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Why is the oil price on your Royalty checkstub less than published rates?

Like most commodities, crude oil is produced in widely differing “qualities.” For example, much of the crude oil produced in the field contains sulfur – sometimes in very high quantities. To refine this high-sulfur crude oil obviously costs more than for what is termed “sweet crude oil” and this incremental refining cost is deducted from the wellhead oil price that your royalty check is based upon.

Additionally, a lot of crude oil is produced relatively far from refining facilities – the cost to transport produced crude oil to the nearest refinery (by truck, barge and/or pipeline) is also deducted from the wellhead price.

Finally, crude oil is produced in widely varying “gravities,” a term that describes the viscosity of the oil – low-gravity oil will be very thick, like tar whereas high-gravity crude oil will be very fluid, like lighter fluid. The price you receive depends upon where your royalty oil is produced, how far it must be transported and its gravity – just hope that your royalty acreage produces high gravity, sulfur-free crude oil immediately next door to a big, oil-hungry refinery!!