the existing royalty checks. However, on new wells additional review of the lease terms agreed to and calculations for NRI is a good idea. If you are unsure of the lease that these new wells and the Division Orders are tied to, ask for a copy when you ask for NRI calculations.
The other thing to verify in any Division Order is that it clearly states it is not changing or impacting the original lease.
A LOT of oil and gas in Eddy County NM. Do you have a mineral (MI) or Overriding royalty interest? Most of ours are overriding royalty interests (ORRI) which are from Federal Leases acquired generations ago and passed down to today’s heirs.
Mewbourne will supply a more royalty owner friendly Division Order on request if you have the two page Division Order (front and back) usually provided by Mewbourne. Keep this in mind if you don’t like ANY language in Mewbourne’s usual, typical Division Order.
Of-course an attorney should take a look to make sure there is not adverse language to you the royalty owner in it.