CMM Division Orders & Payment Suspense Flashcards

What is a 'net revenue interest' (NRI) as used in division order decimal calculations?

Answer: The working interest owner's share of production revenues after all royalties, ORRIs, and other burdens are deducted

Net revenue interest is what the working interest owner actually receives from production revenues after satisfying all royalties, overriding royalties, and other production burdens.

How can a mineral owner best protect against having royalty payments reduced by post-production cost deductions?

Answer: By negotiating a 'no deductions' or 'gross proceeds' royalty clause in the oil and gas lease

Negotiating a 'no deductions' or 'gross proceeds' clause in the lease at signing prevents operators from later deducting post-production costs such as transportation, compression, and processing.

What is the purpose of a 'suspense account' maintained by an oil and gas purchaser?

Answer: An account holding revenue funds for owners whose identities, addresses, or ownership shares are unresolved

A suspense account holds royalty and revenue funds for owners whose correct identity, mailing address, or ownership decimal cannot yet be confirmed.

What obligation does a purchaser or operator have when a mineral owner's address cannot be located?

Answer: To continue holding funds in suspense and ultimately report and remit them to the state under unclaimed property laws

When an owner's address is unknown, holders must retain funds in suspense and eventually report and remit them to the state under escheat or unclaimed property statutes.

What role does a 'title opinion' play in resolving payment suspense?

Answer: It provides an attorney's legal analysis of ownership that enables the purchaser to establish correct decimal interests and release funds

A title opinion from an attorney analyzing the chain of title gives the purchaser the legal basis to establish correct ownership decimals and release funds held in suspense.

Which body of law governs the requirement to escheat unclaimed oil and gas royalty payments to the government?

Answer: State unclaimed property (escheat) statutes that vary by jurisdiction

State unclaimed property or escheat statutes govern the mandatory reporting and remittance of unclaimed royalties to the state after the applicable statutory holding period.