New to all of this and I received four oil and gas division orders in the mail today. Am I required to complete and return these in order to get paid? There is one sentence that confuses me that states, “Payor may accrue proceeds until the total amount equals, or pay annually, whichever occurs first, or as required by applicable state statute”. It does not give an amount of accrual. I also am unsure of how to calculate my decimal interest, in order to verify if what they have listed is correct. Not sure if it matters or not, but this is part of a pooling order. Thank you in advance.
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You are not required to return it in OK, but it is wise to do so and send the W-9 so they don’t take out federal taxes. Some companies won’t pay unless they have the W-9.
The equation for each well is based upon royalty, net acres and feet of perforations.
net ac/actual spacing acres x royalty x % perforations in your section.
Many horizontal wells are spaced at 640 acres for each section, but not all sections are actually 640 acres (especially those along the northern and western tiers of a section or along a river). You should know your net acres and your royalty from the pooling order response that you got paid for. The percent of total perforations comes from the survey of the well. Many of the DOs have it listed in teeny tiny print after the well name.
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Thank you. Should this state the dollar amount of accrual before payment or is there a state statute? I thought it was strange that there is not an amount listed.
Yes, it should have a minimum dollar amount. Many are set at $100. I cross it out and put $25. Also, I prefer to use the NADOA form (National Association of Division Order Analysts). It is accepted in all states. Attached. If the company form is identical, then fine. If the company form has different wording, then I will substitute the NADOA one I do not want any changes from the lease.
0_NADOA_Division Order Model Blank Form 2017v 2.pdf (78.2 KB)
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I got a division order for a well in Grady 1-06N-07W with a low owner interest of 0.00109141. The order specifies the well: ROBERTS 0607 12-1-1MXH and I have a notice that a first check is already cut for it. I have no prior lease and am puzzled as to how owner interest is defined. How do I negotiate it?
You are generally unable to renegotiate an existing lease or pooling order. If it bound your predecessor in interest, then you are stuck with it. Division orders in Oklahoma are voluntary, however most will sign a NADOA division order. A W9 is required to avoid maximum withholdings.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
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You most likely own an interest in Section 1 or 12. Your interest may have been force pooled by an interest owner prior to you or maybe you were pooled.
Thank you so much for all your help!
I’m puzzled by calculations of my owner interest, in this case for a newly producing well. I got this calculation from the company:
19.71 net acres / 642.81 unit acres x .125 royalty rate x .271778 allocation factor = .00104167, the result is called allocated interest.
I searched for how the term is used in the industry and understand that the allocation factor measures how much product comes out after losses along the line. It varies over time. Is this right? Looking at past statements on existing wells I don’t see any change of my user interest. I also see much higher allocated interest.
an allocation factor of .271778 would seem to indicate that only a quarter of production actually gets used. That can’t be!
Is the allocation factor fixed when I sign a Division Order rather than varying according to actual performance? I don’t see it varying in past payments from Camino.
Thanks Ernie
Oklahoma requires payment even if a royalty owner refuses to sign a Division Order. There are lots of good reasons not to sign if the well is in Oklahoma.
This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.
The allocation factor is the percentage of well bore perforations attributed to your section. The remaining perforations are in the other section(s) comprising the unit/well bore. It has nothing to do with the other things you mentioned. It will remain the same over the productive life of the well.
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