I notice that Division Orders have become less forward and include numerous terms and conditions than in the past. Recently I found this among seven other conditions:
"Owner(s) further warrants and represents that it has delegated to the Lessee or Operator full authority to sell and deliver, and to Company or its agent, the right to receive, on such terms and conditions as the Lessee or Operator or his designee may determine, all oil and/or gas from the described property and allocable to the interest of the Owner as set forth herein. For the purposes of this provision, "Lessee" means the Lessee of the lease under which interest is owned, its successors or assigns and "Operator" means the operator of the described property, at the time the oil and/or gas is sold."
I can't quite put my finger on it but something seems suspicious about these two run-on sentences. It seems to provide full authority to sell and deliver product when it chooses, and to whom, including its agent who may not be at arms length. Through its "agent", operator can also sell at a time when, say, oil or gas prices rise or fall, to benefit itself and deliver at a time which is not best for Lessor.
The Division Order is in Oklahoma and I believe there is a standard form I can fill out which the Operator must accept that does not include all these conditions.
Anyone else receiving these "extended" versions of the Division Order and has anyone regularly substituted the standard forms without protest from operator?
http://www.nadoa.org/forms/div_ord.pdf
This I think is the form you are referring to.
I used this form when a company (in WV) tried to have the division order say that the lessor would pay part of the costs. This was NOT in my lease and I told them so, and sent in the Model Form Division Order, and they accepted it and have paid me appropriately ever since.
Dear Rosemary,
You bring about a great issue. I have some wait time on my hands this week and I will blog about Division Orders in an upcoming post as it concerns major oil producting states.
Thanks for a good idea on a good blog!
Best
Buddy Cotten
Since it is in Oklahoma, A few points to consider:
1) There is no statutory requirement in Oklahoma for a division order. There is also case law saying it is not required for payment. HULL v. SUN REFINING AND MARKETING CO. 1989
http://www.leagle.com/decision/19892061789P2d1272_12047
2) By statute, a DO cannot change the terms of the lease.
§52-570.11. Division orders.
A division order is an instrument for the purpose of directing the distribution of proceeds from the sale of oil, gas, casinghead gas or other related hydrocarbons which warrants in writing the division of interest and the name, address and tax identification number of each interest owner with a provision requiring notice of change of ownership. A division order is executed to enable the first purchaser of the production or holder of proceeds to make remittance of proceeds directly to the owners legally entitled thereto and does not relieve the lessee of any liabilities or obligations under the oil and gas lease. Terms of a division order which conflict with the terms of any oil and gas lease are invalid, unless previously agreed to by the affected parties. This subsection shall only apply to division orders executed on or after July 1, 1989.
3) There is statutory requirement for them to pay you within 6 months of the 1st date of production. If you have marketable title, they owe you 12% interest if it is paid late. 6% if title is not marketable.
Oklahoma §52-570.10 covers it. Here are the key parts but you can pull the entire Title 52 here http://www.oklegislature.gov/osstatuestitle.html
B. 1. Proceeds from the sale of oil or gas production from an oil or gas well shall be paid to persons legally entitled thereto:
a. commencing not later than six (6) months after the date of first sale, and
b. thereafter not later than the last day of the second succeeding month after the end of the month within which such production is sold.
D. 1. Except as otherwise provided in paragraph 2 of this subsection, where proceeds from the sale of oil or gas production or some portion of such proceeds are not paid prior to the end of the applicable time periods provided in this section, that portion not timely paid shall earn interest at the rate of twelve percent (12%) per annum to be compounded annually, calculated from the end of the month in which such production is sold until the day paid.
Thanks Nancy, that's the form. Buddy, I look forward to your blog.
Rosemary
Rick, is owner bound by Division Order terms, at least temporarily, until they go to court for abrogation?
Division orders are contracts between the sellers of production and the purchaser executed primarily to protect the purchaser.18 Although division orders do not alter lease provisions,19 they are revocable authorizations to pay binding upon royalty owners until revoked.20 Therefore, when a royalty owner executes a division order, the owner is bound by provisions of the division order which may abrogate or alter rights under the lease. An interpretation that the common law custom and usage relating to division orders
Thanks for court references--Rosemary
Rosemary,
That is the problem I see. Even if you have statute to back you up, you may have to go to court. And at what cost? It is easier to work out the issue and not sign anything with conflicting language. The way I see it, we can make a pretty good interest rate while they wait to pay us. ;) But again that may take legal action to get the interest payment. There is at least one case in Federal court on payment of interest related to the statute now.
I have submitted the NADOA (with "see attached W9" in the SSN blank) instead of the Operators form.
Some Operator's form use language identical to NADOA. I simply sign and return.
I have also seen a couple with a minor change to the NADOA that I didn't find in my best interest. One recent one had added "and for any legal fees and court costs incurred by Payor in connection with said title dispute or adverse claim". I'm willing to clear a legitimate title issue. But, I'm not willing to write a "blank check" to the operator to do so. In this case I submitted two DOs. 1, their DO with the line stricken and initialed. And 2, a NADOA as above. The cover letter explained what I did not agree with and why. I'm not sure what they decided was acceptable, but I received payment on that well on the next check.
Had they not accepted it, I would have outlined the statutes/info I previously posted, submitted a 2nd NADOA form, and asked to be placed in pay status.