Transcript Calculating without Cursing

ANALYZE THIS, CALCULATE THAT
Written and Presented
by
Donna Reeves & Sarah Broyles, CDOA
Special Thanks to
Stephen Horgan, CDOA; & Stephanie Sullivan, CPL
who helped with the development
of the materials presented herein
National Association of Division Order Analysts
36th Annual Institute
Washington Marriott Wardman Park Hotel
Washington, D.C.
September 23 – 25, 2009
Introduction

Define Division Order / Division of Interest –
–
Some use the term Division of Interest and Division Order interchangeably,
however:


Division of Interest – Complete Ownership / Payment
Records for a property or a tract within a property.
Division Order – Actual physical document that sets out
Property name
 Legal description
 Owner’s name and address
 Decimal interest for said property
 Interest Type for said property
 Covenants and provisions relative to the sale of Oil or Gas and/or
Distribution of Proceeds.
– Basic Division Order
 Issued to the individual interest owner setting out his interest as
described above
– Indemnifying
 Issued to a party who receives proceeds on behalf of another
party(s) and then further distributes those proceeds

2
Overview of
Division Order Job Functions

The responsibilities of the Division Order Analyst can be
categorized into two major functions –
– Set up the Ownership on producing oil and gas properties

so that production proceeds are paid timely and correctly –
– at the proper ownership decimal
– and in compliance with State Statues and all applicable agreements

This includes –
– Newly Drilled Well, both Operated and Non-Operated
– Acquisition
– Third Party Purchase Property
– Maintain the ownership through the life of the well (or, in the
case of a Third Party Purchaser, for the life of the applicable Contract),
based on receipt of



Assignments, Conveyance Documents
Probate Proceedings
Judgments or Settlements rendered by a Court relative to litigation, etc.
3
Traits and Skill Set of the
Division Order Analyst

Detail Oriented; Possess Patience; Good
Communicator and Listener
– Interact with the interest owners –

RI, ORRI, WI – in these producing properties
– Via phone, emails, and correspondence
– Interact with In-house Accountants, Marketers and Legal
Council, Lease Analyst


Division Orders, Marketing, Accounting and Lease Records have to
be “best friends” – Co-Dependent Relationship
Open lines of Communication
– Liaison with Industry Counterparts



Our Counterparts at other companies – Division Order Analysts,
Landman, Lease Analyst
Their Accountants
Their Marketers
4
Traits and Skill Set of the
Division Order Analyst

One might describe our role as a “Cross
between an Accountant and a Paralegal”
– Accountant – in that in our ownership set-up and
transfers of interest, we have understand how it
will impact the money. We are basically ‘writing
a check’
– Paralegal – in that we must understand the legal
requirements for ‘Clear and Marketable Title’ for
each state in which your company does business
5
Establishing Ownership
Records for a New Property

Notice of a New Property
– The Division Order Analyst may receive
one or more of the following documents
as notice of New Property:
6
Operated Properties


Authority for Expenditure (AFE)
Internal Company Document, detailing information
about the proposed well



Drilling Title Opinion


Drill Site Report / Well Information Summary / Release of
Well Location
Should contain Well Name; Location; GWI of Participants;
Company Leases Held by Proposed Well; Applicable
Agreements; Any Special Considerations
This Opinion may cover the drill site only, not the entire
proposed spacing.
Daily Drilling Report
7
Non-Operated Property



Authority for Expenditure (AFE)
Internal Company Document, advising that well has
been proposed and your company has agreed to
participate in the drilling and operations of said well
Drilling Title Opinion, provided by the Operator
– It may be possible to be on a Distribution List to receive Drilling
Reports from the Operator


Notice from Accounting advising that you have
received payment on a well that is not set up
Receipt of Division Order from Purchaser / Payor
8
Third Party Purchase Property


Contract Notice / Contract Summary
In-House Notification from Marketing
Group, that gives –
– Applicable Wells Subject to Contract
– Market Percentage that is being sold to
your company
9
Property Acquisition




Copy of Purchase and Sale Agreement
(PSA)
Copy of the Assignment
Internal Company Document, advising
that Company is acquiring certain
properties from ‘Company X’
Listing of Properties from Company
Business & Development Group
10
Monitoring Data To Determine When
Ownership Records Should Be Set Up
Operated




Company Drilling Reports, to determine when well has been
successfully completed as a producer
Division Order Title Opinion
Review of Oil & Gas Leases for any special provisions relative to
payment of production proceeds
Review of Applicable Agreements to be assured Payment /
Ownership Records will be set up accordingly
– Pooling / Unit Agreement

–
–
–
–

Are all lands within Pooling / Unit Agreement covered on the Division Order
Title Opinion?
Joint Operating Agreement (JOA)
Farmin / Farmout Agreement
Internal Agreements
Marketing Agreements
Review of State Statutes to be assured that proceeds are paid in
accordance with the Statutory Requirements for applicable state
11
Monitoring Data To Determine When
Ownership Records Should Be Set Up
Non-Operated

Follow-Ups with Internal Landman and/or Operator, to
determine when well has been successfully completed as a
producer
– It may be possible to be on a Distribution List to receive Drilling Reports
from the Operator


Division Order Title Opinion
Review of Applicable Marketing Agreements to be assured
Payment / Ownership Records will be set up accordingly




Will your Company be marketing under the JOA with the Operator?
Will your Company be marketing its full GWI under a separate
contract and distribute its proportionate share to its burden
interests?
Will your Company be marketing its NRI only under a separate
contract and receive its NRI only?
Internal Agreements
12
Monitoring Data To Determine When
Ownership Records Should Be Set Up
Third Party Purchase Property



How will disbursements be handled?
– 100% to Operator / Marketing Party for Further Distribution
– Who remits taxes?
– Remit Proceeds on behalf of Operator / Marketing Party
Who will provide payment information?
– Is this a Newly Completed Well and the Operator should provide a Division Order Title
Opinion?
– Is this a producing property that is now contracted with your company and your pay
records will be set up based on the prior disburser’s paysheet?
Are there any special circumstances of which your company should be aware?
– Tax Exempt Entities
– Special Lease Provisions for certain Royalty Owners



Please note that it is the responsibility of the Operator / Marketing Party to advise
the Third Party Purchaser of any special terms stipulated in the applicable oil and
gas leases or other pertinent agreements
Since the Purchaser is not a party to the Oil & Gas Lease, JOA, etc., they would
not be aware of such special provisions unless notified.
Review of Applicable Marketing Agreements to be assured Payment / Ownership
Records will be set up accordingly
13
Monitoring Data To Determine When
Ownership Records Should Be Set Up
Property Acquisition


When is the Acquisition scheduled to close?
How soon after the closing will your company be responsible for operations, marketing
and payment of production proceeds?
–

Is there a Transition Agreement that sets out the time frame for the responsibilities of the
Assignor and the Assignee?
Review of Marketing Data / Agreements to be assured Payment / Ownership Records will
be set up accordingly
–
–
Will this acquisition cause a change in payment arrangements
What percentage was previously marketed by Predecessor?

–
Who previously held the Basic Division Order?




If it was less than 100%, are you able to determine why?
Predecessor in Title
Former Purchaser
How will you obtain the payment records?
–
–
Electronic Data that can be data mapped and downloaded into your existing system
Manual Input from ‘Hard Copies’ of the predecessor’s DOI’s
–
–
–
Will Revenue Check serve as notice?
Will there be an Insert that is mailed with the check?
Will Division Orders be issued prior to checks being issued?
What procedures are in place to notify the Interest Owners?
14
Documents Affecting
Division Order Calculations


Once we have determined that a Division Of Interest (“DOI”)
is needed for a property, let’s look at the documents /
agreements that affect the calculations to establish the DOI.
Many of the documents used in oil and gas negotiations or
operations affect the net revenue interests of not only the
mineral owners but working interest owners as well. The
following pages will provide you with a sample guideline of
what to look for in the most common forms of agreements.
15
Agreements

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Oil & Gas Leases
Division Order Title Opinions
Curative Documents
Joint Operating Agreements
Assignments, Conveyances & Bills of Sale
Pooling/Communitization Agreements
Farmout/Farmin Agreements
Unitization Agreements
16
Types of Interests

Mineral Interests



Royalty Interests



Leased – subject to an valid oil & gas lease
Unleased – not subject to an oil & gas lease; this interest may
participate in the drilling of the well by executing the JOA; in
some states this interest can be forced pooled
Non-Participating Royalty Interests – interest in the
proceeds that is carved out of leased mineral interest; no
executive rights
Term Royalty Interests – interest in the proceeds that is
limited in time or as long as there is production
Overriding Royalty Interests


Usually created as a result of an assignment
Some oil & gas leases provide for an override
17
Types of Interests

Production Payments


interest in the proceeds that is tied to a specific dollar amount or
specific production amount
Net Profits Interests

interest in a specific percentage of the profits of a WI Party.
This interest can only be paid by that WI Party and is usually
handled through the Joint Interest Billing process
18
Types of Interests

Working Interests
 Participating – participates in the drilling and operations of
the well

Non-Consenting Working Interests – elects to not
participate in the drilling and operations of a well. This party
can usually back-in for a full or proportionate share after certain
obligations have been met

Carried Working Interests – interest that is borne and
“carried” by the participating working interest parties

Unleased Mineral Interest – can join in the execution of
the Joint Operating Agreement and participate in the drilling and
operations of the well, as to his proportionate 8/8 mineral
interest
19
Numbers Frequently Used by the
Division Order Analyst


1/8
7/8


3/16 = 0.187500 or 18.75%
13/16 = 0.812500 or 81.25%

1/16 = 0.062500 or 6.25%
1/4
 3/4


= 0.125000 or 12.50%
= 0.875000 or 87.50%
= 0.250000 or 25%
= 0.750000 or 75%
And our most favorite: 1.000000 or 100%
20
Oil & Gas Leases
Agreement by and between the Mineral Owner & Lessee (i.e. the
Working Interest Party)

Acreage Covered

Normally states total surface acres

Mineral Interest

Usually found on Broker’s report

Royalty Provision


Pooling Provision

Authorization to pool acreage with
other leases

Take-in-Kind Provision

Allows for Lessor to take oil in kind

Proportionate Reduction Provision


Change of Ownership Provision

States amount of negotiated royalty
(fixed or sliding scale), products,
pricing, when payment due
Allows for any rental payments
and/or royalty payments to be
reduced if Lessor owns a lesser
interest than stated in the lease
Gives the Lessor and the Lessee the
right to convey all, or a portion
thereof, of its interest
21
Oil & Gas Leases
Agreement by and between the Mineral Owner & Lessee (i.e. the
Working Interest Party)

Entireties Clause


Depth Limitations


Pugh Clauses


Shut-In Royalty Clause

Special Clauses / Addendum to the
Lease


Acreage included in lease must be
taken into consideration as lease
applies to unit
Sets out any depth limitations or
specific formations
Allows for all non-producing
acreage to be released at end of
primary term
Establishes procedures for
maintaining lease when well has
been temporarily shut-in
Added Clauses may alter /
supercede terms set forth in above
form lease
22
Division Order Title Opinions
Agreement by and between the Operator / Non-Operator and the Title
Attorney

Provides Lease Well or Unit acreage and legal description

Documents Examined, including any prior title opinions
rendered

Date range of documents examined

Summary of Oil & Gas Leases Included in Unit

Chain of Title

Agreements Applicable to Unit Calculations
23
Division Order Title Opinions
Agreement by and between the Operator / Non-Operator and the Title
Attorney

Patent Information

Easements

Encumbrances (Mortgages, Liens)

Taxes

Title Requirements

Calculations (Before Payout & After Payout)
24
Curative Documents
These documents may be part of the materials examined by the Title Attorney to
depict the Initial Ownership. These Curative Documents also play a large part in
the ongoing maintenance / updates on a producing property.

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Wills
Probate Proceedings
Affidavits of Heirship
Affidavits of Marital History
Affidavits of Identity
Affidavits of Non-Production
Name Change Documents
Merger Documents
Stipulations of Interest
Release of Liens
Ratifications

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Quiet Title Suit Documents
Disclaimers of Interest
Deeds/Correction Deeds
Assignments/Correction
Assignments
Trust Agreements
Quit Claims
Release of Lien
Release of Oil & Gas Leases
Release of Mortgages
Subordination Agreements
25
Joint Operating Agreements
Agreement by and between the Working Interest Parties



The Joint Operating Agreement (“JOA”) is an
agreement / document executed by all parties
participating in the development of a particular field
or geographical area. However, it may be limited
to the drilling of a particular well.
The JOA sets forth procedures for the development,
drilling and operations of the field or well.
We will discuss later in this presentation how
certain terms of the JOA can affect the DOI
26
Example #1 – Lease Well
Beetle Bailey #1

Joint Operating Agreement provides for all WI owners to share
proportionately as to the first 1/8
– WI Parties, subject to JOA




50% GWI
25% GWI
25% GWI
One (1) Oil and Gas Lease, granted by Beetle Bailey




Sarge Oil & Gas Corp.
General Petroleum Company
BB Minerals, Inc.
Covering the NE/4 of Sec 4, T19S, R29E, Eddy County, New Mexico
Provides for a 1/8 RI
Lessor owns 100% of the Minerals
Lease Well


No pooling agreement
Well spacing is limited to NE/4 of Sec 4, T19S, R29E (i.e. the exact
description of the above oil and gas lease)
27
Example #1: Lease Well
Beetle Bailey #1 - 160 Acres
Royalty Interests:
Beetle Bailey
100% MI x 12.5% RI = 12.50% Net RI
(can also be expressed as 1/8)
DOI Interests
.12500000 RI
Working Interest Owners:
Sarge Oil & Gas Corp.
50% GWI x (100% - 12.5%) = 43.75% Net WI
(can also be expressed as 50% of 7/8)
.43750000 WI
General Petroleum Company
25%GWI x (100% - 12.5%) = 21.875% Net WI
(can also be expressed as 25% of 7/8)
.21875000 WI
BB Minerals, Inc.
25% GWI x (100% - 12.5%) = 21.875% Net WI
(can also be expressed as 25% of 7/8)
.21875000 WI
1.00000000 TOTAL
28
Maintaining Ownership
Through the Life of the Well
Assignments, Conveyances & Bills of Sale

An assignment or conveyance document serves
three basic functions:
1. Assigns rights and delegates duties between Assignor and
Assignee
2. Allocates liabilities between the Assignor and Assignee.



Same may possibly create obligations in addition to those imposed
by the oil and gas lease.
Note: It should be noted that the Assignment process does not
necessarily adjust the rights of the original Lessor or previous
Assignees.
The Assignment should specifically address what liabilities and
obligations remain with the Assignor and which are to be assumed
by the Assignee.
3. Notice to others that a transfer of interest in the lease has taken
place, by placing same of record in the county/parish records.
29
Assignments, Conveyances
& Bills of Sale

These Documents should set out:
–
–
–
–
–
–
–
–

Grantor(s) or Assignor(s) / Grantee(s) or Assignee(s)
Appropriate Words of Conveyance
Acreage / Property covered by document
Consideration
Interest being conveyed
– Type of Interest (ORR, WI, PP)
– Percentage or Fraction of Interest being Conveyed
Reservations
– Partial Interest
– Depths or Formations
– Overriding Royalty
Effective Date
Agreements Affected
–
–
–
–
Joint Operating Agreements
Oil & Gas Leases
Other Assignments
AMI’s
Additionally, the Conveyance Document Should Be:
–
–
–
–
In Writing and Signed by the Grantor
Delivered to, and accepted by, the Grantee (preferably signed by Grantee)
Be Acknowledged
Filed of Record in County / Parish in which oil and gas interest is located
30
Assignments, Conveyances & Bills of Sale
Types of Conveyances:

ASSIGNMENT / CONVEYANCE / DEED
– If this involves a Working Interest: Check the JOA for
Preferential Rights. If stricken, make the change. If not
stricken- confirm with Landman that your Company has been
offered or has rejected the offer to obtain its proportionate share
of the interest being sold.
–

MINERAL DEED

ROYALTY DEED – A mineral owner conveys the royalty but
Only minerals are conveyed. The owner has
executive rights (i.e. can sign / execute a lease)
retains the minerals interest.
– Grantee owns royalty only, can’t execute a lease
31
Assignments, Conveyances & Bills of Sale
Types of Conveyances :

QUIT CLAIM DEED – if the quit claim deed doesn’t contain a fraction

WARRANTY DEED – grantor guarantees/warrants title. If the Grantor

TRUSTEE’S DEED - if the interest was conveyed to the Trust (i.e. to the
or decimal, the grantor is conveying his current as well as any subsequent
interest he may acquire. If the owner acquires an additional interest in the
future and the original deed cited a fraction or decimal, you would need
another conveyance for the subsequently acquired interest.
owns both surface & minerals they are both conveyed unless reserved in the
instrument
Trustees of the Trust), it must be conveyed out of the Trust by Deed.
– Some Companies may require that when you get a Deed into a Trustee
or Trust that you must request a copy of the Trust Agreement or
Declaration of Trust.
– This assures that you have knowledge of the Current Trustees, Successor
Trustees, Powers of the Trustee, as well as the terms for termination of
the Trust.
32
Assignments, Conveyances & Bills of Sale
Affect on DOI


Beetle Bailey has decided to convey a 1/8
mineral interest to his cousin, George Bailey
and wife, Joy Bailey.
How will this affect our existing DOI on the
Beetle Bailey #1?
33
Example #2: Beetle Bailey #1
After Conveyance to George Bailey & Joy Bailey
Royalty Interests:
Beetle Bailey
87.5% MI x 12.5% RI = 10.9375% Net RI
DOI Interests
.10937500 RI
(can also be expressed as 7/8 x 1/8)
George Bailey & Joy Bailey
12.5% MI x 12.5% RI = 1.5625% Net RI
.01562500 RI
(can also be expressed as 1/8 x 1/8)
Working Interest Owners:
Sarge Oil & Gas Corp.
50% GWI x (100% - 12.5%) = 43.75% Net WI
(can also be expressed as 50% of 7/8)
.43750000 WI
General Petroleum Company
25%GWI x (100% - 12.5%) = 21.875% Net WI
(can also be expressed as 25% of 7/8)
BB Minerals, Inc.
25% GWI x (100% - 12.5%) = 21.875% Net WI
.21875000 WI
.21875000 WI
(can also be expressed as 25% of 7/8)
1.00000000 TOTAL
34
Transfer Document of Record
35
Check List:
In reviewing the Conveyance Documentation received,
please consider –

How was the property owned?
–
–
–
–
–
Separate Property
Community Property
Subject to a Life Estate
Trustees of a Trust
Other

Are there any unusual
circumstances involving this
account?
– Revenues previously paid to a
bank / financial institution per
terms of mortgage
– Revenues previously paid per
terms of a special agreement
– Subject to a Life Estate
– Does the Life Estate Owner
have authority to transfer this
interest?

It will be necessary to review
the documents creating said
Life Estate
– Suspended Pending Litigation
– Other
36
Check List:
In reviewing the Conveyance Documentation received,
please consider –

Is the Assignor listed on the Assignment / Conveyance one and the
same as set up on your company records?
– If not, do you have sufficient documentation to establish chain of title
from the entity on your records into the Assignor reflected on the
Assignment / Conveyance?
– If not, what other documentation do you need?


For example, if said Assignment is from the Executor(s) of the Estate of John
Miller, deceased, and your records show this interest credited to John Miller,
you would need the probate proceedings relative to the Estate of John Miller.
If this interest was owned jointly, have all parties executed the
Assignment / Conveyance?
– For example, if said interest is credited to Joe Smith and Carolyn Smith,
have both joined in the execution of the Assignment / Conveyance?

If not, what other documentation do you need?
–
–
–
–
Is one of the parties now deceased?
Is the property subject to divorce proceedings?
Is the property subject to an additional conveyance?
Does one party have Power of Attorney for the other?
37
Check List:
In reviewing the Conveyance Documentation received,
please consider –

Does the Assignment / Conveyance involve an interest that is owned
or will be owned in Trust?
– In most states, title is vested in the Trustees of a Trust


If the interest is currently owned in Trust, the conveyance should be from the
Trustees of the Trust
If the interest will be owned in Trust, the interest should be conveyed to the
Trustees of the Trust
– There are some states – such as Oklahoma, Florida and Kansas where
the Trust is considered an entity capable of holding title. There may be
other states, as well.
– It has become a more common practice to accept Deeds whereby the
interest is conveyed to the Trust, especially if the Trustee and/or
Beneficiary are set out in the conveyance.

When in doubt and before you suspend, consult your Legal Department
– Please note: The preparation of a Trust Agreement does not
necessarily transfer title into the Trustees of said Trust. There must be a
conveyance into the Trustees; or, in the alternative, the Trust Agreement
itself can contain words of conveyance.
38
Check List:
In reviewing the Conveyance Documentation received,
please consider –

Does the Assignment /
Conveyance contain proper words
of conveyance?

What is the specific interest being
conveyed?
–
–
–
–
–
–
All
Percentage / Fraction of Assignor’s
interest
Specific Percentage / Fraction –
i.e. 20% interest in . . .
Is the conveyed interest limited to
a certain property / wellbore /
county, etc.?
Does the Assignor reserve any
interests?
If conveyance is to multiple
parties, does it specify the interest
being conveyed to each recipient?

Does the total of the interests for
each recipient total 100% of the
interest formerly owned by the
Assignor?
39
Check List:
In reviewing the Conveyance Documentation received,
please consider –

Does the
Assignment reflect
a consideration for
the grant?
– This may be “for
$10.00 and other
valuable
consideration…”
– This may be
denoted “for love
and affection…”

What is the
effective date of the
Assignment /
Conveyance?
– What are your
company policies
regarding effective
date of transfer on
your ownership
records?
40
Check List:
In reviewing the Conveyance Documentation received,
please consider –

Does the description of the property being conveyed coincide with
the legal description contained on your company records?
– If not, is there “Mother Hubbard” language such as –


“It is the intent of the Assignor to convey all properties located in Martin
County, Texas, regardless whether correctly described herein”
“It is the intent of the Assignor to convey all properties located in the State of
Texas, regardless whether correctly described herein”
– If not, have you requested the correct Assignment from the Assignee
(i.e. recipient)?
– Please note that it is possible that the description on the Assignment may
not match exactly with the legal description in your company records.
However, if the lands described (or a portion thereof) are encompassed
by the lands held by the well / unit tract, more than likely you can
consider the Assignment applicable to your property.



The Henry #1 well is described as the SW/4 of Section 5.
You receive an Assignment covering the S/2 of Section 5.
Since the SW/4 is a part of the S/2, the Assignment would be applicable,
provided all other references, such as Township, Surveys, Blocks, etc. match.
41
Check List:
In reviewing the Conveyance Documentation received,
please consider –

Has the Assignment / Conveyance been executed
by the Assignor / Grantor?
– The Assignment MUST be executed by the Assignor.

Has the Assignment / Conveyance been executed
by the Assignee / Grantee?
– Although it is preferred that the Assignment be executed
by the Assignee (i.e. recipient), it is not uncommon for the
Assignment to be executed only by the Grantor.

Has the Assignment / Conveyance been recorded in
the county(s) where the properties are located?
42
Probate


It has been said that “No one is assured of
anything except death and taxes”.
Unfortunately, interest owners in a well do not live
forever and there is a necessity to transfer
ownership to the heirs and/or devisees of the
estate of a decedent.
There are two basic types of probate proceedings
 Intestate (where the decedent died without a will)
 Testate (where the decedent died with a will).
43
Testate Probate

To transfer an interest in accordance with testate proceedings, it
usually common industry practice to require a copy of the following:







Death Certificate
Letters Testamentary
Will
Order Admitting Will to Probate
Some companies may also request an Affidavit, completed by the executor of the
estate, stating that all debts and taxes have been paid or the estate has sufficient
funds to pay same.
Some states, such as Oklahoma and Louisiana, the Court of Jurisdiction issues a
final decree that sets forth the recognized heirs of the estate and how all assets of
the decedent should be distributed.
If the Probate document contains an error in the property description
or as to the fractional or decimal interest of the deceased, you may
need a correction to the Order. This correction is called “Nunc Pro
Tunc Order”.
44
Intestate Probate

To transfer an interest for an intestate estate, the following
documents should be required:
 Death Certificate
 Affidavit of Heirship, completed by two disinterested persons, setting
forth the marital history and any heirship information relative to the
decedent. The Affidavit of Heirship is basically a synopsis of the
decedent’s life.

Some companies may base requirements for Ancillary Probate (rather than
accepting an Affidavit of Heirship) on the Interest Owner’s Annual Royalty
Proceeds.
 Some companies may also require an Affidavit of Facts stating that all
debts and taxes have been paid or that the estate has sufficient funds to
pay same.
 Some states, such as Louisiana, require a final decree issued by the Court
even in an intestate probate proceeding.

Know if State has Community Property; Know Intestate Laws
45
Foreign Probate




If a person dies owning oil, gas and/or mineral interests in a state of which he/she was not
a resident, Ancillary Probate Proceedings should be opened in the state where the well is
located.
Probate proceedings conducted in one state ordinarily will have no effect on the passage of
title in another state.
 It would be as if the decedent left no Will and his interests would vest in accordance with the
Laws of Descent and Distribution of the state in which the well is located.
Some states will accept a less formal filing of probate.
 In Texas, for example, record title can be amended by filing an exemplified copy of the Will and
Order Admitting Will to Probate in the Deed Records of the county(s) where the property is
located.
 In New Mexico, an executor of the estate may file an exemplified copy of the Will, Order
Admitting Will to Probate and any other court issued estate documents, along with a completed
Statement of Domiciliary Foreign Personal Representative in the District Court of the county(s) in
which the property is located. To distribute revenues to the heirs or devisees under the will, New
Mexico statute also requires the executor or the Domiciliary Foreign Personal Representative to
prepare and file of record deeds to the heirs or devisees of the estate.
The Analyst should familiarize himself / herself with the current probate laws of the states
in which the leases and/or wells under his/her jurisdiction are located.
46
Testate Probate
Affect on DOI


George Bailey is now deceased. His Will has
been admitted to Probate in Eddy County,
New Mexico (i.e. the location of the Bailey
#1 well).
His Will states that Joy’s 50% of the
community property shall be owned outright
by Joy. George’s share – i.e. the remaining
50% - is to be split between his 2 children,
Donald and Susan.
47
Example #3: Beetle Bailey #1
After Testate Probate on Estate of George Bailey
DOI Interests
George Bailey & Joy Bailey
12.5% MI x 12.5% RI or 1.5625% RI is now vested as:
Joy Bailey
50% x 12.5% MI x 12.5% RI = .78125% Net RI
Donald Bailey
25% x 12.5% MI x 12.5% RI = .390625% Net RI
0.00781250 RI
0.00390625 RI
Susan Bailey
25% x 12.5% MI x 12.5% RI = .390625% Net RI
0.00390625 RI
0.0156250 TOTAL
48
Intestate Probate
Affect on DOI / Scenario #1



George Bailey is now deceased.
He left no Will
Affidavit of Heirship lists his heirs as:




Joy Bailey – surviving spouse
Donald Bailey – son, age 24
Susan Bailey – daughter, age 20
Both Donald and Susan are the children of
George Bailey and of Joy Bailey.
49
Example #4: Beetle Bailey #1
After Demise of George Bailey, who died Intestate
Scenario #1
New Mexico Property / Texas Property
DOI Interests
George Bailey & Joy Bailey
12.5% MI x 12.5% RI or 1.5625% RI is now vested as:
Joy Bailey
100% x 12.5% MI x 12.5% RI = 1.5625% Net RI

Per New Mexico Law, if the Date of Death is after July 1, 1973, the
Surviving Spouse inherits 100%
0.01562500 RI
0.0156250 TOTAL
Let’s suppose this property is located in Texas.
The Ownership would vest the same.

Per Texas Law, if a person dies without a Will, owning community
property –
• If all children are the issue of the decedent and the surviving
spouse, the surviving spouse receives 100% of the
Community Property.
• If all children are not the issue of the decedent and the
surviving spouse, the surviving spouse receives his/her
50% outright. The remaining 50% is then vested in equal
shares to all issue of the decedent.
50
Intestate Probate
Affect on DOI / Scenario #2



George Bailey is now deceased.
He left no Will
Affidavit of Heirship lists his heirs as:
 Joy Bailey – surviving spouse
 Donald Bailey – son, age 24

Donald is the son of George Bailey and Maryanne
Bailey, who is now deceased
 Susan Bailey – daughter, age 20

Susan is the daughter of George Bailey and of Joy
Bailey.
51
Example #4: Beetle Bailey #1
After Demise of George Bailey, who died Intestate
Scenario #2
New Mexico Property
DOI Interests
George Bailey & Joy Bailey
12.5% MI x 12.5% RI or 1.5625% RI is now
vested as:
Joy Bailey
100% x 12.5% MI x 12.5% RI = 1.5625% Net RI
0.01562500 RI
0.0156250 TOTAL

Per New Mexico Law, if the Date of Death is
after July 1, 1973, the Surviving Spouse
inherits 100%
52
Example #4: Beetle Bailey #1
After Demise of George Bailey, who died Intestate
Scenario #2
If this is a Texas Property
George Bailey & Joy Bailey
DOI Interests
12.5% MI x 12.5% RI or 1.5625% RI is now vested as:
Joy Bailey
50% x 12.5% MI x 12.5% RI = .78125% Net RI
0.00781250 RI
Donald Bailey
50% x 50% x 12.5% MI x 12.5% RI = .390625% Net RI
0.00390625 RI
Susan Bailey
0.00390625 RI
50% x 50% x 12.5% MI x 12.5% RI = .390625% Net RI

Per Texas Law, if a person dies without a Will, owning
community property –
•
•
0.0156250 TOTAL
If all children are the issue of the decedent and the surviving
spouse, the surviving spouse receives 100% of the
Community Property.
If all children are not the issue of the decedent and the
surviving spouse, the surviving spouse receives his/her
50% outright. The remaining 50% is then vested in equal
shares to all issue of the decedent.
53
Intestate Probate
First Intestate Law – Given to Moses

Numbers 27:1-23
Zelophehad’s Daughters











1 The daughters of Zelophehad son of Hepher, the son of Gilead, the son of Makir, the son of
Manasseh, belonged to the clans of Manasseh son of Joseph. The names of the daughters were
Mahlah, Noah, Hoglah, Milkah and Tirzah. They came forward
2 and stood before Moses, Eleazar the priest, the leaders and the whole assembly at the
entrance to the tent of meeting and said,
3 “Our father died in the wilderness. He was not among Korah’s followers, who banded
together against the Lord, but he died for his own sin and left no sons.
4 Why should our father’s name disappear from his clan because he had no son? Give us
property among our father’s relatives.”
5 So Moses brought their case before the Lord,
6 and the Lord said to him,
7 “What Zelophehad’s daughters are saying is right. You must certainly give them property as
an inheritance among their father’s relatives and give their father’s inheritance to them.
8 “Say to the Israelites, ‘If a man dies and leaves no son, give his inheritance to his daughter.
9 If he has no daughter, give his inheritance to his brothers.
10 If he has no brothers, give his inheritance to his father’s brothers.
11 If his father had no brothers, give his inheritance to the nearest relative in his clan, that he
may possess it. This is to have the force of law for the Israelites, as the Lord commanded
Moses.’ ”
54
Check List:
In reviewing the Probate Documentation (Testate or Intestate)
received,
please consider –


Name
–
–
Is the decedent one and the same as set up on your records?
Social Security Number
–
–
–
Revenues previously paid to a bank / financial institution per terms of mortgage
Revenues previously paid per terms of a special agreement
Subject to a Life Estate
Are there any unusual circumstances involving this account?



This interest would vest in the remaindermen of such Life Estate.
It will be necessary to review the documents creating said Life Estate.
–
–
Suspended pending Litigation
Other
–
–
–
–
Separate Property
Community Property
Subject to a Life Estate
Other
How was the property owned?
55
Check List:
In reviewing the Probate Documentation (Testate or Intestate)
received,
please consider –

Did the decedent die testate (i.e. with a
will)?
– If so, do you have copies of –




Death Certificate
Letters Testamentary
Order Admitting the Will to Probate
Will
– Note: If a will has not been admitted to probate, it is as
if the decedent had no will at all – i.e. intestate, and
his/her estate should be split pursuant to Laws of
Descent and Distribution.
56
Check List:
In reviewing the Probate Documentation (Testate or Intestate)
received,
please consider –

What was the date of death?
– Was Will admitted to Probate within time frame from the date of
death as prescribed in the State Statues where the well is
located?




What was the marital status of decedent at time of death?
Has Will been probated in the county(s) where the property /
well is located?
Are probate proceedings from another state other than the
state where the well is located?
Are Executors of Estate Independent?
– If not, all proceedings and divestment into the heirs must be
overseen by the probate court.
– Is the Estate to be overseen by a court-appointed Administrator?

Letters of Administration would have been issued by the Courts
57
Check List:
In reviewing the Probate Documentation (Testate or Intestate)
received,
please consider –

How are minerals divested per terms of Will?
–
–
–
Do minerals vest in fee simple – i.e. direct to heirs?
Do minerals vest to Trustees of a Trust established in the Will?
Do ALL of decedent’s minerals vest the same?

–
–
Are there any Life Estate interests created?
Are there any Term Interests created?


For example, is an interest is to be held in trust until certain criteria met, as setout in Will?
Were all devisees named in the Will alive at the time of the
decedent’s death?
–

Does the Will divest specific properties to specific heirs?
If not, does the Will stipulate how interests of a pre-deceased heir / devisee are to
be split?
If decedent has been deceased for a number of years, do you know
if all devisees named in the will are still living?
–
–
If not, is further documentation required relative to Estate of a deceased heir /
devisee?
Does Will stipulate how the interest of a deceased heir / devisee should be
handled?
 For example, was this interest a Life Estate, etc?
58
Check List:
In reviewing the Probate Documentation (Testate or Intestate)
received,
please consider –

Did the Decedent die Intestate (i.e. without a Will)?
–
If so, do you have copies of –


Death Certificate
Affidavit of Heirship
–
–

The following factors may determine how the interest should be
credited to the heirs, especially if there has been changes to the
State’s Probate Code –
–
–
What was the date of death?
What was the marital status at the time of death?

–
–

Is Affidavit completed by 2 disinterested parties – i.e. not direct heirs of the Estate
Some Companies require that the Affidavit of Heirship be recorded in the County where the property
is located
Did decedent have surviving spouse?
Has decedent been married more that once?
Are all of the decedent’s children the descendents of the decedent and the surviving
spouse?
If no surviving spouse, nor children, do you have sufficient
information on the Affidavit of Heirship to transfer this interest per
Laws of Descent and Distribution?
59
Pooling Agreements
Agreement to pool (i.e. bring together) separately owned interests
Pooling denotes the bringing together small tracts of land (usually
adjacent) sufficient for the granting of a well permit under applicable
applicable spacing rules. The Pooling Agreement:

Defines Tracts, including Tract Par Factors, within the Pooled Unit

Defines the number of acres in Pooled Unit

Depths or Formations included in Pooled Unit

Names Operator of Pooled Unit

Parties to Agreement

Lists the Oil & Gas Leases in Pooled Unit
–
Note: The Oil & Gas Lease must contain a Pooling Clause in order to be included in a Pooled
Unit.
60
Pooling Agreements
Agreement to pool (i.e. bring together) separately owned interests



Approvals by Governmental Agencies if state or federal leases
included in pooled unit
Ratifications by Non-participating Royalty Owners, Unleased
Mineral Owners (if participating as a working interest owner)
and working interest owners
Forced Pooling Orders – May contain language treating
Unleased Mineral Interest Owners as Non-Consenting Working
Interest Owners with a 7/8 Working Interest and burdening
themselves with their own 1/8 Royalty Interest.
61
Example # 5: Pooled Unit
Family Circus #1

640 Acre Spacing
All of Section 10, T17S, R31E
 Pooling Agreement, executed by all parties, in
place
 All leases subject to the Pooling Agreement
contain a Pooling Clause
 Joint Operating Agreement (“JOA”) provides
for all WI Parties to bear burdens
proportionately up to 25%

62
Example # 5: Pooled Unit
Family Circus #1

5 Oil & Gas Leases (Covering All of Sec 10, T17S, R31E)

Granted from Blondie & Dagwood Bumstead to Barfy Oil & Gas

Covers a 100% Mineral Interest in the NE/4 NE/4 and a 75% Mineral Interest in
the NW/4
Reserves a 1/8 Royalty Interest


Covers a 100% Mineral Interest in the NW/4 NE/4
Reserving a 3/16 Royalty Interest.

Covers a 50% Mineral Interest in the S/2 NE/4 and a 12.5% Mineral Interest in the
NW/4
Reserves a 1/8 Royalty Interest



Granted from Hiram & Lois Flagstaff to Bill & Thel Minerals
Granted from Alexander Bumstead to Barfy Oil & Gas


Granted from Cookie Bumstead to Barfy Oil & Gas

Covers a 50% Mineral Interest in the S/2 NE/4 and a 12.5% Mineral Interest in the
NW/4
Reserves a 1/8 Royalty Interest


Covering a 100% Mineral Interest, in equal shares, in the S/2
Reserves a 25% Royalty Interest


Granted from Chip Flagstaff, Trixie Flagstaff, Ditto Flagstaff and
Dot Flagstaff to Sarge Oil & Gas Corp.
63
Example #5: Pooled Unit
Family Circus #1: Tract Information
64
Example #5: Pooled Unit
Family Circus #1: Ownership by Tract
65
Example #5: Pooled Unit
Family Circus #1: Unit Ownership Summary
66
Example #6: Sliding Scale Royalties
Family Circus #1


Barfy Oil & Gas Corp has negotiated a Settlement Agreement
with Blondie & Dagwood Bumstead

Amends the royalty provision in their Oil & Gas Lease to provide for a sliding scale
royalty provision

Royalty will increase to 3/16 (or 18.75%) when production exceeds 5000 MCFD

Said Sliding Scale is limited to their interest only, and will be proportionately reduced,
accordingly

Said Amendment is limited to the wellbore of the Family Circus #1

Joint Operating provides for all WI owners to share proportionately as to 1/8 royalties
How will this affect the DOI?



If production is less than or equal to 5000 MCFD, there is no change.
If production is greater than 5000, the Royalty of Blondie & Dagwood Bumstead will
increase to 3/16
What other interests are affected?
67
Example #6: Sliding Scale Royalty
Family Circus #1: ≤ 5000 MCFD
Ownership by Tract
68
Example #6: Sliding Scale Royalty
Family Circus #1: ≤ 5000 MCFD
Unit Ownership Summary
69
Example #6: Sliding Scale Royalty
Family Circus #1: > 5000 MCFD
Ownership by Tract
70
Example #6: Sliding Scale Royalty
Family Circus #1: > 5000 MCFD
Unit Ownership Summary
71
Farmout Agreements
Agreement by and between Working Interest Parties


A Farmout Agreement is an agreement by and between the
Working Interest Owners in which one Working Interest Party
(“Farmor”) does not desire to participate in the drilling of a
well. The Farmor agrees to assign the lease to the Drilling
Party (“Farmee”) upon completion of a producing well.
The Farmout Agreement sets out
 Acreage covered by agreement
 Test Well Information
 Continued Drilling Obligations
72
Farmout Agreements
Agreement by and between Working Interest Parties
 Interests Reserved by Farmor
 Overriding Interest
 Overriding Interest with option to increase at payout,
 Overriding Interest with option to retain override AND
convert to Working Interest at payout
 Overriding Interest with option to convert to working
interest after payout
 States whether or not right to proportionately reduce
reserved interests
73
Farmout Agreements
Agreement by and between Working Interest Parties

Definition of Payout

When stated percentage of costs of drilling, testing and completion,
as well as a percentage of operating costs, has been recovered from
the revenue generated by the net interest farmed out (less payment
of applicable taxes).

Applicable Depths or Formations

Form of Joint Operating Agreement to be used

Which agreement prevails

Marketing Information


Calls on Production
Right to Take in Kind
74
Example #7: Farmout Agreement
Family Circus #2

The Working Interest Parties in the Family Circus #1 decide to drill a
second well – the Family Circus #2


Sarge Oil & Gas Corp. decides NOT to participate in the #2 well and
farms out it’s interest to Bill & Thel Minerals,



The second well will have the same 640 acre spacing as the Family Circus #1
Reserves an ORRI of 30% less existing burdens
Agreement provides for a 25% back-in after payout
How will this affect the DOI?


Whose interest will this affect?
Which tracts are affected?
75
Example #7: Farmout Agreement
Family Circus #2: BPO Ownership by Tract
76
Example #7: Farmout Agreement
Family Circus #2: BPO Unit Ownership Summary
77
Example #7: Farmout Agreement
Family Circus #2: APO Ownership by Tract
78
Example #7: Farmout Agreement
Family Circus #2: APO Unit Summary
79
Joint Operating Agreements
Agreement by and between Working Interest Parties

The Joint Operating Agreement (“JOA”) is a
document executed by all parties
participating in the Development of a
particular field or geographical area.
However, it may be limited to the drilling of
a particular well. The JOA sets forth
procedures for the development, drilling and
operations of the field or well.
80
Joint Operating Agreements
Agreement by and between Working Interest Parties

Specific Provisions which may affect the Division Order
Analyst
 Article III. Interests of Parties
–
–
–
–
Oil & Gas Interests
Interests of Parties in Costs & Production
Excess Royalties, Overriding Royalties & Other Payments
Subsequently Created Interests
 Article IV. Titles
–
–
Title Examination
Loss of Title
 Article V.
Operator
81
Joint Operating Agreements
Agreement by and between Working Interest Parties
 Article VI. Drilling and Development
– Initial Well
– Subsequent Operations
– Taking Production in Kind
 When a participant markets their proportionate
share of production under a different contract,
how are the burdens to be paid?
– Operations by less than all parties
 In case of a Re-work, what constitutes consent
/ non-consent
 Do the consenting parties have the option to
absorb the non-consent portion?
82
Joint Operating Agreements
Agreement by and between Working Interest Parties

Article VII.B
Operator’s Lien Provision
– The JOA authorizes an Operator to collect revenues for a NonOperator and apply said proceeds against delinquent joint
interest billings.

“. . . To the extent that parties have a security interest under the
Uniform Commercial Code of the state in which the Contract Area is
situated, . . . upon default by any party in the payment of its share
of expenses, interests or fees … the other parties shall have the
right, without prejudice to other rights or remedies, to collect from
the purchaser the proceeds from the sale of such defaulting party’s
share of Oil and Gas until the amount owed by such party, plus
interest as provided in “Exhibit C” has been received, and shall have
the right to offset the amount owed against the proceeds from the
sale of such defaulting party’s share of Oil and Gas. All purchasers
of production may rely on a notification of default from the nondefaulting party or parties stating the amount due as a result of the
default, and all parties waive any recourse available against
purchasers for releasing production proceeds as provided in this
paragraph. . .”
83
Joint Operating Agreements
Agreement by and between Working Interest Parties
 Exhibit A Contract Area & Interests





Contract Area – acreage and legal description
Depth Restrictions
Interests of Parties to Agreement
Oil & Gas Leases Subject to Agreement
Addresses of Parties for Notice Purposes
 Exhibit E Gas Balancing Agreement

If a party’s separate disposition of its share of gas
causes split stream deliveries to separate pipeline,
what are the procedures to assure that all parties are
credited with the proper amount of production?
84
Joint Operating Agreements
Agreement by and between Working Interest Parties

Additional Considerations
•
Does the JOA grant a Preferential Right to Purchase to
the other participants?
•
Does the JOA provide that there must be Maintenance of
Uniform Interest in the contract area?

“For the purpose of maintaining uniformity of ownership in the contract Area
in the Oil and Gas Leases, Oil and Gas Interests, wells, equipment and
production covered by this agreement no party shall sell, encumber, transfer
or make other disposition of its interest in the Oil and Gas Leases and Oil and
Gas Interests embraced within the Contract Area or in wells, equipment and
production unless such disposition covers either:
1.
2.
the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests,
wells, equipment and production; or
an equal undivided percent of the party’s present interest in all Oil and Gas Leases,
Oil and Gas Interests, wells, equipment and production in the Contract Area.
85
Joint Operating Agreements
Agreement by and between Working Interest Parties
• Does the JOA contain language that creates an
Area of Mutual Interest (AMI)?
•
•
Area of Mutual Interest (“AMI”) clauses or agreements have evolved pursuant
to the oil and gas industry’s desire to protect geographical areas in close
proximity to geological prospects.
The AMI stipulates that all parties to the agreement have a mutual interest in
a certain geographic area and provides that if any one of them obtains an oil
and gas interest in this area, the other parties have a right to participate in
such interest. In essence, an AMI is a contract to convey interests in oil and
gas leases.
•
•
•
The Area of Mutual Interest Clause is similar to the preferential right to purchase
provision in the operating agreement, except that is deals with the acquisition of oil
and gas interests rather than the divestiture of them.
It is designed to insure that every party subject to the agreement has an opportunity
to acquire a proportionate share of any acquisition within the contract area,
regardless of the state of development of the newly acquired acreage.
The AMI provision also protects one party to an agreement from another party’s use
of information jointly obtained for competitive advantage.
86
Joint Operating Agreements
Agreement by and between Working Interest Parties

Are there any Unleased Mineral Interests subject to the JOA?
– The 1989 AAPL model form Operating Agreement provides for a
mineral interest owner to join in the execution of the JOA and
participate in operations. Language contained therein states,


“If any party owns an Oil and Gas Interest in the Contract Area, the
interest shall be treated for all purposes . . . as if it were covered by
the form of oil and gas lease attached hereto as Exhibit “B”, and the
owner thereof shall be deemed to own both the royalty therein
reserved in such lease and the interest of the lessee thereunder . . .”
If an unleased mineral owner joins in the execution of the JOA, he is
then entitled to receive production proceeds, proportionately
reduced, based on the royalty reservation set forth in the lease form
to the JOA, as well as proceeds attributable to the leasehold net
revenue interest. The unleased mineral owner is then considered a
party to the JOA and is subject to all the provisions therein, including
the non-consent provisions.
87
Example #8: Joint Operating Agreement
Family Circus #2

The Working Interest Parties in the Family Circus #1 decide to drill a
second well – the Family Circus #2
 The second well will have the same 640 acre spacing as the Family Circus
#1

Sarge Oil & Gas Corp. decides NOT to participate in the #2 well and
elects to go Non-Consent per the terms of the JOA
 All other Working Interest Parties absorb their proportionate share of the
Sarge Non-Consent

How does this affect the DOI for the Family Circus #2 well?
 Whose interest does this affect?
 Is there an Override reserved?
 Does this affect the Royalty Interests?
88
Example #8: Joint Operating Agreement
Family Circus #2: Working Interest Ownership
89
Example #8: Joint Operating Agreement
Family Circus #2: GWI BPO
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Example #8: Joint Operating Agreement
Family Circus #2: BPO Ownership by Tract
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Example #8: Joint Operating Agreement
Family Circus #2: BPO Unit Ownership Summary
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Example #8: Joint Operating Agreement
Family Circus #2: APO Ownership by Tract
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Example #8: Joint Operating Agreement
Family Circus #2: APO Unit Ownership Summary
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Unitization Agreements
Agreement for the development and recovery of oil and gas, subject to a single
consolidated unit, without regard to separate ownerships. This Agreement
defines and sets out the basis for allocating costs and production volumes.
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While many people in our industry use the terms pooling and
unitization interchangeably, by actual definition, they denote two
different methods of combining oil and gas leases to designate a
specified producing area.
 Williams and Meyers Manual of Oil and Gas Terms defines pooling
as “a term frequently used interchangeably with unitization but more
properly used to denominate the bringing together of small tracts
sufficient for the granting of a well permit under applicable spacing
rules...”
 Unitization, on the other hand, is defined as “a term frequently
used interchangeably with pooling but more properly used to
denominate the joint operation of all or some portion of a producing
reservoir...”
 Unitization is often used to enhance recovery of production from
existing lease and/or pooled unit wells. It is often referred to as
“secondary recovery” or “enhanced recovery”.
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Unitization Agreements
Agreement for the development and recovery of oil and gas, subject to a single
consolidated unit, without regard to separate ownerships. This Agreement
defines and sets out the basis for allocating costs and production volumes.

The procedures for the joint operations of a producing reservoir are outlined in and
governed by a Unit Agreement. This Agreement should contain reference to the
following:
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Definitions
Effective date
Unit Plat
Description of each tract, as well as the tract’s participation factor
Allocation of Unitized Substances
Effectiveness of all Division Orders
Designation of Unit Manager / Unit Operator
Plan of Development and Operations
Enlargement of Unit Area and Field Area
Outstanding Agreements
Unit Operating Agreement
Methods to resolve disputed title
Term / Dissolution of the Unit
Relationship of the Parties
Surface Use
Tract Participation Factors for a unitized reservoir may be calculated on (1) acreage basis; (2)
acre feet – a calculated percentage based on the thickness of the formation underneath each
specific tract; (3) a combination of acreage and geological data; or (4) flow test.
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Unitization Agreements
Agreement for the development and recovery of oil and gas, subject to a single
consolidated unit, without regard to separate ownerships. This Agreement
defines and sets out the basis for allocating costs and production volumes.

Unitization usually does not affect the Division Order
Calculation, unless ownership is reduced by the applicable
tract par factors and a unit DOI is set in place for the
payment of proceeds.
– It has become accepted industry practice to retain the original tract
ownership (i.e. the prior well ownership) and have accounting apply the
tract par factors / allocations in the revenue distribution process.
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This is especially beneficial if the Tract Pars change based on Phases of
Production
Unitization, however, can provide challenges to the Division
Order Analyst where split-stream marketing is involved
– Since the unitization is in the secondary recovery stage, the unitized wells
/ tracts often are subject to prior marketing contracts
– ‘Balancing’ the market percentages to specific pipeline allocation
percentages assures accurate payment of production proceeds
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Conclusion
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The Broker may negotiate the Oil & Gas Lease
The Landman may negotiate the Farmout, JOA, PSA
The Marketer may negotiate the Crude Oil or Gas Sales / Purchase
Contract
However, it is the RESPONSIBILITY of the Division Order Analyst,
Title Analyst, or Land Analyst to:
– Understand the terms and provisions of the Oil and Gas Lease(s)
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Including Applicable Laws and Precedents of Court Rulings
– Comprehend the terms and conditions of any agreements or purchase
contracts
– Understand how these Agreements affect the calculations of the
Ownership of every Interest Owner in a Producing Property
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With this Understanding, the Analyst assures that the Company
meets all obligations of these Agreements
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QUESTIONS??
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