Division Order Issues

Now that I’ve been “schooled” in O&G issues, I realize who limited my options are. We continue to receive division orders for new production on our minerals, but through my own family research project, I’ve determined that the percentage offered (1/5000th of one percent" grossly mistates the actual list of heirs/owners (I could about 30), even when figuring in pooling (we are pooled with one other other).

Unfortunately, my family is being penny wise, pound foolish and will not pay for our own title review. This leaves us with little choice but to sign. What I wonder is that, since I know that their division will only total about 20% of the ownership royalties, what do they do with the other 80%? Buy a boat?

Do you have the Declaration of Pooling for the Unit you are in?

If I understand your question correctly, you’re saying that the lease provides for a 20% royalty. The 1/5000th of one percent is the share of that 20% royalty stated in the lease (“royalty interest”)?

In that case, the other 80% would be what is called “net leasehold interest” and it pays back the Lessee for the 1/5000th share of all of the expenses of exploring, drilling, equipping, and producing the well–very expensive costs that are incurred before the first barrel of oil or mcf of gas is produced. Too often, a well fails to produce enough during its lifetime to even let the Lessee break even on all of those costs combined before it has to be plugged and abandoned. Especially if, at some point, the Lessee has to perform a “workover” on the well to increase its production rate or to protect the reservoir–costs tacked on top of the initial costs to drill the well.

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