All of the time we receive Division Orders. Ok, no we don't. But hopefully sometimes we do!
How do you know if you are being paid properly? The only way to know for sure is to compute your own interest. In order to do so, you need to know several things.
- The size of the Unit
- Your net acres in each tract that you contributed to the unit.
- Your royalty rate in each contributed tract.
- If there is a NPRI that burdens your royalty rate.
You can pretty easily get all but number 4. You would generally have to know the history of title to determine this. The landman who ran title could tell you.
This is not a bad thing to ask during lease negotiations. Also, you want to know -- at the time of the lease negotiations what your interest is in each tract. That way, you can confirm that you are being properly paid.
The general formula is to first determine the tract participation factor. Simply defined, the tract particiation factor is a decimal interest that is the result of (net acres of a tract contributed to an unit) divided by (unit size). That is not always the case. But for the most part, it is.
Then we need to know the royalty rate for each tract. That could be found on the lease(s).
Then we need to know if there are burdens to royalty -- such as a Non Participating Royalty Interest that dilutes your royalty rate since you do not own ALL of the royalty.
So, here is an assumption:
- That the Unit size is 622.47.
- You own 100% of the minerals in a 46 acre tract (Tract 1) that is all put in the unit. You negotiated a 22.5% royalty.
- You own 25% of the minerals in a 29 acre tract that 1/2 of that tract was put in the unit. (Tract 2). You negotiated a 22.5% royalty.
- You own a 40% non executive right in 15 acres that is all in the unit, and the executive negotiated a 20% royalty (Tract 3).
- You own all the minerals and 1/2 the royalty in 91 acres that is all included in the Unit and you negotiated a 22.5% royalty (Tract 4).
So, what is your share of production? In decimal form it is 0.03631199.
How do I know this? I followed the above rules.
BUT FOR YOU, attached is a Division Order Spreadsheet that all you have to do is enter the numbers in the yellow cells and the rest is automatically computed for you.
You are welcome!
Best regards,Buddy Cotten