Opinion ID: 2448635
Heading Depth: 1
Heading Rank: 8

Heading: Division Orders

Text: Heritage entered into division orders with the royalty owners. The division orders contained the following language: All proceeds from the sale of gas shall be paid to the undersigned or their assigns in the proportions as herein set out less taxes and any costs incurred in the handling and transportation to the point of sale, treating, compressing boosting, dehydrating or any other conditioning necessary, subject to the terms of any contract of purchase and sale which affects the above described property ... The court of appeals held that the division orders were of no effect and that Heritage was liable for reimbursement to the royalty owners for transportation costs improperly withheld in payment to Urantia. The court of appeals' discussion about the effect of a division order that contradicts the lease terms conflicts with our earlier opinion in Gavenda v. Strata Energy, Inc., 705 S.W.2d 690 (Tex.1986). The general rule is that division orders are binding until revoked. Gavenda, 705 S.W.2d at 691; Middleton, 613 S.W.2d at 250. When an operator prepares a division order that allocates payments among the interest owners in a manner that differs from the lease provisions and the operator retains the benefits, the division order is not binding. Gavenda, 705 S.W.2d at 692. The basis of this rule is unjust enrichment. Gavenda, 705 S.W.2d at 692. The operator then becomes liable for the part of the interest owner's payments the operator retained. See Gavenda, 705 S.W.2d at 693. The operator is not liable for the amounts it paid out to other interest owners. Gavenda, 705 S.W.2d at 693. The court of appeals decision incorrectly states that Heritage was liable for reimbursement to the royalty owners for transportation costs improperly withheld in payment to Urantia. 895 S.W.2d at 839. Under Gavenda, Heritage would be liable, if at all, only for the amount of the unpaid royalty it retained. In this case, there were other working interest owners who were not parties to the suit. Absent an agreement otherwise, all the working interest owners would benefit from an improper deduction of transportation charges from the royalties paid to NationsBank. Therefore the trial court could only hold Heritage liable for an amount of unpaid royalties that Heritage retained.