If you are new to energy ownership, then it is time to learn some professional jargon. One of the first things you want to know about would probably be an oil and mineral rights division order.
When you want to make money on your mineral rights, the division order is usually almost as important as the lease. And, similar to a lease, this order can be a complex legal document.
What is an oil and gas division order?
As explained by the mineral-rights advocacy group National Association of Royalty Owners, a division order is a document in which you outline the interests of royalty holders, operators and first purchasers. It determines who pays whom — and how much.
This typically requires some detailed information about the property and your ownership stake. Examples include the type of interest, your percentage interest and the legal description of the real estate.
What are some of the legal issues with division orders?
The most common legal issues involving division orders are conflicts with leases. These documents should not be able to alter the terms of the lease, but some people still attempt to insert that type of language. A detailed, side-by-side review of your two documents should reveal any conflicts.
There could also be tax concerns with your division order. Because your royalty payments are income, the IRS will want you to satisfy any tax obligation you might have. The person or company paying you would need accurate information in order to accurately report all distributions to relevant authorities.
These are complex business agreements. However, as with all contracts, it usually is prudent to review them fully before signing on the dotted line. This is partly because there is no way to say, on a general basis, what these orders should include. Every piece of mineral-producing property is different, so your division order should probably also be unique.