How Oil & Gas Royalties Work
Interested in learning more about how oil and gas royalties work? No problem! You have come to the right place. Oil and gas royalties are becoming an increasingly sought after area of interest for many people. That’s because they may just be the financial ticket for which you have been looking! The more you know about oil and gas royalties, the more you will want to take advantage of all they, and we, have to offer!
What Owners Get
Those who own land stand to gain from oil and gas royalties because they will earn a percentage of the value of all oil and gas extracted on their land. The royalties are those payments that the landowner receives for giving gas companies the right to develop their land and extract oil and gas from it. In most cases, the landowner royalties usually starts at 1/8, equaling 12.5 percent. It may be higher in fields where new finds are.
What this means is that if the company is extracting 20 barrels per day, for example, and each barrel is worth $75, then each day there would be $1,500 gross per day. To the landowner, their 12.5 percent per day would be $187.50. Over the course of a week, that would amount to $1312.50. However, it is important to realize that there are taxes that need to be paid on that money as well.
Many farmers and ranchers own land that can be used for oil and gas extraction. But there are other possibilities for collecting royalties because people can apply for and receive government and Indian reservation contracts to take care of the process of the oil and gas extraction process. While it would be federally owned land or Indian reservation land, the farmer or rancher canearn oil and gas royalties from managing the extraction lease arrangement.
Take, for example, the Osage Indian Reservation in Oklahoma. They own the mineral rights, while farmers and ranchers might own the land above. In such a case, the land owners just get paid a one time fee for the road and drilling sites. The Osage lease their land on the reservation at 3/16 overriding royalty that is distributed to the Osage Indians and descendants. These rights cannot be sold in any way.
Things To Know
While earning oil and gas royalties may seem straight forward, there are some things of which you should be aware. For starters, there is a difference between royalty interest and overriding royalty. While these terms may sound similar, they are actually different. Here is a recap of what each means:
It is also important to note that oil and gas royalty checks are likely to fluctuate. This is because there is market fluctuation. Because the oil and gas market is volatile, it often makes it difficult for those receiving royalty payments to determine what their royalty payment will be, or be able to make financial plans that include it.
Why Sell Royalties
Many farmers, ranchers, and lessees are finding the value in selling their oil and gas royalties on working wells in order to get a one-time lump sum payment. This is a smart move for those who may be feeling a financial pinch from our down economy, have been hit hard by the drought in Texas, need to get some medical or other bills paid, or just want to take a much-deserved vacation. It’s also a great way to secure funding you may need to enhance your business or start a new one.
We purchase oil and gas royalties and would be happy to give you a quote on what yours is worth. Submit a request for a free, no obligation, quote today, just to see what it can do for you. Having that one lump sum of money in your hand may be far more valuable to you than waiting on fluctuating royalty checks. Let our quote help you answer that question, contact us today!