royality payments

I received a letter from chesapeak  last month telling me we are part of a successful and producing well. Enclosed was a letter we had to sign and return by oct 20th to be in time for the 25th of October check release so got that done. It also said royalty check would be sent out roughly around the 25 th each month needless to say it also said payments would be held until it was over 50.00 haven't seen one yet. Don't know how they figure the payment I would hope if the well is successful and producing the royality would be more than 50 bucks I have 3 acres at 17.5 % anybody have any thoughts on this.

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Permalink Reply by Charles Randolph on November 27, 2013 at 3:10am

Maybe since you only have 3 acres, it won't matter quite so much, but here's the advice which GMS member Mike Bardzel posted on this site in January 2013 regarding Chesapeake's "Division Order" letters:  "A huge warning we were given was not to sign the Division Order form you will eventually receive from them in the mail when you are getting close to royalty payment time. They scare you on the form to sign or else you will not get paid plus they will withhold 28% I believe for taxes until you do sign. They conveniently add some items to this form which would contradict your agreement on your original lease. So by signing you are negating valuable items on your lease such as no deductions for costs etc. etc. Now this is not considered legal to change your lease terms on a Division Order Form. There is however a standard division order form online used by honest gas companies. It is called the "Model Form Division Order" from the National Association of Division Order Analysts. Print that out and tell them this is what you are willing to sign. They have in the past (and may with you) threaten to stop payment if you arbitrate with this new form. They won't (stop payment) according to the lawyers we spoke with. They would be in hot water. Chesapeake threatens to make you sign their twisted form favoring them and giving up more of your rights."

Permalink Reply by Daniel Barefoot on November 27, 2013 at 5:34am

unfortunately I already signed this damn thing and sent it back what do you suppose are my options at this point.

Permalink Reply by Anonymous on November 27, 2013 at 8:36am

Thank you so much for posting this.  I had not seen the post in January.

We expect a division order in the next few months and I have already downloaded the recommend form and made a note not to sign the form from chesapeake.

Permalink Reply by Charles Randolph on November 27, 2013 at 1:48pm

Glad to be of help, Anonymous :)  I hope that questionable practices such as the trickery applied to the Division Order request, will come to the attention of many landowners, especially those with Chesapeake leases.  Keeping in mind that some oil and gas companies are better than others, I don't have any suggestions for Daniel above, other than to consult with an attorney knowledgeable in these matters, and keep an eye on GMS for any further developments.  Thanks to Philip Brutz for posting the actual link to the recommended Division Order format shown in his alert.

Permalink Reply by Philip Brutz on December 15, 2013 at 3:46pm

Anonymous,

Would you be willing to post the wording of the CHK division order?  Leaving out personal information of course

Permalink Reply by Anonymous on December 16, 2013 at 2:00am

When I get it I will be more than happy to post it.   I haven't received one yet….planning ahead.    

Permalink Reply by Philip Brutz on November 27, 2013 at 9:59am

Here is the link to the National Association of Division Order Analysts Division Order Form:

http://www.nadoa.org/index-4.html

Does anyone have a copy of the Chesapeake "Division Order" letter that they could post?

Permalink Reply by Charles Randolph on November 27, 2013 at 1:51pm

Maybe GMS member Mike Bardzel knows someone who would be willing to have their copy of the Chesapeake "Division Order" letter posted for others to view.

Permalink Reply by Philip Brutz on November 27, 2013 at 3:09pm

Oil and Gas Lease and Division Order Conflicts
By Kathleen Dotzel Knight, Attorney

With the boom in natural gas wells, you can bet there will be as big a boom in oil and gas litigation. One area where increased litigation is expected is in disputes over the payment of royalties resulting from conflicts between the oil and gas lease and the division order. Because division orders are not issued until there is actual production, mineral owners and operators sometimes forget to address the particulars of division orders when negotiating a lease. This is a mistake.
Division orders are revocable contracts directing the distribution of proceeds from the sale of oil and gas. Using a title opinion as a basis, division orders set out the fraction of production each party is entitled to receive. Each interest owner will be asked to sign the division order before the first royalty check is issued. Sometimes the division order contains terms that are either not in the lease agreement or are different than the lease agreement and can be less favorable to the owner. The owner should carefully review a division order before signing it. If the owner signs the division order, it is a binding agreement and, while in effect, will take precedence over the lease.
If the owner refuses to sign the order, the operator may withhold royalties. In an attempt to avoid conflicts this situation creates, Texas passed a law that provides that a payee may be required to sign a division order as a condition to receiving payment if the payor 1) uses a form that contains only certain listed provisions or 2) uses the model division form set out in the statute.[ii] The producer cannot withhold royalty payment solely on the basis of an owner?s refusal to sign a division order that is not in compliance with this statute.[iii]
Although this law has provided some stability, open issues persist. While it states that a division order can never permanently amend or supplant a lease, case law exists that holds that the division order will control while in effect.[iv] Also, even though the law specifically states that any provision in the order that is contradictory to the lease is invalid to the extent of the contradiction, it then allows that the order may be used to ?clarify royalty settlement terms.?[v] So this leaves open to interpretation when something would be considered ?contradictory? vs. supplemental or clarifying.
The statute confuses things even more when it defines ?market value,? ?market price,? ?prevailing price in the field?or other such language when used as the basis of a valuation in the lease as "the amount realized at the mouth of the well by the seller of such production in an arms length transaction." The problem is that this definition is contra to Texas case law which consistently maintains that these terms are not the same. ?Proceeds? or ?amount realized? requires the royalty to be measured based on the amount actually received by lessee. By contrast a ?market value? or ?market price? clause bases royalties on the prevailing market price for gas irrespective of the actual sales price.[vi] So a division order, if interpreted in accordance with this statute, may well alter the valuation method agreed to in the lease.
Because of the ambiguity surrounding these issues, it would be wise to sort out these matters when negotiating the lease. At a minimum the lease should provide that 1) any division order issued will not change the royalty valuation method defined in the lease, and 2) that the signing of a division order that in any way alters the terms of the lease will not control nor temporarily amend the original lease.
If careful attention is given to setting out details of division orders at the lease drafting stage and the owner does a careful review of the division order before signing, these disputes can be avoided.

Permalink Reply by Anonymous on November 29, 2013 at 4:17am

I found this on Mineral Web.com.   Hopefully is it right

Division Orders Ensure Oil Companies Pay the Right People

Imagine the headaches and costs of improperly distributing a well’s revenue. It’s in everyone’s best interest to get this right. The Division Order is a document whereby the revenue distributor (either the Operator or the  1st Purchaser) and the recipient (the royalty owner) agree on the exact decimal interest (Net Revenue Interest or NRI) owned within a well, lease, production unit, or field-wide unit. A Division Order doesn’t alter the terms of the mineral lease. A Division Order that attempts to amend the terms of the lease is invalid to the extent of the attempted change. While the Division Order document can’t amend the lease, sometimes an operator will attempt through negotiation to amend the oil & gas lease at this stage or before revenue is distributed. Be sure you review in detail any other documents included or received around the same time.

The Division Order document will include:

  • Name of the oil & gas company
  • Legal description of the producing property
  • Type of interest – (e.g. royalty interest, mineral interest, or working interest)
  • Your decimal interest or net revenue interest, ie the NRI

You will provide:

  • Signature
  • Tax ID or Social Security Number
  • Address
  • Possibly direct deposit instructions
Permalink Reply by Velva Mooney on December 15, 2013 at 6:36pm

Do you always get a division order before you receive a rolality payment? While I'm asking, does anyone know if the Hercules wells are producing . That would be in the Claysville area.

Permalink Reply by thelma cathleen hays on December 16, 2013 at 1:29am

All the information any company already have all your information to send your checks. Just check that the royalty % and make sure acre is right then fill it with your lease. Chk  do all checks on the 15th business day on the month so the date changes from month to month. Daniel I have two lease one is for 102 acres and one with 1 acre I would say you will be getting a check

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