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Oil/Gas/Changing legal interst


Mineral acres are located in Hughes county OK.          
         Continental Resources is the company

My wife’s Grandfather owned 50 mineral acres in sec 005-T005N-R010E (643.56 acres).  His royalties interest was 0.0145674 according to his Division order statement.
       When my wife’s grandfather died in 2002, his mineral interest was divided equally among his 6 grandchildren, 1/6 to each grandchild.  Her Grandfather’s royalties were being held in suspense due to title issues, and are now cleared up.  
       March 2014, Continental sent an accounting of the funds and production along with a check for the royalties held in suspense.  The legal interest shown on the production payment documentation was 0.00242790, which is 0.01456741 divided by 6 or 0.00242790, which seems to be correct.
         My wife had never received a division order from Continental prior to the royalties held in suspense being paid.  A few weeks ago my wife received another check for funds held in suspense and an amended division order stating that her legal interest was 0.00323720.  Apparently the second check was for an underpayment of royalties in the first payment she received.
       My questions for you are 1. Why would the mineral interest have increased from0.0.00242790 to  0.00323720.  2.If this is a mistake, made by Continental, will the last check received for the royalties held in suspense need to be paid back to Continental?  

Thanks for your help


These are very valid questions.  The answer to your first question is that you should contact Continental Resources and ask them: did your wife's number of net acres in the unit increase, or did the size of the unit decrease?  And what effective date did that change take place?  The calculation used to determine a royalty ownership in a unit is: (Mineral Interest) times (Royalty Rate in the Lease) times (number of gross acres from the lease that are inside the unit boundary) divided by (total number of acres in the pooled unit).  Net acres are calculated by multiplying the mineral interest percentage, decimal or fraction by the number of surface acres from the lease that are inside the pooled unit boundary.  For example: if a lease contains 120.0 acres in its legal description, but only 40.0 acres have been included inside the boundaries of a pooled unit, then there are 40.0 gross acres from the lease that are in the pooled unit. If the owner owns a 1/6 mineral interest in that land, then they own 1/6 x 40.0 or 6.666667 net acres inside the unit.  If the lease calls for a 3/16 royalty rate, and the total size of the unit is 640.0 acres, the unit royalty for this owner is calculated: 1/6 x 3/16 x 40.0/640.0 = 0.16666667 x 0.1875 x 40.0/640.0 = 0.00195313.

I gave you all of this information to show you that the only numbers that could change after a title review are net acres (mineral interest owned times the number of gross acres in the unit) or the size of the unit. The royalty rate is stated right in the lease, so it would be hard to get that wrong.

You deserve to know the nature of the adjustment, so you can note your records.

As for the second question, yes, if Continental has made a mistake making this increase in interest, when/if they discover it weeks, months or years from now, they will ask for the money back--which typically is repaid by withholding future payments of revenues. To my knowledge there are no court cases in any state where the court has allowed an oil company to get a judgment against an owner to force repayment of an overpayment of royalties.  Courts as a rule believe that the oil company has the greater knowledge of the facts, and therefore should suffer the loss instead of the landowner.

You can email Elizabeth Black, one of the division order analysts at Continental, at elizabeth dot black at clr dot com.  Or give her a call at 405-234-9279 and ask her to tell you the name of the division order analyst there who handles Hughes County, Oklahoma.  Good luck, and Happy Holidays.  


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Marsha Breazeale, M.Ed., CDOA, CPLTA


All questions regarding division orders; ownership decimal calculations; title ownership and payer record changes (testate/intestate inheritance; deed; assignment; court order); oil and gas lease analysis for record-keeping and purposes of payment by operator or payer; pooling, horizontal wells, horizontal well allocation units; unclaimed property reporting; royalty owner relations questions. All questions concerning administration of surface land contracts and payment questions, such as for Surface Right-of-Way, Sub-Surface Right-of-Way, Easement, Surface Use Agreement. All questions regarding industry-standard and company-specific policies that affect land owners.


Sr. Staff Division Order Analyst. Certified Division Order Analyst (CDOA, National Association of Division Order Analysts) and Certified Lease Analyst (CPLTA, National Association of Professional Lease and Title Analysts) with 35 years of experience as a combination division order analyst and lease analyst in exploration and production in the oil and gas industry.

National Assoc. of Division Order Analysts (NADOA), National Association of Division Order Analysts (NALTA), American Association of Professional Landmen (AAPL), American Society of Trainers and Developers (ASTD)

"How an Oil & Gas Exploration & Production Company Operates" and "Principles of Oil & Gas Lease Analysis: Standard Clauses", Oil Patch Press; Articles in NADOA Magazine; LandFocus EDU Professional Training Manuals

Education/Credentials Management from Our Lady of the Lake University in San Antonio; M.Ed. in Instructional Design from WGU Texas.

Past/Present Clients
Past 15 years: GeoSouthern Energy Corporation; Contango Oil Co./Crimson Exploration & Operating Inc.; Apache Corporation; BP America; Marathon Oil; Newfield Exploration

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