An oil and gas division order is a formal document used in the oil and gas industry to specify how revenues from the sale of oil or gas production are distributed among various parties, typically including royalty owners, working interest owners, and overriding royalty interest owners.
Key Aspects of a Division Order:
Ownership Confirmation:
It identifies each owner’s specific interest percentage, ensuring revenues accurately reflect the correct proportional shares.
Revenue Distribution:
Clearly outlines how payments are allocated based on each owner’s fractional interest.
Legal Documentation:
Serves as an acknowledgment by the owner verifying their ownership interest and agreement to the terms of payment.
Operator Communication:
Issued by the operator (the entity managing production), providing transparency and communication to stakeholders about their interests.
Maintenance of Records:
Ensures operators have current contact information, addresses, tax identification numbers (TIN), and payment preferences for accurate accounting and reporting.
Typical Information Included:
Owner’s name and address
Well or property identification
Legal description of the property
Owner’s decimal interest
Terms and conditions governing payments and disputes
Taxpayer Identification Number (TIN) or Social Security Number for tax purposes
Importance:
Ensures clarity and transparency in revenue payments.
Helps prevent disputes by clearly defining each owner’s entitlement.
Facilitates accurate and efficient financial operations, reducing administrative errors and legal issues.
Common Scenarios:
Division orders are typically required whenever new wells are drilled, ownership changes (due to sales, inheritance, divorce, or other transfers), or when fractional interests are recalculated.
In essence, a division order is a critical administrative document in the oil and gas sector, ensuring accurate, transparent, and fair distribution of production revenues among stakeholders.