The Importance of Lease Records & Division Orders

If you’ve been in the oil and gas industry for even a short period of time, you have no doubt heard the terms “lease agreement” and “division order” at least once. When it comes to the land components of this industry, these are critical elements that need to be well understood. So even if you know a lot or just a little about lease agreements and division orders, we are here to help you brush up on your understanding of just how important they are to your work.

Take a deep dive into the significance of these crucial components below.

The Ins and Outs of Lease Records

An oil and gas lease is a contractual agreement between a landowner (lessor) and a company (lessee) granting the company rights to explore, drill, and produce their minerals. This document is also an executed agreement, recorded in the county courthouse, which stipulates the terms and conditions, including the duration, royalties, and obligations of both parties.

A lease needs to be as thorough as possible to lay out all expectations and to ensure the operator can drill, manage, and maintain all four corners of the contract. Beyond this, keeping up-to-date records of all of your leases and any changes made to them is paramount. This prevents penalties and even the chance that you might lose the lease or well in the future.

What Makes Division Orders Critical

A division order is a document, executed by the operators of oil and gas properties, that directs the distribution of production revenues among the various landowners, royalty owners, and working interest owners.

What makes division orders so critical? To start, they ensure accurate and timely payment of revenues to all stakeholders, such as mineral owners, landowners, and working interest owners. Also, a division order provides legal proof of the distribution percentages agreed upon by the mineral owner and the operator. Lastly, they provide a clear and transparent method for revenue distribution, reducing the risk of disputes and potential lawsuits, etc.

Maintaining your division orders starts with clear communication with all of your stakeholders, no matter how small. This starts from setting up the order and continues all the way through to continued talks about distribution percentages and any changes that happen with those. Failure to do so can result in penalty fees or even added interest when late payments become common.

Take It From The Experts

Our team members in the land department bring decades of experience to the table. They have seen and done it all. Our experience in this sector of the industry is essential for the smooth operation and financial health of our clients.  We compiled all of that experience and industry knowledge into one helpful guide to further expand your understanding of lease agreements and division orders.

Download or Land Administration White Paper to learn more!

Need help managing your oil and gas land assets? Give our team a call to discuss how we can help!

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