In the original lease, a “Gross Proceeds” clause was executed that prevented any deductions (including transportation) unless those deductions enhanced the value…etc etc etc…
In a new Division Order from EOG, it contains a paragraph acknowledging that EOG may deduct items such as transportation, compression, dehydration etc etc — “we agree you may deduct”…
Another royalty owner I know has not yet returned his Division Order BUT EOG has as of today paid him his initial production deducting transportation costs (and not paying interest even the production has been withheld for over a year.
I’m confused — on one hand, “no deductions agreed” in the lease but then a later document “we agree to deductions” to start getting paid…
Any insight or “mods” to the Division Order that needs made? Or is this just normal and the two “transportation” deductions are not truly the same in legal terms?
Thanks!
Check your lease as the “however…enhanced” language just allowed the deductions. Sorry. That is why you have to be so careful about the lease language.
You have to request the interest payment by using a certified return receipt letter addressed to the Division Order Analyst. Frequently, the first check shows up with no interest payment and the second one does. However, it is always good to formally request the interest back to “date of first sales”.
And to think that the lease language in the lease as an addendum to the lease and actually came from a knowledgeable long time landman that is a part of that family … So, let’s assume that it didn’t have that failing “however” provision and would have been valid but EOG has placed it again in the Division Order — do you strike it out of their Division Order? Or start a letter/email war? Trust in your opinions 1000 percent and you calling them like you see them… Seems like it’s become a “wack a mole” type stand-off that every document from a company has to be read and re-read to make sure a vampire clause has not returned…
I am not giving legal advice, just commenting on your “enhanced” language that appears to be in the lease. Would have to read the whole thing to get the complete picture. Did the lease mention the Mittelstaedt case? That would have given more protection in the lease for those additional charges.
I usually do not sign the operator division form. I substitute the NADOA (National Association of Division Order Analysts) Division Order form. It is approved for all states as far as I have been taught. It does not change any lease clauses (you have to be very careful about that!) The Division Order department does not always talk to the land department about phrases in a lease. And in turn the Accounting department does not always have software compatible with the terms of a lease. The mineral owners always have to be their own best advocate.
I have attached the most recent NADOA form. I take the info from the company form and transfer it to the NADOA form. I also add the operator address to the NADOA form. I send it back by certified mail and keep a complete copy plus the green card for my files.
0_Division Order Model Blank Form 2017 (1).pdf (118.6 KB)
Okcnhra-The best business advice, IMHO, is that you should consult an attorney for answers to legal questions. M_Barnes is a valuable asset here, particularly when it comes to geology. But I expect that if asked she will not purport to be an expert on the application of the Production Revenue Standards Act.
Frank — didn’t mean to put Martha on the spot but knew she would have disclosable options — always surprised how the legal aspects of oil/gas get twisted so hard — one of my clients spends all her time in accounting support of attorney’s working on behalf of royalty owners where the oil company just happened to not follow their own lease or pulled a rabbit out of the hat for their benefit or said look over there, not here…
Just the knowledge that you don’t “have” to use their forms might save a few of the forum’s visitors who have an acre or three acres and can not justify legal counsel from a bad result — or help push to legal counsel if warranted.
I consider her wealth of old school knowledge in the industry and here in Oklahoma to be invaluable…
Just had not seen a Division Order recently where the oil/gas company is asserting rights and re-establishing a playing field conductive to their behalf through an acceptance signature that would probably be considered contemporary to the original lease signatures — sharp little “gotcha” buried there… Apologize if I over-stepped my grounds/scope to both you and Martha…
Okcnhra- the real question is whether you are or will receiving 100% of the benefit of your “no deductions clause’”,
The Act says:
Each producing owner shall pay or cause to be paid to the operator the royalty share of its gas sales proceeds, valued according to such producing owner’s lease terms or Corporation Commission forced pooling order, from all gas produced from the well by such owner during any month. The operator shall thereupon pay or cause to be paid such royalty proceeds to each royalty interest owner in the well in accordance with the proportionate royalty share owned by each royalty interest owner.
Some operators take all of the royalty proceeds (i.e., dump it into a pot) and pay each royalty owner their “proportionate royalty share”. That means in practice you get less than 100% of the increased value provided by the “no deductions” clause, and the rest of the royalty owners share the remainder of the royalty owners who do not have a no-deductions" clause receive some of the benefit of your lease terms.
It would be interesting to hear what your friend says about this issue. In my experience, most royalty owners don’t have a clue about this issue.
One other point from this morning — with Trump rattling his sword about cutting payroll taxes and capital gains rates, might get real interesting with an even lower capital gain rate (and exemption in Oklahoma) on a sale versus long term royalty pay-out with higher income tax impacts — plus factor in the time value of money… If one played their cards right as to timing, could walk away with a consider sale amount, have a zero income tax impact and might further upset the uncertainty of oil prices and production amounts… Ah, the decisions in life…
I do understand about the “don’t have clue” aspect and it’s a bit frustrating — had a cold call this morning asking about some of my minerals in McClain – asked him “which ones” which always seems to throw them off and he told me the area and what would “my” price be and if I would consider selling them. I came back with “Isn’t that where the new EOG well is and 3 more wells are now through the Corp Comm?” Immediately said he appreciated my time, would mark me as a “no” and take me off their calling list and hung up. I had to laugh but then thought that this guy was looking just for un-informed “marks” who would consider a low ball offer and have their minerals snatched away just as they are starting to produce…
Will keep you updated as I plan to forward my question as to what issues, if any, re-stating and changing lease clauses in Division Orders that are contrary to existing leases to a couple of attorneys I know that actively are in litigation with the producers…