Terminolgy Help

Division Orders
1

I am struggling with terminology. Can someone help or point me to a post that walks a new mineral owner through some basics?

  1. What is the correct term for the agreed upon percentage in a lease? Royalty interest? Royalty percentage? Decimal interest?

  2. What is the correct term for the amount of minerals owned in a section?

  3. What is the correct term for the calculated amount paid to the mineral owner? This is the number that often appears on the division order, right? On DOs, I’ve seen the following terms: Royalty Interest, Division of Interest, Type of Interest/Decimal Owned, Revenue Decimal.

Thank you.

2

All of those terms are intertwined depending on how you want to use each one. All can be expressed as fractions or decimals, depending on the application.

3

  1. Companies may use different terms. You may have a Royalty Interest (RI), OverRiding Royalty Interest (ORRI) or it may be called a decimal interest.
    Using Oklahoma as an example, the equation that determines that number is: net acre/spacing acres (actual) x royalty x % perforations in your section for a horizontal well. Your net acres are how many acres you actually own out of the original gross parcel. The spacing acres for a horizontal is typically 640 acres, but some sections are not exactly 640 acres, so the actual acreage applies. Your royalty is stated on your lease (e.g. 1/8th, 3/16ths, etc.) In Oklahoma, a horizontal going across two sections will be assigned a split percentage according to what the perforations are in each section. (Texas has a slightly different terminology, but similar idea).

  2. net acres

  3. Each company uses their own words. All of those listed can be correct.

4

Thank you. That helps. The term “royalty interest” in particular had me really thrown. I thought of that as the agreed upon royalty (eg., 20%) in a lease or pooling election; however, I noticed “royalty interest” also used alot when looking through division orders as the amount on which payment is made. Most of my interests are in OK so your example works well.

When I call a company which generated a division order to ask questions, I sometimes stumble with the terminology; getting a better handle on the correct wording will help our conversations go alot smoother :slight_smile:

5

YouTube has some excellent videos 5-15 minutes each explaining the DO process, how to interpret a royalty statement, how to calculate your decimal, etc.

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