I found this explanation online. It helped me understand the procedure:
Division Orders have long been used as a means of identifying ownership and documenting the payment of royalty on sales of oil and/or gas by the purchaser of production, or the operator of the properties.
The Division Order acts as a stipulation as to the ownership of each party owning an interest in production from a well or wells.
Over the last twenty to thirty years, Division Orders have changed in that many state statutes now limit what may be included in a Division Order, and their effect.
The basic provisions of a Division Order are:
1. The identification of the owner of an interest and a statement of the owner’s interest. By signing the Division Order, the owner certifies that the decimal interest in production identified in the Division Order, or the proceeds of that production, are to be paid to the owner by the issuer of the Division Order.
2. Division Orders typically provide that the owner will notify the issue of the Division Order, in writing, of any change in ownership or change in the interest owned, and that the changes will be effective on the first day of the month following receipt of the notice, or thirty (30) days after that time.
3. Division Orders typically authorize the company making payments to withhold payments in the event of any title dispute or adverse claim to the interest of the owner, and for the owner to agree to reimburse the company on any amounts attributable to an interest to which the owner is not entitled.
4. Division Orders typically include a provision that provide that the company making payment for production may accrue proceeds until the total amount reaches a certain amount, or until the end of the year, whichever occurs first, subject to any requirements by applicable state statute.
5. Most Division Orders now include the provision that its terms do not amend any oil and gas lease or operating agreement that has been entered into by the owner. If the Division Order does not provide this, it is provided for by statute in many states.
In that the owner will be receiving payments from the company issuing the Division Order, a social security number, in addition to a signature and current address is usually required. The Division Order typically provides that if a social security number is not provided that the company may withhold up to thirty-one percent (31%) (or whatever Congress determines to be that statutory withholding rate) to be paid as taxes, which amounts are not refundable to the owner.
On oil production, a Division Order may be issued by the company purchasing the oil and responsible for making payments. Alternatively, an operator of a property may receive 100% of the proceeds from the purchaser or production, and in turn, issue its Division Order and make payments to all owners in an oil well.
On gas wells, typically, companies that purchase gas do not make distributions, but pay 100% of the proceeds from the sale of gas to the operator. The operator then issues its Division Order and makes payments to each owner.
Once a Division Order is issued, if there is a change in ownership (either an owner transfers all or part of his or her interest) those changes may be reflected in an amended Division Order or Transfer Order issued by the company making disbursements of production proceeds.
In instances where a company is making payments to an owner on multiple properties, it may issue what is referred to as a “blanket” Division Order, which covers a number of properties, setting out the property name and owner’s decimal interest in several properties, under one Division Order, rather than issue separate Division Orders on each property.
No related posts.