This discussion relates solely to minerals produced in the State of Oklahoma. If your minerals are produced in a different state, then consult an attorney there.
What is a Division Order and Why did I Receive One?
If you received a letter asking you to sign and return a Division Order to beginning to get paid for oil, gas or other minerals, this is a good thing. It means that the company believes that you are entitled to payment. The division order describes the minerals, it asks for information about yourself, and often asks you to agree to certain things related to the payment of royalties. But beware, in Oklahoma you are not required to sign and return a division order. In fact, you may be unnecessarily impairing or giving away your rights.
Here is a Short Video Explaining Why You are Not Required to Sign a Division Order in Oklahoma
Do I Have to Sign and Return a Division Order?
If minerals are being produced from an Oklahoma well, you are not required to sign and return a Division Order. Oklahoma law is very clear, the company responsible for payment must pay even if you refuse to return the Division Order. In 1989 the Oklahoma Supreme Court ruled that a company cannot withhold payment of royalties based on the refusal to return a Division Order.
- Oklahoma Law does not require a mineral owner to return a Division Order:
- Company prepared Division Orders typically impose duties and responsibilities on the mineral owner that are unnecessary;
- Company prepared division orders ask that you certify your factional interest in minerals. This is their job for which they have the information and training.
Why Shouldn’t I Sign and Return a Division Order?
There are many reasons not to a Division Order
- There is not legal requirement to do so for oil & gas from Oklahoma wells.
- You will be subject to the unfavorable terms of the Division Order.
- You likely lack sufficient information to verify the decimal interest that they propose.
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What Should I Do When I Receive a Division Order?
When you receive a request for a Division Order, you should take several steps to insure that you will be paid timely. First, you should return an IRS form W-9 with your tax identification number. Otherwise, the company will subject your payments to the maximum withholding amount. Second, you should communicate with the company acknowledge receipt of the Division Order and explain why you will not return it. A letter and a form similar to a Division Order is very helpful. Provide the company with your contact information.
Is it Okay to Use the NADOA Model Form Division Order?
The NADOA form, while appearing neutral contains provisions that an Oklahoma mineral owner is not required to agree to. In fact, it is not in the owner’s best interest to sign the NADOA form. There are several reasons:
- Oklahoma law does not require an owner to certify a decimal percentage interest in a well.
- Oklahoma does not require an owner to sign an indemnity agreement.
- The form may delay the timing and receipt of your payments
- The form does not provide a method to advise the company of a “no deduction clause” that you may have in your lease.
Can I Substitute My Form for a Requested Division Order?
Instead of signing a division order, you can provide the company with your own form as a substitute. The information you provide should not obligate you to unnecessary obligations. The format should be in a manner in which the company is comfortable. You should also send a letter explaining that you will not be signing the Division Order and to state your legal justification for the refusal.