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Calculating a Decimal Interest - Division Orders Part 2

Last month, I discussed what’s in a Division Order, whether it has to be returned, and the associated paperwork. This month, I’ll take you through the steps to calculate your interest so that you can verify the most important item on the Division Order, the decimal interest. The decimal interest is incredibly important, because it dictates and determines your royalty payment each month.

Parts to the Decimal Interest.

You need to know three parts in order to figure the decimal interest. First, determine your royalty interest by checking your lease. In Colorado, the lowest number we generally see is 12.5% or 1/8; however, if you took the time to negotiate your lease, you’ll likely see royalties in the range of 3/20 or 15% on up to 1/5 or 20% or more. If you don’t have a copy of your lease, then contact the operator to see if they’ll provide you a copy or search the county records (either in person or online) to see if you can find a copy.

Second, you need to know what portion of the minerals you own. For example, if you only own one-fourth of the minerals then this number also figures into your decimal interest at just 1/4 or 25% for this second number. If you own 100% then this number would be 1.

Third, you need to know the spacing for the well. Most spacing information can readily be located on the Colorado Oil and Gas Conservation Commission website by clicking on the well information and finding the spacing. Horizontal wells are generally spaced one well her 640 acres whereas traditional vertical wells, especially gas, may be as small as one well per 40 acres. For example, if the well is spaced to all of Section 1 and you only own minerals in the NE/4, then this third number would be 1/4 or 25%. If you own minerals in the entire section then this number would be 1.

Calculating the Decimal Interest

Finally, multiple each of these three fractions or number times one another to arrive at your decimal interest. Voile you have your decimal interest! Compare to the Division Order and proceed accordingly. If it’s wrong, contact the operator with the correct number or it’s right, be sure you read part one of Division Orders.

Jenna H. Keller, Esq.

Attorney at Otis, Coan & Peters, LLC. (www.nocolegal.com)

Jenna H. Keller defends property rights and provides legal services to farmers, ranchers, rural property owners, and severed mineral interest owners in the areas of estate planning, natural resources (oil, gas, wind), real estate, and water.

The information is for general information purposes only. This should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided.

Keywords: COGCC, Colorado Oil and Gas Conservation Commission, Division Orders, decimal interest, payment, royalties

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Comment by Buddy Cotten on February 25, 2013 at 12:26am: Dear Jenna,

As to NPRI interests, are they automatically force pooled in Colorado? I would assume that the interest creating the NPRI bears the loss of royalty.

How does that work?

I have some Colorado DO that shows every owner in the exhibit, WI, ORRI, LOR, etc. Has that been your experience?

Also, MUST you sign a DO to get paid in Colorado? In Texas, for example, you do, except when the lease form says that you do not.

Buddy

Mineral Manager

Comment by Larry Wagenman on February 5, 2013 at 3:27pm: Yes,Lessee Cody Oil really fouled up and now should be happy to compete

and keep the shares in those wells, ranging from as low as 0.9% to as high

as10% on tracts where we retained 75% of the minerals.

Comment by r w kennedy on February 5, 2013 at 1:31pm: Mr. Wagenman, these wells all look to be on their way to 100k+ barrels in theit first year or thereabouts. I wouldn't mind collecting 16% royalty on them for a few years and then 100% less cost from then on. These wells will pay out eventually as long as they keep producing, that makes it something of a sure thing. If the operating parties didn't want to come to an accomodation quickly and very much to my satisfaction, thousands per acre and not hundreds, I would just let it ride. Have you considered selling your working interest in some very nice wells for a royalty interest and a nice chunk of change, greater than a lease bonus? If the time of the AFE's have not yet passed that would still be an option.

You didn't make this mess, if the operators doesn't want to help you fix it to your mutual satisfaction, I wouldn't worry greatly about them. They are not my brother in law and it's not my job to ensure they make a profit. I would have no qualms about selling those chunks of wells out from under them.

In a lease situation I would not allow them to merely match the lease offer from someone else, I would require that they beat other offers substantially, for the trouble they caused me or they would not get the lease. Good luck whatever you do.

Comment by Larry Wagenman on February 5, 2013 at 12:05pm: On our 'standard lease, done fraudulently, a notation at bottom says, ' C91-Victory-8-22' so what could it mean?

Our Mother formed a Utah Trust on 6/30/1998 that owned all these Williams County ND minerals,

Legal description for leasing purposes on 1177.04 gross acres is:

In section 6 lot 8-154-101, 57.04 acres, [5.432381 mineral acres]-0.095238 %

In sections 29,32,33-155-101, probated [1959] 737.04 acres,[54.01 mineral acres, after 25% to buyer in 1971]- 0.071450% share

In sections 32,33-155-101,owned outside of 1959 probate, 440 acres [reserved 330 mineral acres] - 75% share

On 6/6/2003, our Mother formed a 'trust/will' to convey her house to our brother.

She had previously quit claimed the house to him, but the lawyer was willing to take her money.

Subsequent to lease to Cody Oil and Gas,Statoil has 6 producing wells on the tracts leased illegally from the 1998 Trust.

Well 20214 under the 57.04 acres with a 0.095238% share, 5.432381 net mineral acres.

Well 21005 under section 33 into 28,Well 21709 from section 33 into 28, Well 21562 from 33 into 28,Well 22056 from 29 into 32, Well 22057 from 29 into 32, total 1177.04 gross acres, 384.01 net mineral acres.

Statoil assumed that the 1998 Trust that leased the minerals was superseded by the 2003 'trust/will'when formed on 6/6/03,solely to convey our Mother's house previously quit claimed to our brother, by 7/11/2006 warranty deed he never sought.

The 2003 'trust/will' was empty since 7/11/06 when the house our brother had already owned by quitclaim deed was again conveyed to him by a warranty deed he never asked for.

As a condition of issuing a division order,Statoil lawyer demanded insertion of minerals into the 'will' for probate and transfer of minerals to the 2003 Trust.

1. As first named Successor in the 1998 Trust,subsequent to my objection to this ploy , Judge Rustad at Williston ruled on 1/3/2013 that the 6/6/03 'trust/will' had revoked the 6/30/98 Trust.

2. This ruling affirmed that the 1998 Trust became invalid on 6/6/03, when the 2003 'trust/will' was formed,although it was devoid of any property after it conveyed the house to our brother on 7/11/06.

3. This ruling declared that the 2009 lease illegally expedited by the heir named 4th in line as 1998 Successor Trustee was invalid, no matter who had done it.

Cody Oil Landman Luke Montieth had convinced this heir to sign the 2009 lease as a 1998 Successor Trustee, while overseas in Laos, and to return it without being notarized. He neglected to locate a copy of the 1998 Trust.

4. The result of this court ruling is that the minerals are now owned by the 2003 Trust,and heirs formerly named in the 1998 Trust are now free to lease to the highest bidder, by action of the personal representative named in the 2003 'will ', who, as Trustee as well, has recorded a 2013 mineral deed and Statement of Claim of Mineral Interest in Williams county ND.

The same heir who is personal representative in the 2003 'will ' is also the 2003 Trustee, bound at Article V , page 12, to act as empowered under the law.

75-7-814. Specific powers of trustee. Title 75 Chapter 7 Section 814 :

http://le.utah.gov/~code/TITLE75/htm/75_07_081400.htm

(1) Without limiting the authority conferred by Section 75-7-813, a trustee may: (i) enter into a lease for any purpose as lessor or lessee, including a lease or other arrangement for exploration and removal of natural resources, with or without the option to purchase or renew, for a period within or extending beyond the duration of the trust.

Through the 2003 Trustee, Trust members must now legally offer the same minerals that were illegally leased in 2009 to the highest bidder,because there is no legal proof that it was ever a valid lease.

5. Lessee Cody Oil shall be given the first option to lease anew the tracts at a mutually agreed upon royalty share, by matching the highest bid received per mineral acre,discounting from that total the $200 per mineral acre fraudulently paid to the 1998 Trust in 2009 when the lease was invalid, and when 2 of the 5 Wagenman heirs did not return the ratification to Cody Oil for recording in Williams county.

6. Complicating matters is the fact that Statoil has 6 producing wells on the tracts leased by the 1998 Trust that was ruled invalid on 1/3/13,and lessee Cody Oil has a share in each well,as do other partners MBI Oil, Stewart Geological, and Prolific Petroleum.

The following may pertain to Wagenman minerals under tracts the 1998 Trust supposedly did not own, as the Trust has now been deemed invalid from the date when the Utah 6/6/2003 'legal event' was expedited, according to the ruling by Judge Rustad, effective on 1/3/13 -

I have the document, DESIGNATION OF POOLED UNIT no. 725308 by Brigham Inc,General Partner to BRIGHAM OIL AND GAS, L.P.,showing an attempt to cover all bases for what appears to be the listed unleased tracts they horizontaled beneath,with the notation at bottom,

'L:\Land\Resource Plays\WillistonND\Project-RRDR\Wells\BOG WAGENMAN 29-32 #1H (155N-101 W-29 155 N-101 W-32)\Pooling\WAGENMAN 29-32#1HDesigofPooledU(12-14-2011).doc

For requirements for imposition of a risk penalty,see NDCC Section 380-08-08 and NDAC Section 43-02-03-16.3 ,'unleased mineral owners may be required to pay a risk penalty of 50% of their share of the reasonable actual cost of drilling and completing the well'.

Choices left to Statoil,Cody Oil and partners are:

Plan A- Finally reveal the facts regarding Statoil push for probate and transfer of minerals away from the 1998 Trust, and whether there was an uncorrectible flaw barring the Successor Trustee from correcting it and fulfilling the authority granted, and,

(1)If feasible, ask the Judge to rescind his order that invalidated the 1998 Trust,so that it continues doing the task it did for 15 and a half years.

Plan B- Cooperate with heirs unwittingly involved in the 2009 lease that never was, according to the ruling on 1/3/13, wherein the sale of lease on the producing 387.04 mineral acres to the highest bidder shall go forward to benefit all concerned parties, to be,

(2) Of especial benefit to Cody Oil and partners, who may not wish another entity to lease the minerals.

Plan C- Allow the minerals to remain unleased and 'unit pool' them at a mutually agreed upon royalty share to every heir individually,in the event that there is not a valid lease offered by a winning lessee, and accepted by the 2003 Trust.

Comment by Pam Kelly on January 22, 2013 at 4:36pm: Thank you for sharing your simplified explanation on this process. You would be surprised to hear how many complicated methods there are out there. I have been awating the late-coming division order for over a year now. Jenna, I believe I had written you at an earlier date, with questions. You offered your services re the 'order' should I need it. Well, I might, should I ever receive the order. The Oil Company has yet another hearing on additional mineral owners who, as I understand it, have protested (if that is the correct usage of the word) being pooled(?) in their area. I am wondering if the division orders have to wait being mailed to the consenting parties, until this is settled.

Just wondering about the process out there in Colorado - Moffat County.