being a “constant” number. Likewise, an owner of 4 net acres with an 80% lease NRI is also a constant number; and that too remains unchanged regardless of whether you are dealing with a 40-acre unit or a sprawling 1,280-acre horizontal well unit. The variables, however, in this scenario are your Working Interest (WI) or ownership percentage in the tract or unit, and the Decimal interest which can be calculated from these constants. Your WI and Decimal interest can vary; they might be higher or lower based on how the tract or unit is configured or expanded. This aspect of ownership is fluid , adjusting with the scale or the pooling of the land, but the foundational elements - your net acres and lease NRI - provide a stable base for all calculations and ownership considerations in the industry.
issue. Therefore, to exercise caution and adhere to the operator’s duty to pay interest, title opinions in Oklahoma should— where practical —segment ownership according to specific title requirements. This approach distinctly separates marketable from unmarketable portions within the ownership schedules as shown in Table 2 . In contrast, the Texas division order law does not necessitate such detailed separation because Texas requires all owners to sign indemnifying division orders. This requirement reduces the operator’s liability regarding interest payments on suspended royalties, as reflected in the Table 1 form which does not differentiate between marketable and unmarketable segmented interests. This distinction highlights a significant difference in how title opinions are structured and managed between Oklahoma and Texas and reinforces the need for tailored approaches to comply with state requirements and protect both the operator and the interest owners.
3. Marketable Title and Payment of Interest on Suspended Proceeds
Earlier in the article, we discussed simplifying complex ownership into more digestible “bite-sized” interests by categorizing them according to oil and gas lease burdens like common royalty and overriding royalty. This approach is not merely a workaround to steer clear of complex string formulas. There are crucially important reasons for structuring ownership this way, primarily driven by Oklahoma’s legal framework, specifically the PRSA (52 O.S. § 570.1 et . seq .), known as the Production Revenue Standards Act, and the NGMSA (52 O.S. § 581.1 et . seq .), or Natural Gas Market Sharing Act. These Oklahoma statutes significantly influence how title opinions are formatted to ensure compliance and clarity in the distribution of production revenues and natural gas market shares. In Oklahoma, operators are legally obligated to pay interest on suspended production proceeds, with rates set at 12% for marketable title and 6% for unmarketable title. Following the SUNOCO decision, this payment of interest is mandatory, not discretionary. Moreover, in cases where part of an ownership interest is marketable while another part is unmarketable, Oklahoma law demands that operators pay interest on the marketable portion. Operators cannot suspend payments on the entire interest merely because some part faces a title
4. The Proportionate Production Interest (PPI)
Senate Bill 168, enacted in 1992, significantly re-shaped the title opinion landscape by introducing the Production Revenue Standards Act (PRSA) and the Natural Gas Market Sharing Act (NGMSA). The NGMSA allows for split-stream gas sales, ensuring that operators make the gas market accessible to all partners, by allowing them to market their share independently based upon their calculated Proportionate Production Interest (PPI). This aids in achieving fair market value for gas royalties and reduces the monopoly power an operator might have over gas sales. On the other hand, the PRSA mandates that royalty payments be disbursed within six months of the sale of production, with interest accruing on late payments, ensuring prompt and fair compensation for royalty owners. It also clarifies that each owner can produce their share according to their PPI, with certain balancing restrictions to ensure equitable access to production. This act aims to provide clarity and efficiency in royalty distribution amidst complex ownership structures.
Segmenting ownership in title opinions according
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N at i onal A ssociation of D i v i s i on O rder A nalys t s
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