Category: Getting Started

In this video, we examine the document which divides up the proportional ownership in oil and gas revenue – the division order. We’ll outline the steps you should take when receiving a division order. We’ll also define common elements found on a division order by examining a sample division order.

Covered in this video:

  • Define common elements found on a division order.
  • Outline steps to take when receiving a division order.
  • Calculate decimal interest to verify accuracy on a division order.
  • Recognize verbiage which could amend the original lease agreement.



Welcome once again to the Mineral Rights Coach video tutorial series. If you recently received a division order, or are wondering what to expect when you receive your division order, you’re in the right place. In a previous video in this series, Introduction to Mineral Rights Leasing, we covered all the basics of mineral rights leasing, including ownership, the lease agreement, the division order, and the royalty check.
Now we’re going to dig in a little deeper and talk about the document which divides up the proportional ownership in oil and gas revenue – the division order. We’ll outline the steps you should take when receiving a division order.We’ll also define common elements found on a division order by examining a sample division order.
I encourage you to watch the entire video. Near the end, I’ll walk through a simple calculation you can use to calculate your decimal interest – an important verification before you sign your division order. I’ll also describe a disturbing trend in division orders you need to look out for.
Let’s get started.
Put simply, the Division Order divides up the oil and gas revenue among the interest owners.
As a royalty interest owner, you are entitled to a share of what’s produced – whether that be crude oil, natural gas, natural gas liquids, or a combination of these. The Division Order, sometimes referred to as a division of interest, verfies your decimal interest. This in turn determines your monthly royalty income.
There are three essential steps in the division order process:
  1. receiving the division order
  2. review & verification
  3. signing & return
Receive the Division Order
Receiving a division order is a good thing. It means production is starting on your mineral interests and the operator is preparing to distribute a share of the sale revenue to you, the royalty interest owner.
A division order is generally received by a royalty owner through the mail within 3 to 4 months after well completion. Notice there is still a period of time between receiving the division order, and when you receive your first royalty payment.
The division order is prepared by a division order analyst. These individuals are responsible for the proper establishment and maintenance of ownership records. Analysts are generally part of the investor relations or land department in an oil company. As a royalty owner, the Division Order Analyst is the person within the oil company with whom you will have initial contact while finalizing your division order.
The oil company has done some homework prior to sending you a Division Order. Either an in-house attorney or a third party law firm has analyzed the supporting documents relating to the mineral title associated with a producing property. This is generally known as the division order curative process; in other words, curing any defects in title.
Review & Verify
You need to know what to look for when reviewing the division order. The company issuing the division order requires the royalty owner to:
  1. verify that the royalty owner’s decimal interest stated in the division order is accurate, and
  2. agree that the company can make payments based on that decimal interest until notified by the royalty owner that the ownership has been changed.
Accuracy is important here – by signing the division order, you release the operator from liability to third parties who claim to own the interest being paid to you as the royalty owner. In other words, if it comes to light that you are being paid more than your fair share, or that you do not in fact own the mineral rights, the third party – perhaps another royalty interest or working interest owner – has the right to pursue you for compensation, with no responsibility on the part of the operator.
This process is not perfect. The best way to balance this process is by knowing what you own. Remember that a title opinion is just that — an opinion. It is prepared by attorneys skilled in examining titles, but it may be wrong. It is based only on the documents provided to the attorney for review. The attorney may not have seen documents that affect the title, or the attorney may have missed provisions in the documents that affect the title.
In mineral rights leasing, it’s always best to take the stance Trust But Verify.
Let’s practice verifying using an example division order. Sections you’ll need to be familiar with include:
  • the name of the operating company
  • legal description of the producing property
  • interest type (royalty interest, working interest, overriding royalty interest). Check out the Types of Ownership video for more on interest types.
  • decimal interest
  • several legal agreements. At the end of this section, I’ll describe a disturbing trend in division orders attempting to amend the lease agreement. Stay tuned.
What should you do when you receive a division order? The first thing you should do is make sure the description of the property is correct. Next, look over the entire division order, paying close attention to the interest type, decimal interest, and legal agreements. Nearly every oil & gas producing state has statues that spell out what must be contained in a division order before you can be paid.
We’re looking at the Model Form Division Order from the National Association of Division Order Analysts. You can download your own copy of NADOA’s Model Form Division Order by clicking the link below.
If you are unsure about the content of the division order you received, you may compare it to NADOA’s model division order. If you find any differences which you don’t understand, contact the operator, or raise your concerns to an experienced oil and gas attorney. Don’t be bashful about asking questions or making changes. Most companies will take a division order with changes that don’t alter its basic purpose.
A word of caution – 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. There’s a disturbing trend amongst both large and small production companies to amend lease terms with a division order. This may be because your guard is down, as you believe you’ve already agreed to terms in the lease, and are now so close to your first royalty check.
Here’s a common clause prohibiting amending the lease in the division order:
Bottom line – Don’t let your guard down. When in doubt, talk to a qualified oil and gas attorney before signing your division order.
Without a doubt, the most important element to verify on the division order is the decimal interest. Mistakes in the decimal interest can have a profound effect on your royalty income.
There are two formulas you need to be familiar with:
  1. The first, net mineral interest, is the net mineral acres (acres owned in the spacing unit) divided by gross acres.
  2. The second, decimal interest, is the net mineral interest times the royalty rate.
Calculations to determine the amount of a royalty check will use the decimal interest.
You’re looking at Exhibit A to the division order. This exhibit lists interest owners in a Harris County, TX well. Notice that Bruce Lomax has a decimal interest of 0.03125, or 3.125%. Let’s take a look at a couple of examples to see how the division order analysts arrived at Bruce’s decimal interest.
Example 1: Bruce Lomax owns 160 net mineral acres in a 640-acre spacing unit with a producing well. Bruce’s net mineral interest then is 160÷640=0.25
Example 2: The royalty rate on Bruce Lomax’s lease is one-eighth, or 12.5% percent. Multiply this percentage by the net interest to find Bruce’s decimal interest. 0.25 x 0.125 = 0.031250. This means that Bruce is entitled to 3.125 percent of the gross value of production from the spacing unit.
Determining decimal interest in this case was a straightforward exercise, but often it is not, especially where pooled units are involved. When companies send out division orders for pooled units, they make little effort to explain how the decimal for payment was arrived at, so the royalty owner may have to call the company to find out how the decimal interest was calculated.
Don’t sign a division order until you know and agree with how the decimal was calculated and are satisfied that the lease is still in effect. It is sometimes hard to get to the right person with the company who can explain it. Usually, the division order or the accompanying letter has a number to call, or the company may have an investor relations hotline that can be found on the website.
Sign & Return
Once you’ve reviewed the division order and verified your decimal interest, you’ll need to complete the necessary fields before sending it back to the operator. This information typically includes:

  • your address
  • Tax ID or Social Security Number
  • Signature
Of course, Uncle Sam will want his share of your income. In the same way you complete a W-9 for your employer in order to process your paychecks and pay taxes, you’ll need to complete a W-9 form so the operator will know how to tell the government how much they paid you. An oil company will withhold taxes from your share of revenue if you fail to return your W-9.

There isn’t a deadline for returning your division order, but operators will be required to withhold taxes if it isn’t received in a timely manner. Make copies for your records and return the documents as soon as you’ve reviewed and verified the information. Finally, you may wish to have your division order reviewed by an experienced oil and gas attorney before sending.
Once you sign and return your division order, you may begin receiving checks. Don’t hold your breath though. It may take up to six months before receiving your first check. In same cases, it could take longer. One interesting note which may take the sting out of an operator slow to start paying you – if the operator doesn’t pay you within a certain period, the company may be required to pay interest on the money owed. For example, Oklahoma allows six months from the moment of completion to when royalty payments must start, after which a 12% annual interest kicks in on unpaid royalties.
Keep in mind this interest percentage varies from state to state, and not all states are this generous.
I hope this video’s been helpful, and that you have a better understanding of what to do when you receive a division order.
In the next video, we’ll learn how to read your royalty check stub. Accurately reading your check stub is critical because, put simply, it describes how much royalty income you’re receiving.
Before you go, please take 30 seconds to share this video so that others can benefit from this tutorial. It’s as easy as clicking one of the share buttons below.
Are you interested in learning about a particular topic not yet in our library? Leave a comment below and suggest a video topic. Or, simply send me an email at
Stay tuned to for more tutorials, and best of luck in your mineral rights leasing.


In this video, we dig in a little deeper and discuss how to read your royalty check stub. Accurately reading your check stub is critical because, put simply, it describes how much royalty income you’re receiving.

Covered in this video:

  • Define common elements found on a royalty check stub.
  • Analyze a royalty check stub for deductions, product and interest types.
  • Describe common adjustments made to royalty payments
  • Describe common adjustments made to royalty payments


This video describes the legal document that controls the rights and obligations between you and the oil and gas company. Learn about the five basic elements to this printed instrument.

Covered in this video:

  • The bonus
  • Lease term
  • Royalty payments
  • Delay rental
  • Implied covenants
  • Elements of a typical printed lease
This 19-minute video describes the different types of ownership involved in mineral rights and leasing.

Covered in this video:

  • who maintains mineral ownership
  • how ownership type affects your royalty income
  • which ownership types provide for bonus payments
  • how ownership type determines who will pay production costs




Hi, this is Bret from If you’re relatively new to mineral rights leasing you may be confused by the differences between mineral interest, royalty interest, overriding royalty interest and working interest.

If so, you’re not alone. In this video we’ll take a quick look at these related, but distinctly different ownership types.

As you probably know by now, the ownership type greatly affects both your finances and property. Ownership type determines who maintains ownership in the minerals before, during, and after production. It directly affects the amount of your royalty income. And it affects the bonus amount you collect from an operating company.

Also relevant for you, the mineral rights owner, ownership type determines who pays to operate or drill the well, who participates in the lease operating expenses, and what tax advantages you can benefit from.

Now that we’ve discussed why you need to understand ownership types, here’s what you will be learning.

In this video, we’ll discuss:

  • the four primary ownership types
  • additional ownership types you may come across in mineral rights leasing
  • examples of how each of the ownership types fit together in mineral rights leasing

Let’s get started.


The biggest challenge in understanding the oil and gas lease process is in getting a clear focus on the types of ownership and how each participates in the mineral rights and production.

For example, there’s a difference between a mineral owner and a royalty owner. People oftentimes use these interchangeably, which is incorrect.

Folks without a producing oil or gas well will often say “I own the royalty on our land.” What they really mean is they own the mineral rights. When they lease, and then are lucky enough to get an oil or gas well they are royalty owners. Basically their mineral rights interest has been converted to a royalty interest through the legal document of a lease.

That’s in simple terms.

This misstatement of mineral interest vs. royalty interest can cause problems and can cost you money. So it’s good to explore the basic forms of ownership. These terms seem complex, but actually they’re pretty simple. Hopefully this video will clear up any confusion.

These are the four types of ownership we’ll focus on in this video.

The first, Mineral Interest, is the property interest created in oil and gas production after either a sale by mineral deed or an oil and gas lease. The owner of a mineral interest normally has the right of entry and exit to the property, and the right to use as much of the surface as is reasonably necessary for the purpose of conducting exploratory operations like seismic which we touch on in another video, as well as drilling for and producing oil and gas. An individual may own all of the mineral interest or may own a percentage.  Additionally, an individual may own a certain mineral type.

Royalty interest is created by leasing mineral rights. The royalty interest is retained by the owner of the mineral rights when that owner enters into a lease agreement with another party. Since the royalty interest owner is not responsible for the exploration, development, or production of the property, the interest is referred to as non-working interest. One important note about royalty interest – the interpretation of how royalty interest ownership is defined varies from state to state. Check how the interpretation applies in your state. It may make a difference in taxes and other personal financial dealings.

Let’s take a closer look at royalty interest. I mentioned royalty interest is a share in the production of the mineral free of the costs of producing it when and if there is production on the property.  Oil and gas royalties are typically expressed as fractions or percentages and can be created in different ways.  There are landowner’s royalty interests, nonparticipating royalty interests, and overriding royalty interests.

The landowner’s royalty interest is generally retained by the owner at the time the oil and gas lease is negotiated.  It’s the landowner’s compensation for granting the lease.  A 1/8th royalty was standard from the 1920s through the mid 1980s.  Today, many consider a standard royalty to be 3/16th, but prevailing royalty amounts will vary somewhat depending on the level of production in a given area. Use resources like your local royalty owner’s association and NARO message boards to help you determine what an appropriate royalty interest is in your area.

Working interest is created via leasing and is responsible for 100% of the exploration, drilling, development, and operation of a property. The working interest’s share of revenue is the amount that remains after deducting the share of the royalty interest and other non-working interests. If you invest in the stock market and are familiar with what preferred stock is, then think of royalty and other non-working interests as preferred stock – they get paid first – while working interest is common stock, getting paid from what is left over.

Unlike mineral and royalty interests, overriding royalty interests do not constitute an ownership of minerals under the ground. Instead, overriding royalties constitute ownership of a portion of the revenues generated from oil and gas production, free of the costs of production, and the ownership expires when the lease has been abandoned due to the end of production. Overriding royalties are created from the working interest – put another way, overriding royalty interest ‘overrides’ a portion of the working interest.

Let’s take a look at an example. Jake Smith, a land man, secured the leases for a well that Star Energy Company is going to drill. Instead of a cash payment for his services, Jake Smith receives a 1% overriding royalty interest in the well. If the well is successful, then Jake Smith receives 1% of the revenues generated from oil and gas sales.

A quick word about working vs. non-working interests.

The owners of non-working interests, in their simplest form, have no control over the decisions that dictate whether a well will be drilled or abandoned. Since non-working interests typically expire or terminate at the same time as the lease, there are thousands of stories of landmen and geologists who assigned a lease to an operator in exchange for an overriding royalty interest, then watched helplessly as their lease expired, without any effort on the part of the operator to develop it, only to discover that the operator had taken a new lease from the same lessor, covering the same lands, but free and clear of their overriding royalty interest.

Is this fair? Not really! Does it happen? Certainly. Just one more example of how understanding ownership type can greatly affect your bottom line.

So how do ownership interests like mineral interest, royalty interest, and working interest fit together? Let’s sketch it out.

When the owner of a mineral interest leases the interest to an individual or company, the company receiving the lease, the lessee, has a leasehold interest.  Leasehold interests are typically called working interests or operating interests.  In exchange for granting the lease, the lessor typically receives a royalty interest, an initial bonus, delay rental and shut-in royalty.  The lessee has the rights to use the surface of the property to obtain the minerals, the right to incur costs of exploration and production of the minerals and to retain profits subject to the lessor’s retained rights, typically the royalty interest.  The lessor also holds a reverter in the mineral interest.  Upon expiration of the mineral lease, ownership of the minerals revert to the lessor.

Let’s review the four ownership types – mineral interest, royalty interest, overriding royalty interest, and working interest- by summarizing in this table.

  • When it comes to ownership of the actual underground minerals…
  • Ownership of the minerals after production stops remains with…
  • All four interest types generate revenue from well production. Think of it as a pie, and each piece of the pie gets distributed based on the leasing agreement.
  • In the case of collecting upfront bonuses, only the mineral interest owner receives payment.
  • The only interest type which remains in effect after the lease term expires is Mineral Interest.
  • During operations and drilling, the working interest is the only interest type responsible for paying these costs.
  • Likewise, lease operating expenses are also covered by the working interest.
  • Because of the operations perspective, among other reason, the working interest owner receives significant tax advantages.

There are other ownership types which I’ll mention but won’t go too far into. If an individual owns all of the private rights in land including both surface and subsurface rights, he or she is said to own a fee interest.  If only the surface interest is owned, then the individual owns a surface interest. The converse to the surface interest is the mineral interest.

Similar to overriding royalty interest owners, production payment owners also receive money from production going to the working interest under a lease. This terminates, however, when a specified amount of money is earned or number of barrels are produced.

A term mineral interest owner generally holds his interests for a limited period of time or as long as oil or gas is produced from the property, depending on the lease agreement.

For example, you might acquire an undivided 1/4 mineral estate from Sam for 15 years. If at the end of 15 years, no production is obtained, your interest would terminate and title would revert to Sam.

Prior to this termination, Sam is what is called a reversionary interest owner in your 1/4 mineral estate. Such interests may be created by mineral deeds or reservations contained in warranty deeds or other legal documents.


  • Owner – Sam
  • Star Energy
  • Sun Energy


Well, I hope this video’s been helpful, and that you better understand the different types of interest ownership. Be sure to check out our other videos here on

Before you go, please take 30 seconds to share this video so that others can learn ownership types. It’s as easy as clicking one of the share buttons below.

Finally, are you interested in learning about a particular topic not yet in our library? Leave a comment below and suggest a video topic. Or, simply leave a comment telling us how we are doing.

This 20-minute video provides a brief introduction to mineral rights leasing.

Covered in this video:

  • How it Starts for You
  • The Lease
  • Negotiating the Lease
  • How to Amenda a Lease




Welcome to the video tutorial series. If you’re new to mineral rights leasing, you’ll find this video a useful overview.

I’ll admit, you can find most of this information elsewhere on the Internet. But nowhere can you get a better high level overview of mineral rights leasing, in a shorter amount of time, than here at

Over the next twelve minutes, I’ll walk you through the four major stages in mineral rights leasing – ownership, lease agreements, division orders, and the royalty check.

Knowing which tasks you and the operator are responsible for in each of these stages is critical to successfully leasing your minerals.

Additionally, understanding key differences in the types of compensation you might receive for leasing your mineral rights can have a significant and long-term effect on your income.

You’ll want to watch the entire video, because near end, I’ll highlight helpful web resources you can use to learn more about each stage to ensure you are best prepared for leasing your mineral rights.

Let’s get started.


Let’s frame this entire discussion of mineral rights leasing. To do so, I’m going to highlight the four major stages for mineral owners and then go into more detail as to how each plays out in mineral rights leasing. The four stages include:

  1. Ownership
  2. Leasing
  3. The Division Order
  4. The Royalty Check


When it comes to property rights, the United States is special. As an individual, Americans are guaranteed the right to own the minerals beneath the land. No other country allows its citizens to own the minerals beneath the land.

A legally binding mineral title opinion is typically the only document that substantiates mineral ownership. Back in the 17- and 1800’s, when land was originally deeded to individuals, the mineral estate naturally came with the land, and as long as it hasn’t been severed (meaning the land and minerals remain together), stays with the land.

There are three distinct but related aspects of ownership. They are:

  • Legal Description
  • Net mineral acres
  • Ownership Type

Legal Description

There’s a grid system subdividing land in the United States, known as the Public Land Survey System (USPLS). Here’s an example of a legal description using the USPLS

N 1/2 SE 1/4 SW 1/4, S24, T32N, R18E

Descriptions are usually read from front to back.

For example, the description above would be read “The north 1/2 of the southeast quarter of the southwest quarter of section 24, township 32 north, range 18 east.”

However, the easiest way to interpret descriptions is from back to front (or, right to left). To determine where the property is, you break the description down into each of its elements, starting from the back and working your way to the front. An actual exercise in this is outside the scope of this video. Be sure to check out the Overview of the US Public Land Survey System tutorial.

“Net mineral acres” = Amount of Mineral Acres Owned

Number of acres in the property times the interest in the minerals owned by the Lessor.  For example, if the individual owns a ½ mineral interest in a tract of 100 acres, the Lessor owns ½ of 100, or 50 net mineral acres.  The bonus is expressed as a number of dollars per net mineral acre.  If the Lessee is offering a bonus of $100/acre, the offer is to pay the Lessor $100 for each net mineral acre owned by the Lessor.

Ownership Type 


  • Mineral Interest


  • Royalty Interest
  • Overriding Royalty Interest
  • Working Interest

I won’t go into detail on the ownership types. For that discussion, you can turn to the video tutorial on Ownership Types here on Mineral Rights

Many of you are probably wondering – What if I only own the minerals, not the surface rights?

Here’s a list of common rights afforded to mineral owners – a sort of Mineral Ownership Bill of Rights. As a mineral owner, you may:

  1. Enter the land to explore, drill, produce and otherwise carry on mining activities.
  2. Lease your mineral rights to another party.
  3. Ownership never ends – continues in perpetuity.

If you had to summarize in one underlying statement, mineral ownership rights are dominant over surface ownership rights.

Without these rights in place, accessing the minerals to meet our nation’s energy needs would be a lot more difficult. Think about it – why would a surface owner who doesn’t own the mineral rights beneath his land allow access to those minerals operating on his land? It’s a potentially toxic situation addressed by putting these rights in place.


To bring oil and gas reserves to market, minerals are leased by oil companies through a legally binding contract known as a lease. This arrangement between individual mineral owners and oil companies began prior to 1900 and still thrives today. Before exploration can begin, the mineral owner (lessor) and the oil company (lessee) must agree to certain terms regarding the rights, privileges and obligations of the respective parties during the exploration and possible production stages.

Although there are numerous other important details, the basic structure of the lease is straightforward: in exchange for an up-front lease bonus payment, plus a royalty percentage of the value of any production, the mineral owner grants the oil company the right to drill for a period of time, known as the primary term. If the term of the oil or gas lease extends beyond the primary term, and a well was not drilled, then the Lessee is required to pay the lessor a delay rental. This delay rental could be $1 or more per acre. In some cases, no drilling occurs and the lease simply expires.

The duration of the lease may be extended when drilling or production starts. This enters into the period of time known as the secondary term, which applies for as long as oil and gas is produced in paying quantities.

Bonus vs. Royalty

Oil and gas companies, as an incentive to lease, offer a one-time payment called the bonus. The lessor (landowner) must be careful to not over emphasize the up- front bonus payment at the expense of the royalty. The lessor should strive to negotiate a balance of the highest bonus payment possible along with the largest royalty rate possible. For a producing well, royalties could easily be 10 to 20 times the bonus payment in the first year of production alone. Private landowners are normally offered the “standard” royalty of 1/8 share of production. This royalty rate can be negotiated and in some cases increased. There are areas across the US right now that landowners located in “hot” areas are negotiating royalties as high as 25%.

We’ll take a look at how royalty percentage can affect your monthly income in a moment, but before we do that, there’s an important distinction between selling your mineral rights vs. leasing your mineral rights. And it can have a profound impact on your total income.

By selling you get a large up-front payment today, but you also give up the right to receive future lease bonus, or royalty payments; payments that could over the years end up being more than you received for selling them. Just like when you sell your home, you’ll never benefit from that property again.

Leasing your mineral rights – allows you to maintain ownership of your mineral rights. In return, you get a bonus payment which is smaller than if you sold your rights, but you also maintain ownership such that if production commences on your minerals, you’ll receive royalty payments over time.

So why sell? Besides the immediate cash payment, you can reduce paperwork, taxes, and probably most importantly – risk. There’s no guarantee oil or gas will be found in your minerals. What’s more – even if a well is drilled and production commences, oil and gas are depleting assets, meaning they will eventually stop producing as the field becomes depleted. This results in a lower royalty check every month.

Let’s take a look at a sample well and identify the potential royalties that can be earned. In our example, the state established a 40-acre drilling unit. In other words, a minimum of 40 acres must be leased in order for the oil and gas production company to obtain the drilling permit. The company has drilled one well and is successful and strikes a geologic formation that produces crude oil. In our example, the well pumps for 200 days per year, produces 25 barrels per day and the oil sells for $60/barrel.

The total revenue from the well is calculated: 25 barrels/day x 200 days x $60/ barrel = $300,000/ year gross income from the well. If the landowner is aware that the lease can be negotiated so that he is paid based on gross income instead of net income the following royalties can be earned based on different royalty rates:

• 1/8 royalty = $37,500/yr = $937.50/acre/yr (.125 x $300,000/40 acres)

• 1/6 royalty = $50,100/yr = $1,252.50/acre/yr

• 3/16 royalty = $56,400/yr = $1,410/acre/yr

• .20 royalty = $60,000/yr = $1,500/acre/yr

• .25 royalty = $75,000 = $1,875/acre/yr

The difference in payments to the landowner from negotiating a 1/6 royalty instead of a 1/8 royalty are $157.50/acre in the first year ($1,410 – $1,252.50 = $157.50/acre). Many times, landowners that concentrate only on the bonus payment short change themselves on the long term royalty that is generated. In “hot” areas where the likelihood a producing well will be developed is greater, some landowners negotiate no bonus in favor of a higher royalty payment.

The Division Order

Put simply, the Division Order divides up the oil and gas revenue.

It’s a document which sets forth the proportional ownership in what’s produced – whether that be crude oil, natural gas, natural gas liquids, or a combination of these. Sometimes the Division Order is referred to as a division of interest. More often than not, a single well or lease will have multiple owners. It’s not uncommon in fact to have hundreds of parties owning an interest in a single well.

Receiving a division order is a good thing. It means production is starting on your mineral interests and the operator is preparing to distribute a share of the sale revenue to you, the royalty interest owner.

As a mineral rights owner, you can expect to receive a division order through the mail within 3 to 4 months after completion of the well.

The division order describes the property, the tax ID number, and the decimal interest in production owned by the royalty owner according to the title opinion. It also provides that the royalty owner agrees that this is his correct interest and that the company is authorized to make payments to him of that interest until notified otherwise by the royalty owner.

We’re looking at the Model Form Division Order from the National Association of Division Order Analysts. You can download your own copy of NADOA’s Model Form Division Order by clicking the link below.

You’ll notice that at the top of this Division Order, the legal description is listed. You’ll also find the type of interest – whether it be royalty, overriding royalty, or working interest – and the decimal interest. The bottom of the division order is where you include your Tax ID or social security number and signature. Notice that not providing your tax ID or social security number means the operator will withhold 28% of your income for tax purposes. Uncle Sam wants his share- there’s no getting around it.

A word of caution – A Division Order shouldn’t alter the terms of the mineral lease. A Division Order that attempts to amend the terms of the lease is invalid and in some states illegal. There’s a disturbing trend amongst both large and small production companies to amend lease terms with a division order. Perhaps this is because your guard is down, as you believe you’ve already agreed to the terms in the lease, and are now so close to your first royalty check.

Don’t let your guard down. Strike out elements you don’t agree with. When in doubt, talk to a qualified oil and gas attorney before signing your division order.

The Royalty Check 

This brings us to the fourth a final stage in mineral rights leasing – the royalty check.

Royalty statements, also known as check stubs, are the basic accounting documentation mailed to royalty interest holders, usually on a monthly basis.  Royalty statements are often the only connection between a mineral owner and the operator or producer.

There is no standard format for royalty statements.  However, there are a handful of common elements present on a statement. Let’s explore these elements in the context of a sample royalty statement.

Producing Property Identification

For each producing property, there will be identifying numbers, codes, tract numbers, lease names, well names, county and state names – or some combination of these, all of which serve simply to identify the producing entity.  Often owners will have an interest in multiple properties, each of which should be readily identifiable on the statement.

The API number is a unique identifying number for oil and gas wells. These numbers can be as long as 14 digits. The first digits in the API number refer to the specific geographical location of a well while the last digits record the wells operations. When read from left to right the numbers start with the two digit state code, followed by a three digit county code, followed by the five digit unique well identifying number. The 11th and 12th digits represent the sidetrack codes. The original well is usually 00. The 13th and 14th digits represent separate operations from a singe bore hole.

  1. Sale Date: The month and year that the production was sold from the property.
  2. Product Code: identifies which product you’re being paid for.  Possibilities here include oil, natural gas, condensate, and plant products such as NGL’s, etc.  Since each of these are priced independently, each product will be shown as a separate line item.  The actual product name may be spelled out, or identified by a code # or letter, with an associated legend at the bottom of the page.
  3. Volume of the product sold, in BBL or MCF – 1,000 cubic feet. For the month of production listed, this is the amount of product sold, measured in the appropriate unit of measurement.  The reality is that almost every well , from the first day of production, begins its progress on a downward sloping decline curve.
  4. Measure of the heat energy for the product.
  5. Price: This is the price per unit, paid in dollars and cents, upon which your check is calculated.  Oil is priced in $/bbl, natural gas in $/Mcf, and plant products (NGL’s) in $/Gal.  Over the past 15 years or so, the marketing and pricing of oil and gas has moved toward a 30 day pricing model, and away from traditional fixed pricing for longer terms.  The advent of natural gas deregulation combined with the growth of a highly liquid oil and gas futures market has moved the industry in this direction.
  6. Gross Value = volume x price : The total gross value of property prior to deducts/adjustments. Again, for the month of production listed, this is the amount of product produced, multiplied by the price received.
  7. Net Value = price x volume – tax – deduct : The total value of property after deduction of taxes and/allowable deductions.
  8. Decimal Interest: This number represents your ownership interest expressed as a decimal. This decimal interest multiplied by the gross quantity produced results in the amount of production attributable to you. This decimal is calculated based upon the following variables: Your land tract size, your mineral interest percentage, your lease royalty fraction, and the size of the producing unit.
  9. Interest Type: Type of interest owned. WI = working interest, OR = overriding royalty interest, RI = royalty interest
  10. Owner Gross Value – Proportionate ownership share of Gross Value (Payment Decimal x Lease Volume x Price)
  11. Tax Code – state revenue tax
  12. Owner State Tax – your proportionate share of the state revenue tax. Severance tax, conservation tax, oil field cleanup tax, emergency fund tax; each state is free to design their own scheme regarding oil and gas taxation.  Each state varies in their approach, but it’s safe to say that the overall take usually runs in the 5-8% range, regardless of how it is derived.  Severance tax is usually the dominant tax, with lesser taxes often pointed toward environmental cleanup type programs.  Many states offer tax breaks based upon variables such as low flowrate wells, enhanced oil recovery wells, or well in tight formations like shale.
  13. Deductions: The amount of charges taken for property adjustments. Why are there deductions from my royalty statement?  Making the product marketable – that’s the issue at play here.  Crude oil and natural gas, as it’s produced in it’s raw form, is rarely of sufficient quality that it can be marketed for immediate use.  That’s why you may see deductions for marketing.  The theory behind this is that the product has no value at all until it is made marketable.Common line items you may notice on your royalty check stubs include:
    • compression deduction – a charge for compression of gas to a sufficient pressure to enter into a gathering or transportation pipeline
    • dehydration deduction – a charge for dehydration of gas, meaning the removal of water vapor from natural gas
    • gathering deduction – a charge for pipeline gathering of a product to a common sales point
    • processing deduction – a charge for expenses related to further refinement of high BTU natural gas
    • treating deduction – a charge for removing impurities such as co2, nitrogen, or hydrogen sulfide from a hydrocarbon stream
  14. Owner Net Value = Owner Gross Value – Owner Gross Tax – Owner Gross Deductions


That will do it for this overview. As promised, I’m going to call out other resources available on the Internet which you’ll find valuable. The NARO website ( has a wealth of information, a store where you can purchase books on leasing, and is the best way to connect with other mineral rights owners through a membership.

The Mineral Rights Forum is one of the most active mineral rights leasing forums on the web. It’s also one of the best sources of information for lease rates in specific areas through the US.

I hope this video’s been helpful, and that you have a better understanding of mineral rights leasing and more importantly, know where to go to learn more. I encourage you to watch the other videos here on for more information on specific topics, including ownership, leasing, division orders, and the royalty check stub. I go through specific examples and highlight important details which didn’t fit in this high-level overview.

Before you go, please take 30 seconds to share this video so that others can benefit from this tutorial. It’s as easy as clicking one of the share buttons below.

Are you interested in learning about a particular topic not yet in our library? Leave a comment below and suggest a video topic. Or, simply send me an email at

Stay tuned to for more tutorials, and best of luck in your mineral rights leasing.

This 10-minute video is for the mineral interest owner who has just been approached by an operating company to lease their minerals. What should be your next steps? Find out by watching this video.

Covered in this video:

  • Why wait to sign a lease?
  • Resources to learn more about mineral rights leasing
  • How to find your local royalty owners association