Curtis Talley Jr. The two main financial incentives offered to a landowner for the lease of their land for oil and gas development are the bonus and the royalty. For a producing well, royalties can be 10 to 20 times the bonus payment in the first year of production. Oil and gas companies, as an incentive to lease, offer a one-time payment called the bonus. The lessor landowner must be careful to not over-emphasize the up- front bonus payment at the expense of the royalty.
The lessor should strive to negotiate a balance of the highest bonus payment possible along with the largest royalty rate possible. With proper investigation and analysis, the opportunity to purchase an oil or gas royalty can happen at any time in the commodity price cycle.
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As a broker of royalty interests, we know the value of doing our homework. More importantly, as a company that explores, drills, and develops oil and gas sites, we know the ins and outs of the investment process better than anyone.
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Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Contents hide. A Short Primer on Mineral Rights.
Understanding Oil and Gas Royalties. What is an Oil or Gas Royalty Interest? What are the different types of royalty interests.
You would do that with the owner relations department for the specific operator. This is the same process we go through when we purchase mineral rights or royalties from landowners. We have to put the operator on notice that we now own title to the minerals that we acquired.
Initially, it can take five months or longer before you receive your first royalty check from the first sale on your well. From that point on, royalty checks will generally continue to be issued and mailed by the end of each month—as long as the well is producing.
If your well stops producing or the company decides to stop production on your land for any reason market prices, oversupply, financial troubles, etc. This is a tough question to answer. A landowner thinks in terms of, how long is this well going to produce?
Will it last for 30, 40, or 50 years? Owning the mineral rights means you legally have the right to explore, extract, and sell any oil, gas, coal, uranium, helium or other mineral that rests beneath your land.
In fact, many landowners forget they own the mineral rights under their land. Further, the average landowner does not have the multi-million dollar budgets to explore for oil, or the social networking skills to raise a multi-million dollar exploration fund. Oil companies do have the knowledge and funding to explore for oil and gas. So when they identify a region that likely contains oil and gas, they negotiate with the landowners to lease their mineral rights for oil and gas exploration.
This lease gives the oil companies permission to explore for oil and gas and to produce and sell it if they find petroleum in economic quantities. The landowner receives two forms of compensation for leasing his minerals. The bonus will be paid once at the time of the signing of the lease, and it may be the only money the landowner will get.
The second is the oil and gas royalty which is the percent of the money generated by the oil and gas from his property. Traditionally
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