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Conveyance Division Order Transfers: Always Begin with the Granting Clause

Every producing well in which a company owns an interest must have a revenue division of interest (DOI) record created for it. If the company is the operator of the well, the revenue DOI usually distributes 100% of the production revenues for the well each month. The exception would be if one or more of the partners is selling to its own purchaser, which means they receive their share of production revenues directly from their purchaser, and those revenues will not come through the operator.

The decimal share of production revenues for each owner in the revenue DOI is calculated based on full title analysis and review of relevant contracts such as the joint operating agreement (JOA), together with notice of participation by the partners to sell their share of production with the operator or sell to their own purchaser (“take in kind”). Once created, the accounting department books to this DOI the revenues received from the operator’s purchaser each month.

Title ownerships change over time. Owners pass away and their decimal interest in the DOI must be distributed to heirs or devisees. Owners sell their interest to others, in whole or in part. Occasionally, a title dispute will arise between owners and the court will issue a court order deciding who owns what (a “quiet title” action).

All of these events lead to the need for database title transfer transactions to update the current, active DOI. The legal documents, appropriately filed into public records, become the basis for the change that must be made to the DOI to direct future payments to the new owner(s).

A common mineral rights conveyance document the division order analyst and lease analyst encounters in their work is the deed. Within the body of a deed, the clause most important to the analyst responsible for DOI maintenance is the granting clause. The granting clause generally includes the fol

lowing five elements giving the data necessary for a DOI transfer:

1. The date stated that stipulates exactly when the transfer of ownership takes effect. The effective date typically is found in the last paragraph of the deed, something similar to “signed this ____ day of (month), (year).” If the effective date is different than the date signed, the sentence might read, “…but to be effective _____.” Rarely do deeds have specific effective dates different from the date signed, unlike assignments. If no effective date or date signed is given in the deed, then the notary date of the last grantor to sign becomes the effective date of the deed.

2. The name, signatory capacity, legal status, and addresses of the grantor and grantee. This is critical data. The name(s) of the grantor(s) must match exactly the name in their owner number in the DOI, or the deed could present a title gap. The grantee will need an owner number set up if they are not already in the database, but the grantor must already be set up, and have a decimal interest in the current DOI, for the deed to be worked. The grantor name in the DOI must match the deed as to name, same signatory capacity (e.g., “individually” or other), and same legal status (e.g., “a married man dealing in his separate property” or other). Any variation calls for further analysis. The address can be different, requiring only an address verification letter before updating their address in the owner number record (remember, a year-end 1099 will goes to the grantor, even if he’s no longer in any other active DOI).

3. Statement of the specific type and amount of rights being conveyed, otherwise it will state “all right, title, and interest of Grantor…” If it’s all right, title, and interest (ARTI), then everything credited to the current owner in the DOI will be transferred to the new owner. Caution: If the grantor owns only a life estate, in Texas it can be conveyed legally, but it remains a term interest that will expire upon the death of the grantor or original life estate holder. The remaindermen must be notified to contact the operator when the grantor passes, because the grantee will no longer be entitled to payments—payments from that date forward must go to the remaindermen.

4. Language of present grant and conveyance. The deed must state something like “Grantor does hereby convey, sell… to Grantee.” In certain situations this could be an issue, so the analyst should quickly confirm that the language is there.

5. Description of the specific land being conveyed. This is where it can get tricky. The analyst must verify that the legal description covers all of the land from which the grantor’s DOI decimal is derived. If not, the analyst must calculate what portion of the DOI decimal was conveyed, and what portion was retained. If the land description is given with no restrictions as to depths, then all depths owned by the grantor are being conveyed. A depth restriction points to a desire to convey only the interest in one producing depth, for instance. If there is more than one well producing from the grantor’s interest at different depths, the analyst must make certain the legal description (or elsewhere in the deed) does not restrict the conveyance to only certain depths.

Next week’s blog will be “Division of Interest Transfers for Probate: Always Begin with the Documents.”

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