3/16 Royalty - What Does This Mean


#1

Hi, I have a 3/16 Royalty on mineral rights in McClain County, Can someone explain to me what this actually means?


#2

you receive 18.75% of royalties produced under your proportionate interest under a well.




#3

Roughly 18.75% of the value of oil and gas extracted from your mineral interests. Depends on lease sometimes other expenses deducted state gross production taxes etc.


#4

Would this be the formula for figuring out a monthly royalty price?

0.1875x(average monthly WTI price per barrel for a month) subtract 50% multiplied by barrels produced in the month.
And if it was 1/5th royalties, the first number would be 0.20 ?


#5

The equation is net acres/spacing acres x royalty x percent of perforations in your spacing unit.
If it is a vertical well, then the last term is 1.0.
If you have a horizontal well in your section and it is only perforated in your section, then the last term is 1.0.
If you have a horizontal well and is in two or more sections, then the third term will have a percentage assigned to it.
For example, if you have 10 acres at 3/16ths and they are drilling a horizontal in one section, then your decimal interest would be:
10/640 x .1875 x 1.0=0.00292969
10/640 x .20 z 1.0 = 0.003125.
You need to know the price of oil and the price of gas that your operator is receiving on their contracts to get the estimate of your royalties. If your lease allows post production costs, then you will have those taken out of your royalties. If you are guestimating, then you can take WTI price for crude and subtract about $6 for OK prices. I use Henry Hub for gas and subtract about $.25.
I have a little spreadsheet that I developed for quick calculations. Don’t forget that you will have your federal tax taken out and your OK personal tax taken out. But you have the 15% depletion allowed to take off the taxes.


#6

Off topic here but couldn’t post in the other topic. So is an assignment of overriding royalty interest the same as a non participating royalty interest. As in does it lay dormant until production occurs and is non expiring and perpetual, and binded to all subsequent renewals of leases etc? Hopefully yes!


#7

No.

http://www.mineralweb.com/library/oil-and-gas-terms/overriding-royalty-interest-orri-definition/


#8

An override is created out of and subject to a lease. Lets say for instance Company A leases a minerals owner who owns 100% of the minerals in a section and they lease that owner at 1/5 (20%) royalty. That means the mineral owner gets 20% of the revenue if they drill a well and on the flip side Company A owns a 80% NRI (Net Revenue Interest) lease, which means the lease company A owns is entitled to 80% of the revenue. So all 100% of the potential revenue if a well is drilled is accounted for between the mineral owner and Company A.

Company A is approached by Company B who wishes to buy Company A’s leasehold rights. Company A assigns (sells and transfers) the lease they took out from the mineral owner to Company B, but instead of assigning the lease exactly as how they bought it and currently own it, they assign the all the leasehold rights to the lease, but they assign the lease at 75% NRI to Company B instead of the full 80% NRI they own. So while Company A sold the leasehold rights to Company B and can no longer be the company that can drill, they reserved an overriding royalty interest of 5% to keep themselves.

So the breakdown of the Net Revenue Interest (revenue) is now as follows: Mineral Owner 20%, Company A 5%, and Company B 75%. That 5% that Company A reserves when they assigned the lease to Company B is again called an override. It is not a perpetual interest as it is tied to that lease that was created and will be null and void and expire if the lease ever expires. It essentially means Company A is entitled to 5% of the revenue if a well is ever drilled in that section.

Hope this explanation makes sense.

Cam


#9

Jkim99

1d

Off topic here but couldn’t post in the other topic. So is an assignment of overriding royalty interest the same as a non participating royalty interest. As in does it lay dormant until production occurs and is non expiring and perpetual, and binded to all subsequent renewals of leases etc? Hopefully yes!

What Cam said…