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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.