Hidden Risks In Division Order Management

We Get It Right, Or We Make It Right

To schedule a free consultation, please call (303) 463-8799 or fill out our contact form.

On the surface, division order management might look straightforward, but it rarely is! With every producing well, there is a web of ownership interests, title burdens, state regulations, and payment deadlines that have to be tracked and verified before royalty revenues can be accurately distributed.

One missed escheatment deadline, one incorrect decimal, one defective title paid through — and the exposure compounds quietly, until someone finally notices. Most oil and gas purchasers and operators only discover the true cost of division order errors during an acquisition, lawsuit, or state audit. At ExTex, we think that’s too late, which is why we go to extraordinary lengths to get it right the first time…or make it right.

If you are handling division order management internally, or perhaps working with an accounting firm that doesn’t specialize in division orders, you might have more financial and legal exposure than you even realize.

Below are some of the primary risks in division order management.

Delayed Revenue Payments
Poor division order management can create bottlenecks that delay payments to royalty owners. Missing documentation, unresolved title issues, and/or inefficient workflows can prevent payments from going out when they are due. Beyond frustrating owners, payment delays can expose you to statutory interest payments, regulatory scrutiny, and reputational damage within the owner community.

Incorrect Decimal Calculations
The math behind working interest and net revenue interest decimals is incredibly complex — involving lease terms, royalty burdens, overriding royalties, and well-level allocations. Even a small ownership calculation or arithmetic error could affect hundreds, or even thousands, of payments over many months. You could potentially underpay or overpay for years before anyone notices. But when the errors do come to light, they can lead to penalties, interest, demand letters, litigation from angry royalty owners, and other consequences.

Inadequate Processing Of Changes In Ownership
Divisions of interest are constantly changing, through divorces, deaths, probate proceedings, trusts, property sales, corporate mergers, and more. If these changes in ownership aren’t processed correctly, payments will go to the wrong parties, potentially for long periods of time. This creates not only financial exposure, but also legal liabilities.

Failure To Identify And Cure Title Defects
If title issues aren’t caught before payments are released, overpayments or incorrect payments can occur. And these funds are extremely difficult to recover, especially if the funds have been distributed to heirs or estates across multiple states. Gaps in chain of title, missing probate documents, lapsed leases, and disputed acreage are examples of title issues that can lead to massive headaches and lost revenue.

Mismanagement Of Suspense Accounts
When royalty owners can’t be located, a title is clouded, or legal disputes exist, you are legally required to hold funds in suspense. Without a proper resolution workflow, you might miss escheatment deadlines, which vary by state. The result can be unclaimed property audits, penalties, interest, and the operational challenge of trying to reclaim escheated funds from state agencies.

Non-Compliance With State-Specific Pay Statutes
Nearly every oil-producing state has its own set of royalty payment timing laws, and no two sets of laws are the same. In fact, the laws can vary significantly with their requirements for first-payment windows, interest rates on late payments, and triggers for penalties. If you are unfamiliar with multi-state compliance, you could miss deadlines and unknowingly accrue statutory interest (at rates as high as 12% annually) until a royalty owner or audit catches the error.

Inadequate Recordkeeping And Audit Trails
Without adequate recordkeeping, clear audit trails, and supporting documents, it becomes almost impossible to later explain why an ownership interest was established, changed, or suspended. Without these historical records, resolving disputes can become extremely time-consuming and expensive.

Reputational Damage
By and large, royalty owners judge purchasers and operators by the accuracy and timeliness of their payments. Repeated errors, unanswered questions, and/or confusing royalty statements can erode people’s trust and potentially lead to problems that extend far beyond the original payment issue.

Problems With Mergers, Acquisitions, And Asset Sales
With mergers, acquisitions, and divestitures, ownership data is transferred, and it needs to be accurate. Poorly maintained division order records can wreak havoc, not only during the due diligence period of a potential sale, but also well beyond the closing. If buyers discover unresolved title issues, missing documentation, inaccurate ownership records, or anything else that requires cleanup, it could potentially delay the sale, reduce the amount the buyer is willing to pay, or scuttle the deal altogether.

About ExTex
At ExTex, we have the experience and expertise to be your outsourced solution for division order management. We take on all of the tasks, and the risks, providing you with the services and umbrella of protection that you need.

Since 1998, have been providing a full range of division order services for oil and gas companies of all sizes, including startups. We are SOC compliant, and we can customize our back office support to your exact needs!

In addition to well services, we offer other outsourced services: title services, revenue accounting services, and tax accounting services.

For more information about our division management services, or to schedule a free consultation, call (303) 463-8799 or fill out our contact form.

ExTex Division Order Services, LLC is located in the Denver metro area (in Golden, Colorado), and we provide back office outsourcing services for oil and gas companies across the U.S. and Canada.

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“The outcome of switching to ExTex was better customer service and lower costs for the company.” 

Bill C, VP of Marketing, Oklahoma

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