If you are thinking about signing an oil and gas lease, then you may hear about and wonder what is a division order. For the first time mineral rights owners, nearly any legal document can be intimidating, especially if you believe that the oil and gas company does not have your best interests in mind.
The truth is, however, that division orders are a necessary part of determining the amount of money you can receive from oil and gas royalty payments. Below, we will break down everything you need to know about division orders in mineral rights leases.
Division Order Definition
A division order, also known as a division of interest, is a written agreement that outlines how the financial proceeds of an oil and gas operation are distributed. Division orders typically provide individuals with a defined, monthly, fixed percentage on a company’s exploration and sale of crude oil or natural gas.
Why are Division Orders used for Mineral Rights?
Division orders are necessary in order to define and enforce what a mineral rights owner is entitled to in a mineral lease. Within the division order, fixed percentages of oil and gas profits are defined between the mineral rights owner and the oil and gas company.
In many cases, there are multiple mineral rights owners on large oil wells that stretch across many property lines. In these instances, division orders are even more necessary, as they fully outline the exact percentage interests each property owner should be paid.
What is in a Division Order for Mineral Rights?
Every mineral rights contract and division order is a bit different. However, there are a few things that must be in every division order agreement in order to make it officially and legally binding. The agreed terms include:
● Lease terms, such as length and special details
● Royalty rates (fixed percentages)
● Bonus payments (typically upfront)
● Clauses in the event of a delay or abandonment of lease
Ultimately, even in the simplest terms, division orders should also be reviewed by a mineral rights professional before they are signed. It is important to have a qualified person to review your division order in order to negotiate the best rates and payments to lease your mineral rights.