Division Order
An instrument signed by an owner that states the owner's interest in production from a property and directs the payor to distribute the proceeds accordingly.
Detailed Definition
A division order is an instrument, signed by an owner of an interest in production, that states the owner's share and directs the purchaser or operator to pay the proceeds on that basis. The U.S. Bureau of Mines Dictionary of Mining, Mineral, and Related Terms (1968) describes it as "A statement issued by the pipe line purchasing company setting out the names and fractional participations of the working interest and royalty ownership under a producing property."
Texas: statutory definition
Texas defines the term in Tex. Nat. Res. Code 91.401(3): "'Division order' means an agreement signed by the payee directing the distribution of proceeds from the sale of oil, gas, casinghead gas, or other related hydrocarbons. The order directs and authorizes the payor to make payment for the products taken in accordance with the division order."
Under Tex. Nat. Res. Code 91.402(c)(1), a payor is entitled to a signed division order containing only listed provisions, including:
- a description of the property and type of production;
- "the fractional and/or decimal interest in production claimed by payee, the type of interest, the certification of title to the share of production claimed";
- authorization to suspend payment "until the resolution of any title dispute or adverse claim."
What a Texas division order cannot do
- "Such a division order does not amend any lease or operating agreement between the interest owner and the lessee or operator or any other contracts for the purchase of oil or gas" (91.402(c)(2)).
- A provision "in contradiction with any provision of an oil and gas lease is invalid to the extent of the contradiction" (91.402(h)).
Timing and suspense in Texas
Proceeds must be paid "on or before 120 days after the end of the month of first sale of production from the well" (91.402(a)). Payments may be withheld without interest where there is "a dispute concerning title that would affect distribution of payments," or "a requirement in a title opinion that places in issue the title, identity, or whereabouts of the payee and that has not been satisfied by the payee after a reasonable request for curative information has been made by the payor" (91.402(b)).
Other states and federal royalty
North Dakota requires a person paying a royalty owner for production to provide an information statement showing "the amount of oil or gas sold and the amount and purpose of each deduction" (N.D.C.C. 38-08-06.3). On federal leases, "All rentals and royalties on producing leases, communitized leases in producing spacing units, unitized leases in producing unit areas" must be paid to the Office of Natural Resources Revenue (43 CFR 3103.12(b)).
Why it matters in mineral title research
- The decimals on a division order should be derivable from the documents: the lease, conveyances, pooling or unit allocation, and burdens (see Net Revenue Interest).
- Under the Texas definition a division order is an agreement directing payment, and it does not amend the lease, so an error in it has to be fixed at the source documents.
- Suspended payments may trace to a title requirement that has to be met (see Title Opinion and Curative).
Related Terms
Mineral Lease
A contract by which the owner of minerals grants another the right to explore for and produce them for a stated term, in exchange for payments such as bonus, rental, and royalty.
Royalty Interest
A share of production, or of its value, paid to a lessor or other royalty owner without bearing the costs of drilling and producing.
Working Interest
The interest in an oil and gas lease that carries the right to explore, drill, and produce, together with the obligation to pay the costs of those operations.
Pooling
Combining separately owned tracts or interests within a spacing or drilling unit so that a well can be drilled and production shared among them, by agreement or by state order.
Title Opinion
A written legal opinion on the ownership of land or minerals, based on the record, that identifies the owners, the exceptions and defects found, and the steps needed to cure them.
Net Revenue Interest
The share of production, or its proceeds, that a working interest owner actually receives after royalty, overriding royalty, and other burdens on production are deducted.