How to Read Oil and Gas
Royalty Statements
Let's review an example royalty statement, section by section.
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How Do You Read a Royalty Statement?
Once your mineral rights are leased and producing, you’ll most likely receive monthly royalty checks from the company operating the well. Royalty statements vary from operator to operator, but all statements contain the same basic accounting information related to how much the oil or gas well produced, the commodity price, your interest, and your share of the revenue. Let’s break it down and look at each section.
Royalty Statement Example
(From a small well in west Texas)
What is in a Royalty Statement?
There are three parts to a royalty statement:
Basic Information:
On each royalty statement, you’ll find basic information about the operator, oil & gas well, and the owner.
Whole Well Figures:
This section represents the production, taxes, deductions and gross revenue for the entire well. This figure will be divided among all the interest owners.
Owner Figures:
This section represents the owner’s portion of the oil & gas volume, taxes, deductions, and net revenue.
On each royalty statement, you’ll find basic information about the operator, oil & gas well, and the owner.
Whole Well Figures:
This section represents the production, taxes, deductions and gross revenue for the entire well. This figure will be divided among all the interest owners.
Owner Figures:
This section represents the owner’s portion of the oil & gas volume, taxes, deductions, and net revenue.
Oil & Gas Royalty Statement Sections
Although all each operation will have a different royalty statement, many will contain the following sections and information.
Property
The property refers to the producing well. This line lists a combination of the identification number, lease name, well name, county, state, and other identifying information. You can use this information to verify the well’s production with your state regulatory agency – or just simply look and see where, on the map, your well is located.
Production Date
Production figures are reported monthly and listed by month and year on your royalty statement. In the above example, 1118 refers to November of 2018 while 1218 refers to December of 2018. Oil and gas royalties are usually paid two or three months post-production.
Interest Type
While a vast majority of the owners have royalty interest, there are several types of interest holders:
- Royalty Interest
- Working Interest
- Overriding Royalty Interest (ORRI)
- Non-Participating Royalty Interest
Product Code
Each product produced by a well is reported as a separate line item. It’s common to see oil, natural gas, condensate, and other production products (ie helium, sulfur, etc).
Unit Price
The unit price is the sales price per unit of oil ($/barrel), gas ($/MCF), and other products ($/gallon). This is a difficult number to verify because the rates change from day-to-day and by type and quality of the oil.
You can look up the average monthly price to make sure looks reasonable. The example well is located in west Texas, so we would look at the following prices:
West Texas Crude Price by Month
Natural Gas Price by Month
Your oil might be from another region or even another state.
You can look up the average monthly price to make sure looks reasonable. The example well is located in west Texas, so we would look at the following prices:
West Texas Crude Price by Month
Natural Gas Price by Month
Your oil might be from another region or even another state.
Owner Decimal Interest
This column represents your interest in the well. Most wells have thousands of fractional owners with a majority owning a very small fraction of the interest. Your decimal interest will be multiplied by the gross volume, tax, and deductions to determine your net revenue.
For example:
Net Revenue = (gross volume * decimal interest) – (tax + deductions)
For example:
Net Revenue = (gross volume * decimal interest) – (tax + deductions)
Gross Volume
Each state is responsible for taxing oil and gas production. The largest tax is usually severance tax, based on the volume or value of the product. Other taxes might include conservation, oil field cleanup, and emergency fund taxes. Each well owner is responsible for their portion of the taxes.
Production Tax
Each state is responsible for taxing oil and gas production. The largest tax is usually severance tax, based on the volume or value of the product. Other taxes might include conservation, oil field cleanup, and emergency fund taxes. Each well owner is responsible for their portion of the taxes.
Other Deductions
Raw crude oil and natural gas are rarely marketable without processing. Gathering and treating are common crude oil deductions while compression, dehydration, gathering, processing and treating are common deductions for natural gas.
Net Revenue
Net revenue for the entire well is derived by multiplying the gross volume times the cost and subtracting gross taxes and gross deductions.
Net Revenue = (price * gross volume) – (taxes + deductions)
Net Revenue = (price * gross volume) – (taxes + deductions)
Owner’s Volume
This column represents the owner’s share of the well production. It is derived by multiplying the gross volume by the owners decimal interest.
Owner’s share of volume = Gross Volume * Owners decimal interest
Owner’s share of volume = Gross Volume * Owners decimal interest
Owner’s Gross Revenue
This column represents the owner’s share well’s revenue. It is derived by multiplying the owner’s volume by the price.
Owner’s gross revenue = owner’s volume * price
Owner’s gross revenue = owner’s volume * price
Owner’s Production Tax
This column represents the owner’s share of the production taxes. It is derived by multiplying the interest by the gross tax.
Owner’s portion of taxes = owner’s interest * gross tax
Owner’s portion of taxes = owner’s interest * gross tax
Owner’s Other Deductions
This column represents the owner’s share of the other deductions. It is derived by multiplying the owner’s interest by the gross deductions.
Owner’s portion other deductions = owner’s interest * gross deductions
Owner’s portion other deductions = owner’s interest * gross deductions
Owner’s Net Revenue
This column represents the owner’s revenue. It is derived by subtracting the owner’s portion of taxes and deductions from the owner’s gross revenue
Owner’s net revenue = owner’s gross revenue – owner’s portion of taxes – owners portion of deductions
Owner’s net revenue = owner’s gross revenue – owner’s portion of taxes – owners portion of deductions
Why Sell Your Mineral Rights?
People sell their mineral rights for a variety of reasons. Most often, we see people selling because they would rather have a lump sum now rather than receive declining checks over a number of years.
Why People Sell Their Mineral Rights:
With the price of oil declining and operators practically giving gas away, I decided to sell before the bottom falls out.
I am on a fixed income, and the sale of these minerals will help me secure stable housing. My children will be okay if even if they don't inherit these minerals.
My oil wells have been producing for decades and the reserves are almost depleted. Once the wells are plugged, the value will be significantly lower. I'd rather cash out now.
I inherited mineral rights, but don't want to be involved with fracking and fossil fuels. I would prefer to support renewable energy and do my part to reverse climate change.
I lost my job and because of the COVID-19 lockdown, I needed the money. I'm so grateful to have been able to sell my minerals to get me through this rough time.