A Division Order is the document necessary to begin payment of natural gas royalties. This legally required document verifies a mineral owner’s interest in a producing well and authorizes the operator to pay the owner based on that interest. Division Orders offer assurance that each stakeholder will be appropriately compensated for the production of his or her minerals. They represent an official understanding between the natural gas operator and mineral owner, and verify the following information:
- Legal description of the producing property
- The correct and legal mineral owner(s) who should be paid royalties
- The net revenue interest in the producing well
- The owner’s taxpayer ID number (usually your Social Security Number)
- Indemnity for wrongful payment
For more information or a tutorial on division orders, visit the American Royalty Council website.
Frequently Asked Questions
Q: I thought that information was covered by my lease? Why the duplication?
A: While the legal description of your property may be covered in the lease, very few wells are drilled and produced based on a single lease. Division Orders document the size of the production unit and calculate your proportionate percentage of production based on the share the land covered by your lease bears to the entire unit acres. That information had not been determined when you signed the lease.
Division Orders also confirm that you still own your minerals and that your address and other personal information is still correct. Since the lease was signed, you may have gotten married or divorced, or inherited or sold your minerals. These actions, as well as others, could affect your title.
Q: When are Division Orders sent?
A: Pursuant to Texas Natural Resources Code 91.403, Division Orders are generally sent within 120 days after the end of the month of first sale of production. [This could take up to 150 days, depending on when first sales occurred.] If Division Orders are not issued by then, the Code provides for the natural gas operator to pay the mineral owner interest for any delay beyond that time.
Q: It’s been longer than 120 days and I haven’t received my Division Order – what’s causing the delay?
A: Meeting the 120-day goal can be challenging in an urban environment where there may be hundreds of mineral owners in any given unit, many of whose mineral title has never been verified. Processing Division Orders is a multi-step labor-intensive procedure that requires thorough title research.
Among the steps the operator must perform is title research – dating back to 1845 when Texas became a state – to make sure minerals weren’t severed from the title or sold to someone else decades ago. This assures the rightful owners benefit from a well’s production and are paid the royalties they deserve, based on their proportionate interest in the well. In other words, the operator must verify that each owner receives his “fair share of the pie.”
Although time-consuming and arduous, it’s important that we confirm this information up front so revenue adjustments, such as narrowing your slice of the pie, aren’t needed later. No one wants to be paid prematurely only to be asked later for a refund when it is determined title was not as assumed or represented.
Q: Will I receive extra compensation if I don’t receive my Division Order within 120 days?
A: You are entitled to interest if the delay is not due to unmarketable (i.e., disputed or unclear) title. Mineral owners begin accruing interest after the 120+day window expires. Remember, this is calculated from 120 days after the end of the month in which first sales occurred. Interest is 2% over the prime rate, which is almost always better than you would receive in a savings account. Interest accrual is included in your second royalty check, unless your lease provides otherwise.
Q: Help me understand why title research is necessary for Division Orders. I thought you did that when I signed my lease?
A: When you signed your lease, a landman from Chesapeake performed cursory or superficial research of your title to see if your current deed discussed mineral retention or severing. The title research performed before a Division Order can be issued is conducted by actual title attorneys to review all deeds ever issued for the property. This is to make sure minerals weren’t severed before you purchased your property or after you signed your lease and to confirm nothing has changed in your title since you leased. We do not charge royalty owners any part of this title examination, which can often cost thousands of dollars and uncover defects you may not know existed. This is a great benefit to you in the event you or your heirs ever wish to sell your property.
Q: What if there is a title dispute?
A: A number of factors could result in a title dispute, such as different people claiming ownership of the same minerals, clouded title, liens, divorce, incorrectly probated wills, and multiple heirs, among others.
Disputes are brought to the lease-signer’s attention through a letter from Chesapeake within 30 days of the discrepancy being identified. If the dispute is resolved in favor of the lease signer, and the Division Order arrives after the 120+-day window, interest will be paid only through the date the notification-of-dispute letter was mailed.
Q: How long will I receive royalty payments?
A: Mineral owners are paid as long as natural gas is being produced from the unit including their well or wells. This could be 30 years or longer, although it should be noted that there can be a dramatic decline in production in the first year, with a more gradual decline after that. Checks are sent monthly if the amount is $50 or more; otherwise, amounts are held in “suspense” and are mailed in the regular cycle when the total reaches $50. Please note that all royalty income is subject to ordinary income tax.
Q: What does the law say about Division Orders?
A: The laws in this state are noted in the Texas Natural Resource Codes 91.402, 91.403 and 91.404. To review the full language of these statutes, visit:
Q: Where can I learn more about Division Orders?
A: Please visit Chesapeake’s Owner Relations homepage . You can also visit the American Royalty Council for more information.
You have been assigned an exclusive owner number to distinguish you from Chesapeake's other interest owners. When communicating with Chesapeake, please be sure to always include your owner number. The owner number is located on the lower, left-hand corner of your revenue check stub. Click here to view a sample check stub with additional information at CHK.com.
Change of Address
Please notify Chesapeake promptly of any change in your mailing address. This notice must be in writing and include your signature or the signature of your appointed agent. Please include your owner number, and both your old and new addresses including the ZIP code. For your protection, address changes will not be accepted by telephone. Mail changes to our Division Order Department. (See the Owner Relations Contact Information page at CHK.com for the mailing address.)
Chesapeake offers an electronic funds transfer (EFT) option for its revenue interest owners. This service is provided for your convenience at no additional cost. EFT payments are only available for accounts drawn within the United States. If you elect to receive electronic payments, you will no longer receive your payment detail by mail. However, you can access the payment detail information online and you can even have the information emailed to you through our website. Complete the attached enrollment form with a voided check, and return to the address provided. If you have any questions about the enrollment process, please contact our Division Order Department at 877-CHK-1GAS or doinquiryDO@chk.com.
Our revenue checks are not negotiable after 90 days. If you did not deposit your check within that time frame, we must re-issue the check. Please return the check to our Revenue Department (P.O. Box 18496, Oklahoma City, OK 73154), and we will take the necessary steps to include this amount, with full details on your next revenue check.
A valid tax identification or Social Security number must be provided to Chesapeake for reporting and identification purposes. If it is not, the IRS requires the withholding of 28% of all revenues (30% for foreign residents) until the information is provided.
For more information regarding division orders and revenue, please visit our Well Owner Relations page at CHK.com.