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Energy Industry (Oil & Gas)/Estimated monthly royalty payment - WHAT!

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QUESTION: Hi.  I'm in the process of finalizing probate for my grandparents.  I will inherit 32 acres of Shouthard 1-4H.  My contract says I get 1/16th, I've already received the 3year lease payment.  I found info on the net saying the well is producing, if I read it correctly, 475 barrels of oil per day.  I don't understand the math to figure out the approx monthly payment.  Thanks!

ANSWER: Sandy

There's not enough contract info in your note to really give a precise answer.  You should be getting a statement that shows the royalty payment calculation.  Companies are writing very creative royalty contracts "now-a-days" with fuzzy words like post production expenses, well head measurement point, deducts for anything they can think of, etc.  Find that contract and go from there.  In the good-old-days it was very easy: 1/16 (or .0625) x 475 BBL per day x price per BBL = your daily royalty  payment.   Putting in some guess numbers  .0625 Royalty x 475 BBL per day x $65 per BBL equals $1930 per day or about $60,000 per month.  No matter how they figure it you should be a very wealthy lady.  Good luck and if I can help in any way let me know.

Chuck Felker  

---------- FOLLOW-UP ----------

QUESTION: OK, I'm having a hard time swallowing all of that.  I reread the contract again and can not find where I saw 1/16, it say 20% of gross of oil and gas.  Contract mentions "free of cost" but does mention "enhancements" being deducted from "lessee's share of production".  Does any of this help?  Maybe it will make me less rich!  Thank you so much for your prompt reply!  Sandy

Answer
Sandy

Welllllllllllllllllll if it says 20% of gross you're even richer by a factor of about 3 times because the 1/16 was 6.25% and now you see 20%.  I like the words "free of costs", but the deduct for "enhancements" could spell trouble.  I'm sure there's a lawyer where you live that could take you through the maze of words (while taking you for all he can) so I'd never recommend a lawyer until I worked through things myself a while.  It's really not that complicated but lawyers and corporations like to make it that way, believe me.  One of the first things you could do is talk to someone who has a similar lease, and already receiving a real check to see how that's going.   Your grandparents must have been getting a check and statements so get that number as a starting point too.

I'm an "old" (really old) petroleum engineer so am interested in the physical things compared to the ownership things.  Like: do you know where the well (or wells) are on the property?  Where and how does the metering take place? What state are you located?  Is both oil and gas actually being produced?  Not really expecting an answer to the above, I'm just curious now.

Best of luck

Chuck Felker

Energy Industry (Oil & Gas)

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Charles E. Felker

Expertise

Energy questions related to homeowners and their energy supplier. Questions related to process control. HVAC questions Natural gas transmission, distribution.

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Penn State grad 1954 in Petroleum and Natural Gas Engineering. Forty five years experience in process control, natural gas processing, compression, transmission and distribution

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ASME

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BS Petroleum & Natural Gas Engineering Pennsylvania State University

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