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Managing your Oil and Gas Royalties

Managing your Oil and Gas Assets

A Royalty Owner’s Primer

The first step toward effectively managing your oil and gas interests is understanding what you own and how you are being paid.  A good place to start is the stub attached to your royalty check, which may also be sent under separate cover and is often referred to as the “check detail”.  While the format can vary, depending on the company which is paying you, they all contain certain basic information; property name, operator, location, decimal of interest, price, volume and severance tax.  A good example can be found at http://rudyenergy.com/wp-content/themes/russellRudy/rtre-website-checkstub.pdf  .

Your revenue is the product of your decimal of interest, multiplied by the volume sold and the price.  Severance taxes paid to the state are then deducted from this amount.  Your decimal of interest is the percentage of the property that you own, and is determined by how many net mineral acres you own in the producing well.  The company that pays you probably sent you a Division Order specifying your decimal interest with a brief description of the lease.  The Division Order would need to be signed and returned to the company in order to start getting paid.  Failure to do so can sometimes result in funds being paid over to the state as unclaimed property.

The price per barrel or MCF you receive is seldom what you hear quoted on the five o’clock news, but there are good and valid reasons for this (please go to http://www.russelltrudyenergy.com/blog/ for  an in depth explanation).  Nevertheless, your price should move in tandem with those quoted in the media.

The volume of oil, gas or NGL’s (Natural Gas Liquids) produced and sold from your property should be broken down by month.  Sometimes this can be complicated by retroactive corrections which are also known as “Out of Period Adjustments”.  These can relate to price differences as well.  One good way to confirm volumes produced and sold is by referencing production reports filed with state regulatory agencies.  For example, you can access the Texas Railroad Commission Production (PR) Report database (http://webapps.rrc.state.tx.us/PR/initializePublicQueriesMenuAction.do) to determine if your property is producing and the amount of oil and gas produced and sold during any given time period.  The more information you have, the easier it is to navigate the website, but with time and patience you can verify volumes reported to the state.  Every producing state is different, but they all have regulatory bodies that monitor production volumes. If you have questions or problems, you can contact us as indicated below, and we will try to help.

Finally, your gross royalty amount is reduced by production and severance taxes paid to the state.  These can vary from state to state and even within a state due to certain incentive programs intended to increase production.  For example, the standard rate in Texas is 4.6% of market value for oil and 7.4% for gas (please visit http://www.rrc.state.tx.us/programs/og/severancetax.php for more information).

Hopefully I have given you a basic understanding of the main concepts involved in determining your royalty settlements.  Do not be afraid to ask questions, and take advantage of the wealth of resources available on the internet.  If you still have questions you can contact us and we will do our best to point you in the right direction.