I want to call attention to something that’s new in the West Virginia oil patch . . . division orders.  What is a division order?  It’s a document used by oil and gas companies to verify the interest that you own in the minerals.  They send it out just before they start sending out checks for royalty payments.  They’ll wait to send out royalty checks until they get the signed division order back in the mail.  Sometimes the lease states that you have to sign the division order, sometimes it doesn’t.  Savvy mineral owners will get language in the lease stating that they don’t have to sign a division order, or at least strike the language requiring a division order from the lease.  Why would they do that?  Excellent question.

Division orders haven’t been used in West Virginia until recently.  Texas and Oklahoma companies used them out west for decades, but for some reason they never caught on with local companies.  When the Texas and Oklahoma companies came here to West Virginia to take advantage of the awesome Marcellus Shale play, they did business the same way they did at home, including sending out division orders.

They have a couple reasons to do so.  First, it’s the way they’ve done business in the past, and they want to keep their system working the same way it always has.  Also, it gives them a chance to verify the mineral owner’s interest in the minerals.  If you own 1/2 of 100 acres, it will state that you own 50 acres.  It will often (but not always) do so in a number of different ways, listing the gross acres, your fractional share of the gross acres, your net acres, and your decimal interest.  Pretty harmless.

Another reason they send out division orders is that it gives them another chance to get royalty owners to warrant the title and the ownership of the minerals.  They’ll include language saying that you warrant that the title is good, and that your are in actual fact the owner of the minerals.  In other words, when you sign the division order you are saying, “I promise that I own minerals, and it’s this much.”  That puts you in a bad position.  If it turns out later that you don’t own those minerals, the oil and gas company could come after you for the amount that they’ve overpaid you.  They would use the division order as evidence against you.

That would be OK if you were the one to approach them in the first place saying that you owned the minerals.

But most people who own West Virginia mineral rights never knew they owned West Virginia mineral rights until the company contacted them out of the blue one day and told them so.  They have no idea how they own the minerals, and they have no idea how to go about proving that they own the minerals, and they have no idea how to fix any problems in the chain of title if there are problems, and they don’t have the money or resources to fix the problems even if they do know how to fix the problems.  The company does, though.

So when you get a Division Order in the mail, you need to scrutinize it closely.  You need to scratch out any language that says you know something about your ownership, or that says you own X amount of minerals, or that does anything other than list your ownership interest for informational purposes only.  Be liberal with the red ink, and apply “to the best  of Lessor’s knowledge” everywhere.

Or just go ahead and throw it in the trash.  Unless your lease says you have to sign a division order, a division order is just not necessary.  West Virginia producers haven’t used them in the past, there’s plenty of reason for you as the Lessor not to use one, and there’s not much reason for the producer to require it.