This may be a dumb question, but what is the contractual requirement of a DO? If the lease is the controlling document and I see no reference to signing a DO, then why must I sign it, particularly when it includes additional conditions that I’m not getting compensated for? Perhaps I’m missing something.
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The Division Order is the contractual document between the operator and the mineral owner where they agree on the decimal amount of production royalties to be sent to the mineral owner at their correct address. It is based upon a Division Order title opinion which is different than the leasing title opinion. The wording on the DO could change the lease, so you need to be careful about reading the DO to make sure that it does not. Some states like Texas require a signed Division Order to get paid. Others like Oklahoma do not. You just need to return a signed W-9. You can change the minimum payment to a lesser amount such as $25 by sending written notice. Again, it depends upon the statutes of the particular state.
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I’m in NM. I’ve asked for copies of the DOTO to verify the decimal interest and, if the operator is different than the lessee, the operating agmt or other agmt that put the operator in their position. In one case I received this and was able to verify everthing, but it was reluctantly provided. In the second case, the lessee was the operator was the same, so I asked for the DOTO, which they refused to provide. So they simply agreed to pay without a DO. Just seemed weird.
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My request is that anyone that is trying to figure out a DO, have a competent lawyer handy to read it for you. I had a lawyer read one for me because I am 80 years old and my thinking skills aren’t as good as they once were. As it turns out, the lawyer did not tell me that if I signed the DO I would be signing over 3/4ths of my royalties to the person in charge of the water jet procedure they wanted to do to the well. Before, I was receiving $300+ to $750+ a month. Now I’m lucky to get $120 every few months. Get the advice from a lawyer, and do not trust anyone.
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Wells naturally decline over their lives as the pressure drops off and the fluids are extracted. Combining the natural decline with a change in product prices will affect royalties. Decline with lower product prices like the last year or so will show up as much lower royalties. Normal.
It is not an industry practice to provide a copy of the DOTO to a party that did not pay for the production of the opinion. You may get a Purchaser that will provide you with an excerpt as it relates to a title requirement; although, they generally will just provide the requirement. DOA’s make mistakes and attorneys do not always get it right, but the burden of proof will generally fall to you if you propose an alternate ownership.
Thx for the response, and I’m aware that DOTO’s are considered proprietary, although that wasn’t the case in the past. Is a ‘paying party’ solely a party to the Operating Agmt? If you own an override, are you considered eligible to receive the DOTO since you are o the lessee side of the ledger?
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I am aware of the amount coming out of the ground getting smaller over time. What I said was that the decimal amount changed once that DO was signed by me. I was not aware of this and when the lawyer I hired finished reading it he never made me aware of the change.
If you have a copy of the first DO and the royalty statements reflect a lesser decimal, then send a copy of the first DO back to to the Operator and let them know about the error and ask them to revert to the original DO or explain why they changed it as they are only supposed to use a signed DO. If they changed without your signature, then there is a problem.
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Since Oklahoma does not require a signed DO from the mineral owner, the mineral owner still gets a copy of the DO, correct?
Yes, the mineral owners do get a copy. You still need to return a W-9 to the operator. You can send a letter in lieu of the DO. There is a topic string regarding several templates.
Attorneys can, and do, make mistakes either by commission or omission. That is why they have (or should have) malpractice insurance.
I am not inferring in any way this is the case but, it is one reason to use an attorney well versed in oil & gas law.
An ORRI is not considered a paying party. You did not pay for the cost of the DOTO; therefore you are not entitled to a copy. Many operations have changed over the years due to abuse. Case in point, distributed Division Orders used to include all owners to the 100%.
Got it. Out of curiosity, what was the abuse? From what I gather, it was that the title opinion was used to identify and buy mineral estates more easily, thereby avoiding the need to spend thousands to find the mineral owners (In other words, it’s all in the public record, just not very accesible in the digital age). To which one asks, how does that damage the operator since operators don’t generally buy the minerals? What’s in it for them? From what I can surmise, it’s that it makes it more competitive for the landmen working the project (who are trying to find market opportunities as their comp for the project) where they essentially can be market makers to flip properties based on the insider knowledge, or something to that effect. The net effect is what an economist would call an inefficient marketplace. Not that the producer needs to rectify this situation at all, but with all the financial transparency in the world, this is a pretty opaque situation. About as opaque as the shale itself :). Any thoughts?
You misunderstood. You were able to get the 100% division order not the DOTO. That practice stopped in the 80’s. Whether that was for competitive advantage or mineral owners privacy, I am not sure. The DOTO goes well beyond publicly available information.
Martha, I missed posts about the reasons not to sign and return a division order. I apologize if the info is here somewhere, but thought you could let me know in a sentence or two why it’s not advisable to sign and return a division order. I always check to make sure the decimal interest and other information is correct, then have my mother sign and return the DO. If DOs aren’t required anymore in Oklahmoma, why do companies send them out to mineral interest owners?
I am chiming in signing DO’s in OK. Not signing is an option, but you will find most pros sign and return. Caveat, always read and understand prior to signing; otherwise, always seek professional advice. Too many people take advice that can create potential problems, then are faced with complications. Good luck.
James: I would never do anything just because some one else does it. Lots of “old” pros have always done it so they don’t change with the times. I would consider myself a pro. Sometimes I sign them, some times not. How can not signing a DO create problems or cause complications?
Todd, I am trying to add a little context to the discussion and I believe you mischaracterized what I have written. I have seen way to many people on this forum raving about not signing a DO in Oklahoma as a retaliation directed at the Purchaser just because they can refuse to sign. Just because has never proven to be much of an argument. In many cases, the first Purchaser does not have any interest in the property and has no reason to want to alter a OGL condition. As long as there is a significant issue with the DO, then of course protect your property interest by not executing what you believe is an invalid DO. Failing to execute a valid DO can cause a delay in distributions, suspense of funds or even give rise to a possible title requirements depending on the company. Any of these may be deemed significant to some people and the cost of doing business to others. You will note my inclusion of read and understand what you are signing which is always a good practice. For those that elect not to sign I would say read and understand why you elect not to sign. Full disclosure, I am older (64) and acquired my mineral portfolio over 40 years, but I do not consider myself an “old pro” which implies elitism. My purpose on this forum is to offer additional information for other mineral owners to consider in their decision process in the hopes they will have better results. I have seen you on this forum many times and I believe that is also your intention.
For Oklahoma, I used to always sign Division Orders if the decimal number was correct and the correct NADOA form was used with no changes to my leases. However, I have ceased doing so for several reasons. OK is one of the states that does not require that a DO be signed in order to be paid. The operator wants my W-9, so that is easy to give to them-along with a letter-in-lieu of DO. The W-9 will be filed with a different department which maintains tax documents with better retention. The other reasons are that a DO can give up certain rights which I choose to retain. My reasoning came after to listening to an excellent webinar put on by one of the OK NARO directors who is an attorney that specializes in mineral rights. The webinar is free for NARO members and $25 for non-NARO members. (The $25 can go toward a membership.). The title is “OK NARO- Diving into Division Orders Oklahoma” from 2/1/23.
You can find my original comments and the Letter in Lieu by typing “letter in lieu” in the search using the magnifying glass above.