Is This Division Order Right?
Call 979-532-3871 for help in reviewing your division order. If you’ve signed an oil or gas lease, you may have received a division order. In this video, Attorney Ray Kerlick describes oil and gas division orders and explains what you might want to do if you receive one.
My name is Ray Kerlick. I’m an attorney at the law firm of Wadler, Perches, Hundl and Kerlick in Wharton, Texas. We serve counties all throughout rural Texas and we get a lot of questions about oil and gas law. The purpose of this video is to provide general information, not any specific legal advise. And anyone who has a specific legal question ought to contact an attorney to seek legal consultation.
One of the questions we get a lot about is, “What is a division order?” Oftentimes people will call our office wanting to know about a piece of paper they have received from an oil company. That piece of paper is called a division order and what it is, even though it doesn’t say it very clearly, is a contract between you and the oil company. That contract essentially allows the oil company to pay you only the percentage that’s listed in that division order.
How is that possible? Well, the answer is there is a statute in Texas that basically gives some protection to oil companies in terms of payment. Generally speaking if you have signed a lease with an oil company and there is a well on your property and it begins to produce, the oil company has 120 days or 4 months from the last day of the month on which production began to pay you. The division order confirms this, but that’s the law either way and it’s probably in your lease as well.
However there’s an additional rule and an additional requirement. And that is the oil company does not have to pay you until and unless you sign a division order with them. This division order essentially eliminates any arguments between you and the oil company about how much money you’re owed. It also provides them with information on how to pay you, which includes things like your Social Security number and your address. They will use the information on this to report any monies they pay to you to the IRS for tax purposes. They will also only give you whatever percentage number is in that division order.
So the obvious question is, “Is that division order right?” Typically that’s something that people will have to determine for themselves and, again, this is something I would probably ask people to consult with an attorney about. But long story short, it’s based on the royalty that you have given in the lease that you’ve signed as well as how much of your land is actually included in the pool or the unit around the well. Combining those two factors and multiplying them should give you a percentage upon which the oil company will pay you.
You have also agreed, as the final thing in the division order, that as long as the oil company pays you the amount that you’ve specified and signed for in the division order, that you have no rights to sue them for any additional money. The good news is you do have the ability and the right to cancel a division order by giving 30 days notice to the oil company if you believe it’s wrong, but they will not be responsible for any wrong payments in between the time that you have signed the division order and the time that it is cancelled.
If you have questions about a division officer you’ve received, please call our office at 979-532-3871 for an appointment with an attorney from Wadler, Perches, Hundl & Kerlick.