Resurveyed Lands - The DOI and Payment Approach NADOA 42 nd Annual Institute Presented by: Andrew Graham

A roadmap to resurveying issues Basic principles of surveying and re-surveying What does your lease have to say about this? Do division orders and division order title opinions accomplish the same thing?

BASIC PRINCIPLES OF SURVEYING AND RESURVEYING

WHAT DOES YOUR LEASE HAVE TO SAY ABOUT THIS?

________ District of _____ County, State of ___, Bounded and described as follows: On the north by lands now or formerly of ______ On the east by lands now or formerly of _______ On the south by lands now or formerly of ______; and On the west by lands now or formerly of _______, Containing _________ acres, more or less

How does the lease described the premises? Are the lessor and the lessee bound by this description? Does the lease provide a method for re- describing the premises? What about the pooling clause?

How can you calculate acreage? – Lease acreage – Deed acreage – Deed acreage (as platted) – Tax assessment acreage – Tax map acreage – Surveyed acreage – GIS acreage

DIVISION ORDERS V. DIVISION ORDER TITLE OPINIONS

What is a “division order”? Declares the type of interest and the portion of production each interest owner (royalty owner, WI, production payment, etc.) is entitled to from a well May contain additional provisions – How is the price calculated? – Is there a warranty for the interest? – Is interest owner required to give notice of changes of ownership? – DOs for NGLs often contain technical specifics regarding the measuring and valuing of product

What happens if royalty is paid incorrectly? Payor can be liable for accounting for unpaid royalty, plus interest If royalty is payable in kind, payor and purchaser of production can be liable for conversion Division order helps protect against adverse claims – Who seeks this protection? Lessee, purchaser of production, or well operator (OK)

Binding effect of division order Parties to division orders are estopped from asserting that past payments were too small to compensate for the interest that they own – But parties can ask for corrections that will affect payments in the future Some courts (MS, OK, WV) have held that division orders bind interest owners from pursuing adverse claims against each other, as well as claims against payor

Binding effect of division order Can payor refuse to pay royalty until a division order has been signed? – In many states, the answer is no (KS, LA, AR, OK) – Tex. Nat. Res. Code § requires interest owners to sign statutory division order Division orders are generally viewed as binding on the parties who sign them until they are revoked – Generally viewed as terminable at will

Division order only covers what it covers The protection of a division order only extends to the interests included in the division order – If some part of Blackacre is excluded from the division order, payments related to the excluded portion are not subject to the division order Same outcome if division order is limited to specific producing formation – A division order that is limited to the Marcellus Shale has no effect on production from the Utica Shale

Conflicts between DO and Lease A leases Blackacre to B. – Lease provides that royalty will be percentage of “market value” – A executes division order that provides that royalty will be percentage of “actual proceeds” – TX: Exxon Corp. v. Middleton (1981) Unless division order is revoked, royalty should be calculated consistent with division order, not lease

Detrimental Reliance KS: Maddox v. Gulf Oil Corp. – Division order isn’t supported by consideration and it doesn’t estop royalty owner’s adverse claims unless payor has relied on division order to its detriment TX: Gavenda v. Strata Energy, Inc. – Division order incorrectly stated that royalty owner owned ½ of usual 1/8 royalty (6.25%). Actually owned ½ royalty (50%). – Division order didn’t protect payor because payor benefitted from payor’s mistake – If payments are mis-directed as between royalty owners, division order will protect payor so long as mistakes don’t affect total amount of royalty paid and improper payment doesn’t benefit payor

QUESTIONS? 21 Thank you! Andrew Graham Steptoe & Johnson PLLC