Division Order language regarding expenses

I received a D.O. and need guidance on signing. The TERMS OF SALE last sentence refers to “Deductions may be made for gathering, transportation, treating, conditioning, marketing and other post-production costs………………….as allowed by applicable law”. I am not aware of the Lessor’s lease terms and their agreement to any expenses BUT I have always thought NPRI is free from all expenses. Does anyone know if I will be charged any deductions?

You may wanna add a gas and oil attorney to help you out with that.

Good catch! Don’t allow deductions.

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Oil and gas attorneys are worth their weight in gold. I would never sign a lease of purchase for my oil royalties without one.

You are half right. A NPRI is free of all the costs and expenses of drilling and equipping the well. A NPRI is not an interest in minerals - it is a non corporeal interest. When the product comes to the surface, it is personal property, not real property and is generally required to pay post production expenses, UNLESS there is contractual language to the contrary.

Buddy Cotten


If the Lessor did agree to pay post-production expenses, did the Lessor contractually obligate the NPRI to also pay post-production expenses? And, if the Lessor did not agree to pay post-production expenses, did he save the NPRI from paying post-production expenses?

With the exception of pooling, is it safe to assume that all terms of the lease apply the same to the Lessor and the NPRI?

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Buddy, thank you for your insight. I have missed your advice on this forum, and I bet I speak for many that consider your expertise as the gold standard.


You don’t need to sign their division order. Just use the template provided by the National Association of Division Order Analysts.

Consider deleting the word proceeds to changing it to market value. Not market value at the well because that is net of all costs. Proceeds is more ambiguous as it could be interpreted as after costs. I am not sure there is any case law on that term.

Thank you! It is very nice of you to say. I am getting back in the saddle again after the strain of the past 6 years.

Buddy Cotten

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In spite of the strain he has experienced, Buddy has been our invaluable adviser on mineral rights during the last 2 years. I don’t know how he does it but I am glad he does!!!

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You will if you signed a lease agreement without dealing with these issues. Our company’s Lease Agreement actually covered these issues in totality . . . . . . AND . . . . . the company that is producing our leases now is actually trying to deduct these expenses NOW!

Needless to say, we are now disputing these deductions and, I believe, will prevail do to a very smart lawyer who we hired way back when who proposed that we change the lease agreement to place our Royalty on the price of production at the wellhead at Cushing. The true issue is the distance of the production from the wellhead . . . . . ours is AT the wellhead!

Stephen Watkins