Division of Interest Spreadsheet Mania: What Format Is Best?
This question comes up often among new division order analysts, but experienced analysts ask it, too. The truth is, there is no “right” or “best” spreadsheet format, per se. That’s because an Excel spreadsheet is only a tool, and the analyst is the designer who uses that tool to create a comprehensive illustration of production revenues ownership.
There are, however, a few ground rules that make creation of an effective and accurate spreadsheet a smoother process.
The most important of these ground rules is simply that any ownership spreadsheet must be readable, meaning understandable. An analyst should create any spreadsheet imagining that some future division order analyst will be using it to obtain historical information five years from now. Every ownership spreadsheet, regardless of the purpose for which it was created, becomes part of the company’s title documentation records for the property to which it applies. Every piece of data in an ownership spreadsheet is derived from (or should be!!) at least one supporting document. The most effective spreadsheet, therefore, should be well organized and self-explanatory. It should contain clear column labels, row labels, and explanatory spreadsheet name.
An ownership spreadsheet must serve its specific purpose. Is it a unit ownership spreadsheet? If so, it will contain all owners without regard to payouts. Is it a division of interest spreadsheet? Then it will apply title ownership according to payout status and the spreadsheet name will include “BPO” or “APO”.
Or, perhaps the spreadsheet sets out ownership for on a segment of well or unit ownership, as an analyst would create if needing to unravel a series of assignments between a group of leasehold owners when burdens are disproportionate as directed by the assignments.
Each of these types of spreadsheets can use the same format of labeled columns and labeled rows, where each WI owner (well partner) has its own column, and burden owners (RI, ORRI) and the partner’s NRI are listed as rows. Each cell address would contain the decimal of net production revenues interest credited to that burden owner, derived from the gross WI credited to that partner in the column label. The sum of each column will equal the gross WI credited to that partner, and the sum of all columns will be 100%.
Perhaps the ownership spreadsheet will serve the purpose of breaking out ownership in each pooled unit tract, to more accurately illustrate each owner’s interest on a unit basis. That will use a multi-tab spreadsheet. Each tab will be labeled with successive tract numbers and acres assigned to the tract. The final tab will be a compilation of the data set out in each of the previous tabs. The pivot table function can be used in the final tab, but using it has drawbacks. Other spreadsheet features can be used that will create the final unit tab and allow updates or corrections within any of the tract tabs to be imported automatically into the unit tab.
An ownership spreadsheet also must be informative. It should contain notes and comments explaining certain calculations when needed. A highly skilled and competent analyst does not ask a fellow analyst five years from now to reinvent the wheel, spending unnecessary time figuring out why an interest was calculated or credited in a peculiar way. A simple comment explaining it would prevent the wasted time.
Lastly, an ownership spreadsheet should be complete. A complete spreadsheet should include the calculation formula in each of the burden owner cells, at a minimum. Rarely are WI NRI calculations short enough to justify typing them into their cell, but there are always exceptions to every rule. Hard coding a burden owner’s decimal into the cell, copied directly from a title opinion, prevents the spreadsheet from being a one-stop resource when an owner asks how his division order decimal was calculated. Without the cell formula to show how the decimal was derived, time must be wasted digging into title opinions to once again reinvent the wheel. A complete spreadsheet also will contain a descriptive (informative) name—the title of the spreadsheet, along with the name of the analyst who created the spreadsheet and the date it was prepared.
Next week’s blog will be “Conveyance Division Order Transfers: Always Begin with the Granting Clause.”