Replies to This Discussion

Permalink Reply by harleyowner2003 on April 28, 2014 at 11:16am

You need to call and talk to Gulfport. They should answer your questions. Can only negotiate royalty before you sign a lease. Might be they are only using half of your acreage in the 830 acre well.

Permalink Reply by Philip Brutz on April 28, 2014 at 1:02pm

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."

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

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

Permalink Reply by Teri OHIO on April 28, 2014 at 7:08pm

Kathleen, Thank you very much.  Looks like we have our work cut out for us.  Would you be interested in assisting us?  We live in MN and our property is back home in Ohio. The oil and gas industry put a pipe clear across our property outside Freeport and now --if it is not a typing error they want to reduce the amount of acres they use to figure our royalties?  Hmmm...  The person below (Gary) who mentioned Dower Rights may have hit the nail on the head if they divided up our property between my husband and my husband and me into two separate division orders.  However my name is on the title.  There was a mix up at one time, but it got cleared up in 2005... long before the oil and gas people came to town.  It is late at night so I will check in some time tomorrow.  Thanks for all your help thus far.  Sincerely, Teri

Permalink Reply by Philip Brutz on April 29, 2014 at 1:16am

Teri I posted Kathleen's blog about the Division Order.

She is an oil and gas lawyer in Texas: http://www.legaldirectories.com/Knight-Kathleen-Dotzel-52613-Atty.aspx

I use KWGD for my oil and gas legal work:http://w***********/oil-gas-and-mineral-law

Permalink Reply by Teri OHIO on April 29, 2014 at 9:27am

Philip Brutz,

Thanks.  It would be wise for us to use local Ohioans to help us with the Division Order for the property near Freeport than to hire someone from out-of-state.  (Thanks for posting the information from Kathleen's blog.)  Too bad we can't go back in time to before we signed the lease.  My husband just rushed right down to have his signature notarized and mailed it back to Chesapeake and didn't even stop to think that my name was not on the form.  We have since corrected this... or if we had thought about it that could have been another time we could have discussed the lease again before we added me.  Hindsight.  I am going to speak to Kaylee at Chesapeake first on Wednesday and then if needed talk with Gulfport directly. If I am not satisfied, my husband and I will most likely consult with the attorneys you have suggested. Otherwise we will consult with them after Gulfport attempts to fix the mistakes before we sign.  We hopefully will save some attorney fees if we first find out what the oil and gas company was thinking when they sent two division letters, etc.  Again, thank you. ~~Teri

Permalink Reply by Philip Brutz on April 28, 2014 at 1:09pm

Here is the platmap for your well:http://www.dnr.state.oh.us/mineral/oil/MRMImages/17/2/244273.pdf

Is half of your land in it?

Permalink Reply by Teri OHIO on April 28, 2014 at 7:27pm

Philip, we have this plat map on our desk top and it states we have 12.626 acres and the % 1.521  When I saw the Division Letter with 6 acres I was very surprised.  This is very frustrating... given that we already have such a small parcel within the 830.103   Also as I mentioned above the oil and gas people came and put a pipe line clear across our land.  I sure hope it is a typing mistake.

Permalink Reply by Dan on April 29, 2014 at 2:36am

Teri,

The plat map clearly shows all of your 12.626 acres included within the drilling unit.  There are clerical errors made all the time by these companies, plus they often are relying on information that that someone gathered from the recorders office prior to lease signing that may not be the most current.  I think if you contact Gulfport and bring this to their attention (both the duplicate letters and the incorrect acreage), and email them copies of your latest recorded deeds, they would be happy to make the corrections and send you a revised division letter.

Permalink Reply by Teri OHIO on April 29, 2014 at 9:55am

Dan,

I agree with you. I have an extra copy of our recorded deed just in case something like this were to come up. Yep, most likely it is just a mistake. They even have our address wrong on the inside of the letter on their forms.  

Do you know if anyone within our Plat is receiving more than 1/8 or 12.5 % royalty?

My husband has been friends with all the local folks near our property for forty years. He feels that they must have met together as a group to discuss the oil and gas issues before signing leases and he assumes that the oil and gas company offered us the same as others in the same Plat. Was it incorrect for us to think the company offered us the same as they would our neighbors?  Maybe this is the case that everyone in one Plat had the same offer, but maybe not. Being out-of-state and not involved when it all started is a drawback. We did not realize until we were approached that there was such a play in Ohio. We live in MN where we meet people involved in North Dakota and feel somewhat removed from Ohio.

Our daughter finishes school in 2016 so we may head back to Ohio where the winter is a bit shorter.

I sometimes wonder why we work with a woman from Chesapeake (who has been very helpful) and not directly with Gulfport.  Interesting the ins and outs of this paperwork trail.

The oil & gas company owe us some up front money that was held back. This is another issue.  Our nearest neighbors to our land were involved in solving this problem and they were kind enough to hire an attorney and include us since their land and ours used to be part of the same farm. Now both of us are waiting for a bit upfront money to come... Ours is not too much due to our small amount of land but it will be appreciated.

I am glad I discovered this site.  It has helped to educate us.  

Sincerely, Teri

Permalink Reply by Gary L on April 28, 2014 at 5:41pm

Teri,

Perhaps the two identical letters are subject to Dower Rights? Is the property deeded in your husband's name or both? Ohio is one of the few states that still uphold Dower Rights. I would run this by a legal counsel, if this be the case before signing. Maybe Gulfport might be able to answer or it could be just an error on their part. Maybe it has no merit at all, but its always good to check things out. Here is a link. 

http://www.alliance-title-agency.com/dowerrights.php

Permalink Reply by Teri OHIO on April 28, 2014 at 7:42pm

Gary,

You mentioned the Dower Rights and you may have pointed us in the right direction for the mistake... if Harrison County gave the oil and gas company the wrong information due to their having the wrong information at the recorders office.  On the plat map they do have only my husband's name... and all our other neighbors have both spouses names listed.  But this was suppose to be cleared up when the proper documents were finally recorded correctly.  My husband and I thought we had cleared up Harrison County's mistakes years ago in 2005.  But there were still mistakes and so these were supposedly fixed at the beginning of this year.  I do not think the Dower Rights would apply concerning my husband and me since my name is on the title of the property with his name.  Also my name is on the title as full survivor if something were to happen to my husband and he is full survivor if something happens to me.  I think the county made so many mistakes with the paper work when most of the farm's acres were sold about 14 years ago to our neighbors. The neighbors and us had to consult an attorney to clear up some problem with a tiny percentage of the mineral rights, but this also was cleared up some time ago.  The young woman at Chesapeake named Kaylee and also Mary at the Title Company got the mistakes straightened out so that Harrison County now has the right information and the correct documents were recorded properly this time. The documents show that I have been an owner since 2005 though it should have been since 2002.  I appreciate the comments I have received here.  This Dower Rights is interesting and I am glad it exists for those who marry later in life when their spouse may already have property because it doesn't matter when one commits his or her life to their spouse.  There should be some thing like the Dower Rights that addresses property. Thanks.  I had never heard of the Dower Rights.  Good information.   

Permalink Reply by Teri OHIO on May 1, 2014 at 5:16am

Here is a follow up on my concerns regarding the Division Letter/s:

I write this on Thursday after speaking with our lease holder / Chesapeake.  Chesapeake thinks Gulfport just made a mistake.  Most likely the letters Chesapeake sent to Gulfport crossed in the mail... letters with survivorship documents showing us as a married couple with both having survivorship rights of 100% of the land and the minerals. Most likely Gulfport was applying the Dower Rights. Chesapeake is going to communicate with Gulfport regarding the documents that were sent to them and get the Division Letter straightened out.

One good piece of news that was explained to me was that our interest is higher than what I thought.  It is 15%, not 12.5.  

Thanks everyone for giving me suggestions and helpful tips.