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Divided vs. Undivided Interest when Selling Mineral & Royalty Interests

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The idea of divided versus undivided acreage ownership can be tough to wrap one’s mind around when speaking in terms of mineral or royalty interest.  To explore this further, and by way of example, let’s assume there are 4 individuals and each owns 1/4 of 100 acres or 25 acres a piece.  Basically, there are two ways to own the mineral acres:

DIVIDED INTEREST: means each owns their own distinct 25 acres, meaning the NW quadrant is owned by 1 individual, the NE quadrant is owned by 1 individual, the SW quadrant is owned by 1 individual and the SE quadrant is owned by 1 individual.  In this scenario none of the minerals or surface acres are shared.  If someone wants to sell their interest it is easily definable.

UNDIVIDED INTEREST: means that each individual owns 25% of the entire 100 acres (25 acres undivided).  This ownership is very common in mineral estates; it allows all 4 owners to participate in the 100 acres without defining which 25 mineral acres are owned individually.  When someone wants to sell, they can sell their 25% mineral ownership in the 100 acres.  In this scenario, the sale would be for 25 NMA (net mineral acres) out of 100 GMA (gross mineral acres).  Since the sale in this scenario only pertains to the mineral acres, the surface is not included in the sale and the 25% ownership is easier to understand.

So, fast forward and assume that a company drills a producing well in the future on the 100 acres, who gets paid?  In the case of a divided interest, the owner will have a lease and gets paid a Royalty (generally this is a negotiated % of production usually ranging from 1%-20%) on all oil and/or gas sales from their specific 25 acres. In the case of undivided interest, assuming each of the 4 individuals own a 25% ownership stake in the 100 acres.  Each individual would get paid a quarter of the Royalty associated with the Lease on all oil and/or gas sales from the 100 acres.

For more information on understanding Divided/Undivided Interest:

http://www.mosburgoil-gas.com/html/mosburg_primer_mte2_1_97_2a.html

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