A division order is the document an operator or purchaser sends before paying royalties. It states your decimal interest in production from a well or unit and directs the payor to pay you accordingly. Texas law limits what a payor can require in a division order and provides that it cannot amend your oil and gas lease. Before signing, confirm the owner name, the property description, the interest type and, above all, the decimal, and decline any terms beyond those the statute permits.
What families should know
New royalty owners, and especially heirs, usually encounter a division order before their first check. Its purpose is narrow: to confirm who is entitled to be paid, for what property, and in what fraction, so the payor can distribute proceeds without risk of paying the wrong person.
The decimal is the number that matters. It generally equals the owner's fraction of the minerals, multiplied by the lease royalty rate, multiplied by the tract's share of the pooled unit. An owner of one-eighth of the minerals under a 160-acre tract, leased at a one-quarter royalty and pooled into a 640-acre unit, would expect a decimal of 1/8 × 1/4 × 160/640, or 0.0078125. An error in any one factor carries forward into every check for the life of the well.
When an owner dies, operators typically suspend payment until the heirs or devisees prove ownership. New division orders, one for each successor, are usually the final step before suspended funds are released.
The legal detail
The statutory definition
Subchapter J of Chapter 91 of the Natural Resources Code governs payment of oil and gas proceeds. A division order is "an agreement signed by the payee directing the distribution of proceeds" that authorizes the payor to pay in accordance with its terms; the term includes a transfer order (Tex. Nat. Res. Code § 91.401(3)). The payor is ordinarily the first purchaser of production, unless the purchaser and the owner of the right to produce have arranged for the operator or lessee to distribute proceeds (§ 91.401(2)).
What a payor may require
As a condition of payment, a payor is entitled to a signed division order containing only the following (§ 91.402(c)(1)):
the effective date;
a description of the property and the type of production;
the fractional or decimal interest claimed, the type of interest, a certification of title, and, unless otherwise agreed, an agreement to give one month's notice of any change in ownership and to indemnify the payor if the payee lacks merchantable title;
authority to suspend payment pending resolution of a title dispute or adverse claim;
the payee's name, address and taxpayer identification number;
provisions for the valuation and timing of settlements; and
notice that other statutory rights may be available to the payee.
The statute also prescribes a form that satisfies these requirements (§ 91.402(d)). Most important, a division order "does not amend any lease or operating agreement" or any other contract for the purchase of oil or gas (§ 91.402(c)(2)). Language purporting to ratify a lease, change the royalty calculation or authorize new deductions goes beyond what the payor may demand.
Timing of payment and interest
First-sale proceeds must be paid within 120 days after the end of the month of first sale. Thereafter, payment follows the lease or other written agreement or, absent one, must be made within 60 days after the end of the month in which oil is sold and 90 days for gas (§ 91.402(a)). Late payments bear interest at two percentage points above the rate charged on loans to depository institutions by the New York Federal Reserve Bank, unless the parties agreed to a different rate (§ 91.403(a)).
Payors may withhold without interest when there is a title dispute affecting distribution, reasonable doubt that the payee has clear title, or a title-opinion requirement concerning the payee's title, identity or whereabouts that the payee has not satisfied after a reasonable request for curative information (§ 91.402(b)). That exception explains why heirs' royalties can sit in suspense, without interest, until the curative requirements are met.
Keep copies of every division order you sign. They're the easiest way to check later checks and to show your heirs what you own.
Enforcement
Before suing for nonpayment, a payee must give the payor written notice by mail; the payor then has 30 days to pay or state in writing a reasonable cause for nonpayment (§ 91.404). A judgment for the payee must include reasonable attorney's fees, with a $200 minimum recovery (§ 91.406).
Reviewing a division order
| Section of the form | What to verify |
|---|---|
| Owner name and number | Correct, current owner; not a deceased person |
| Property or unit and county | Matches check stubs, leases or the appraisal roll |
| Interest type | RI (royalty), ORRI (overriding royalty) or WI (working interest) |
| Decimal interest | Matches your own calculation from the deed, lease and unit designation |
| Effective date | Consistent with when you acquired the interest |
| Additional terms | Nothing beyond § 91.402(c): no lease amendments, ratifications or new deductions |
Do not alter the form by hand. If it is wrong or includes impermissible terms, write to the payor, identify the problem and request a corrected division order, keeping a copy of the correspondence. Return the signed form with a W-9 to avoid backup withholding and further delay.
An example for heirs
A mother's division order on a Midland County unit showed a decimal of 0.00937500. Her will left her minerals equally to her three children. After the will was probated and certified copies recorded in Midland County, the operator issued three new division orders, each for one-third of her decimal, or 0.00312500, and released the funds held in suspense since her death. Had any child's form shown a different figure, the right course would have been to request the operator's calculation in writing before signing.
Frequently asked questions
Do I have to sign a division order?
A payor is entitled to a signed division order as a condition of payment, but only one limited to the provisions listed in Section 91.402(c) of the Natural Resources Code. You are not required to sign additional terms to be paid.
Can a division order change my lease?
No. By statute, a division order does not amend any lease or operating agreement between the interest owner and the lessee or operator (Tex. Nat. Res. Code § 91.402(c)(2)).
What if my decimal looks wrong?
Ask the payor in writing for the calculation and the title basis for it, including the unit tract factor and the royalty rate it used, before signing. A decimal certified in a signed division order is harder to unwind later.
Do heirs need new division orders?
Yes. After ownership is established through probate or heirship documents recorded in the county where the well is located, the payor will issue new division orders to each heir for that heir's share of the decedent's decimal.
What happens if the operator pays late?
Unless a statutory exception applies, such as a title dispute or an unsatisfied title requirement, late proceeds bear interest at two percentage points above the New York Federal Reserve discount rate, and a successful suit carries mandatory attorney's fees (§§ 91.403, 91.406).
Think your family may be owed royalties?
We help Texas families find, prove and claim oil and gas royalties held by operators or the State. There is no cost to ask.
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About the author
Todd Worrich is a San Antonio native and Texas attorney. He earned his undergraduate degree from Texas A&M University, his law degree from St. Mary’s University School of Law and an LL.M. in Taxation from SMU Dedman School of Law, and he has been recognized multiple times by Texas Super Lawyers. His practice focuses on estate planning, probate and helping Texas families recover oil and gas royalties. More about Todd
This article is general information about Texas law, not legal advice for your situation, and reading it does not create an attorney-client relationship. Laws change, and results depend on the facts of each matter. Attorney responsible for this content: Todd Worrich, San Antonio, Texas.
