Division Order Advice

When you sign a division order can you decline the part that says you are responsible for any title claim or dispute and indemnify the lessee? I did not agree to that in the lease and see this as another attempt to make us responsible for any issues that could ever come up regarding ownership. I have placed an example of that wording in a link. Just curious if that is normal for people to decline that and see enter into an agreement with lessee? Any other things to consider when it comes to signing a division order?

Thanks

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I usually use the NADOA form and not the company DO form. The NADOA form specifically says that “This Division Order does not amend any lease or operating agreement between the undersigned and the lessee or operator or any other contracts for the purchase of oil or gas.”

0_Division Order Model Blank Form 2017 (1).pdf (118.6 KB)

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I cannot comment on the legal question. This is the standard language that the Division Order Analysts have agreed upon.

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You won’t have to come up with the money, they will just deduct it from future checks.

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I cannot imagine any operator would remove this clause, although I’m not a lawyer. As Ms. Barnes wrote, that same language protecting operators from title disputes is found in most division order contracts nationwide as part of the NADOA model form, often verbatim. Operators have probably been burned many times, including when family members challenge one another’s royalties.

Your risk that someone would overturn your title is mitigated by the operator’s Division Order Title Opinion prepared prior to sending DO contracts to royalty owners, although title searches are not perfect or infallible, and surprise claimants may appear. Also, if somebody is going to challenge your interest, most likely the challenge would have surfaced before DO time.

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Makes sense. We feel certain about mineral rights ownership but were more concerned about the math being jacked up along the way with production numbers and payout then being on the hook for that later. Being ignorant on how this stuff works makes it a bit worrisome, however it seems as though the processes are pretty precise so we feel more comfortable now after reviewing other feeds. Thanks for the feedback and insight.

Texas statute 91.402 has the language to be included in the division order, Operators are allowed to withhold payment if you do not sign the division order as long as the language contained in the division order matches the language in the statute.

That paragraph is part of the Texas Statute.

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Makes sense. Thanks.

Dear Mr. Ramsey,

You comment is correct in many, but not all cases.

The Operator is allowed to withhold payment of royalty if a Division Order is not signed — PROVIDED that the underlying document, the lease form itself, stipulates that the execution of a Division Order is not required for payment.

An example clause from a popular Professional form is as follows:

“3.9 Lessor or Lessor’s successors or assigns shall never be required to execute any division order, transfer order, or any other such instrument as a prerequisite to payment to them of the royalties provided hereunder, and the execution of any such instrument shall not constitute an amendment, alteration, ratification, adoption, confirmation, waiver or reinstatement of this Lease or any sublease, farmout, amendment, deed, conveyance contract, unitization agreement, operating agreement, or any other document affecting the Leased Premises.”

Best,

Buddy Cotten

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For those with Oklahoma minerals remember that different rules apply.
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My apologies, Richard.

I was strictly talking about Texas, since that is where the property is located.

But you are right. Things that you and I take for granted, many people just do not know.

It’s been so long since I have posted, I guess I have forgotten how.

Buddy Cotten

That’s a good question, I’ve wondered that myself, I bet not, from my understanding it is simply a mechanism to Shield the payor or the operator from the liability of over paying or under paying … there’s some experts on this deal so I can’t wait to hear