I just received a Division Order and find it mostly straighforward however I do have one question.
Within the Order it says: "Payor shall compute quantity and make corrections for gravity and temperature and make deductions for impurities."
Is this anything to be concerned with?
I'm always concerned when I read the word "deductions."
Thanks.
Not a thing wrong, unless your lease form provides otherwise, which I have never seen one that has.
Buddy: Thanks for the info. I have the same issue and being sent a corrected DO, as we speak, that has this same language. I was considering contacting my ATTY but it is such a small interest I don’t think it will matter that much.
Mike: Just so I'm sure I'm following you, are you saying that your DO had language that was incorrect and that it has been corrected to read the same as what mine says?
Thanks--Terry
Dear Terry and Mike,
A "typical" oil royalty provision reads like this:
"The royalties to be paid by Lessee are as follows: On oil, one-eighth of that produced and saved from said land, the same to be delivered at the wells or to the credit of Lessor into the pipe line to which the wells may be connected. Lessee shall have the option to purchase any royalty oil in its possession, paying the market price therefore prevailing for the field where produced on the date of purchase"
Now there are a million royalty clauses, but this one, like most on oil provides for payment to made on market value.
Now go here:
http://crudeoilpostings.semgroupcorp.com/
These are daily posted market prices for different grades of oil.
Oil, being a mineral, like a diamond, has various grades, based on its weight (gravity), heating content and impurities.
When you scroll down to the bottom of the semcrude postings, you will see, for each category of oil, allowable adjustments to price based on several different factors. Therefore, the market price of oil is actually set on what it is worth.
These price adjustments are not a cost that you are asking to bear, it is just defining in more detail on what market value really is. If your royalty provision in your lease reads that you are paid market value or on value received, then the clause is absolutely appropriate in the Division Order.
If your property is in Texas, you are allowed to use the state form division order that was promulagated by statute. The national association of division order analysts also have their own form. In Texas, there is relatively new legislation (within the past 10 years or so) that states that the Division Order does not modify the Lease Form.
If you are still worried about that language, strike it out, initial it, send it in. They will likely say nothing at all, since the Division Order is actually a letter from you to them.
Terry: No. The original language that you stated is exactly the same language that we have on our DO. The corrected DO, in our case, was necessary due to inheritance and the transfer of mineral interest ownership increasing the overall decimal interest since we already were receiving royalties on this well. Just for a laugh this well is shut in but they may rework it. Our "shut in" royalty payment was a whopping 51 cents per month. Now with a stamp costing 44 cents, go figure.
Buddy: Thanks again.
Buddy,
You're a wealth of knowledge. Thanks for your contributions.
Martin
Buddy Cotten said:
Dear Terry and Mike,
A "typical" oil royalty provision reads like this:
"The royalties to be paid by Lessee are as follows: On oil, one-eighth of that produced and saved from said land, the same to be delivered at the wells or to the credit of Lessor into the pipe line to which the wells may be connected. Lessee shall have the option to purchase any royalty oil in its possession, paying the market price therefore prevailing for the field where produced on the date of purchase"
Now there are a million royalty clauses, but this one, like most on oil provides for payment to made on market value.
Now go here:
http://crudeoilpostings.semgroupcorp.com/
These are daily posted market prices for different grades of oil.
Oil, being a mineral, like a diamond, has various grades, based on its weight (gravity), heating content and impurities.
When you scroll down to the bottom of the semcrude postings, you will see, for each category of oil, allowable adjustments to price based on several different factors. Therefore, the market price of oil is actually set on what it is worth.
These price adjustments are not a cost that you are asking to bear, it is just defining in more detail on what market value really is. If your royalty provision in your lease reads that you are paid market value or on value received, then the clause is absolutely appropriate in the Division Order.
If your property is in Texas, you are allowed to use the state form division order that was promulagated by statute. The national association of division order analysts also have their own form. In Texas, there is relatively new legislation (within the past 10 years or so) that states that the Division Order does not modify the Lease Form.
If you are still worried about that language, strike it out, initial it, send it in. They will likely say nothing at all, since the Division Order is actually a letter from you to them.
Best,
Buddy Cotten
Buddy,
Thanks!!
We are all fortunate to have someone like yourself who is so knowlegable on the subject of oil and gas and so willing to help those of us that are in the dark on some of these things.
We appreciate all you do to help!!
Terry
Thanks for the kudos.
That is likely to rankle some people on the board, but thanks nevertheless.
Most people think that I spend hours and hours researching every little thing, but most of it comes off the top of my head. On states other than Texas, I can get lost in a hurry.