By Marsha Breazeale – Oilpatchpress.com When the decimal on your check for a gas well does not match the decimal on the division order you signed—or that you received but never signed, and if your land is in Louisiana for example,—there are several common reasons. Here is the one that royalty owners encounter the most often.
The decimal on the check represents your decimal share of the gas revenues received for that month by your payer. If there are two or more working interest partners (cost-bearing companies) who own in the well, that well may have what we call “split stream sales” going on.
In that case, your payer has the right to sell its own share of gas from the well, if they can find a purchaser willing to sign a contract. When that happens, your payer is selling less than 100% of the total amount of natural gas that came out of the wellbore (the other partners get their share of the rest).
Your payer received payment from their purchaser for their share of gas and must distribute 100% of those proceeds to all those entitled to part of it (including you).
Let’s say your payer is entitled to sell 25% of the total gas from the well to its own purchaser. Next, let’s say your payer is paid $25,000 for that gas. The decimal on your division order represents your share of ALL gas coming out of the well, meaning it has been proportionately reduced by your net acres divided by the total unit acres, then multiplied by your lease royalty rate.
To pay you correctly, your payer must take your unit decimal on the division order and divide it by 0.25 (being 25% of the gas from the well that was sold by your payer). When a decimal is divided by another decimal less than 1.0, the original decimal (numerator) is enlarged by the bottom decimal (denominator), in this case 0.25.
Give it a try. If an owner’s division order decimal is 0.03125000 RI, and their payer only sells 25% of the gas from the well, that owner should see on their check the decimal calculated from 0.03125000/0.25, or 0.12500000 RI. This is called “inflating” the decimal to distribute correctly all of the proceeds for a share of gas less than 100% of all gas that was produced from that well that month.
You may be entitled to payment from one or more of the other partners, depending on how many companies own a share of your oil and gas lease and whether there is a Joint Operating Agreement in place.
If your well is in Oklahoma, forget everything I just told you. This explanation doesn’t apply to Oklahoma wells because of SB-168 (PRSA). You should always receive your division order decimal only from the Operator of the well, regardless of who owns your lease.
Marsha Breazeale is a Division Order Supervisor with 40 years of experience as a division order analyst and lease analyst in the petroleum industry. She is certified by the National Association of Division Order Analysts and the National Association of Lease and Title Analysts. Visit her website, oilpatchpress.com for a selection of books for royalty owners and for oil and gas professionals.