If one already has a producing well and is receiving royalty checks, would a division order ever change for any other new wells in the same section? Wouldn’t the existing division stay the same? And, if so, why would there be a need for another issuance?
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If you have new horizontal infill multi unit wells, then each well will be a slightly different length, so that probably results in the percentage of perforations in your section being different. That would require a new DO, which should be similar to the first horizontal but not identical.
One example.
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Just curious - could this result in additional royalties being paid out
Yep… that explains it. I should’a figured that out. This is a very precise business. tks!
Each new well will have additional royalties.
The other reason for a new DO is when a well is sold to a different operator. In that case, one would hope that the decimal was right the first time and the second time. That would be a transfer of royalty responsibility from one company to the next company and they require a new DO and new W-9 for an old well just to continue the same royalties.
Got a general question which I think is relevant in this discussion. When an extensive DO prepared by the operator conflicts with the original lease agreement terms, which one controls? If you sign/date the new DO, is it a novation of the lease agreement? And if a second DO appears later as the new operator takes control, does that new DO override the previous DO’s and lease?
I’ve seen recently two new operator DO’s that do not agree with the original lease as to deductions, etc. so that’s the basis of my question. Is it wise to use the operator’s DO or should one use a standard approved DO? Thanks for all your insight and help over the years, it’s invaluable to this forum…
A lawyer would need to answer the first questions. I personally do not sign a DO that conflicts with the lease. I also do not use the operator’s DO form. I only use the NADOA (National Association of Division Order Analysts) form as it meets the minimum requirements in every state-or that is what I have been told. You especially do not want to sign if the DO overrides any particular deductions language from the lease. Just my personal opinion…
That is a great question and is open for litigation etc. Actually in Oklahoma you must be paid even if you refuse to sign a division order. Companies hate this. However, most owners are willing to sign a neutral DO that verifies % etc without changing any lease terms.
This post is not legal, investment or tax advice, it is for discussion purposes only. Reading or responding to this post does not create an attorney-client relationship.
That’s interesting that the sale of a well would generate a new DO. Callon bought Primexx but I didn’t get new orders. Maybe because they bought the whole company?
Some companies issue a new division order (sometimes called a transfer order since they are transferring from one company to another) and some just take over the pay deck and change the name at the top of the check. Just depends upon company policy.
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