Calculation of Royalties

The more I learn, the more questions I seem to have. Lets see if I can make this one make sense. I leased with a 20% lease, I know that means only 20% of the production can go to royalties (I think) The wells are producing, and the division order states my share is 1/240. My question is are my royalties based on 1/240 of total production or 1/240 of the 20% portion? Seems like a simple question, any answers?

You receive 20% of the revenue attributable to each acre you own. You need to provide more information on 1/240th of what?

That is pretty much the same question I had. A 240th of what?

My mistake, that was NOT a division order, it was only a stipulation of interest document…

Don do you know how many acres of minerals you own? I believe part of the problem you are having is you don’t have all the pieces of the puzzle that you are trying to put together. If you own a 1/240, what is the size of the tract that you own 1/240th interest in? For instance, an 80 acre tract, a 160 acre tract, a 640 acre tract? Then, what is the size of the unit for the producing well? A 640 acre unit, a 980 acre unit, a 1320 acre unit? These are all the answers we need to be able to help you solve the puzzle.

A stipulation of interest agreement is used among a group of mineral owners to state the fractional ownership of each person or entity in the minerals in a tract. It is used to settle or clarify a question about who owns what minerals. Sometimes the group owns 100% of the minerals and so each gets the stated fraction of minerals. In that case, if the tract is 100 acres, then you would own 1/240 of the 100 mineral acres. Other times, the group owns less than 100% - e.g. 1/2 of minerals. In that case, the tract is 100 acres, but the disputed minerals is 50 net mineral acres and you would own 1/240 of the 50 net mineral acres. A properly worded stipulation of interest should describe the gross tract and the net mineral acres in question and then set out how the disputed minerals are owned. The listed fractions should total to 1 (100%). Such as 1/4 and 1/4 and 1/2 = 4/4 = 1. The determination of the royalty decimal in the unit or well is a separate calculation based on your net mineral acres, the total unit acres and your royalty rate. You first need to figure out what minerals you own (gross acres in tract and your net mineral acres). Read the stipulation of interest agreement carefully to understand what you own before signing it.

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OK based on all that, follow my calculations a bit here. Making a 5 month set of figures come to life, here is what I have so far. 200000 bbls total pumped 40,000 bbls is the 20% royalty amount The 1/16 share of my stipulation group is 2500 bbls The 1/240 share in the stipulation would be now only 10 1/2 barrels of oil Marketed at $.70 would bring $729.15 for the five months The monthly royalties would then be about $145. I am sure this is unconventional calculation, but would seem to meet all the information available. Agreed? That just seems like such a very small part of the $14,000,000 they got for the first five months! Are my calculations wrong?

Error in last post, they have produced over 200,000 barrels of oil Jan thru May.

You cannot do your own math. You are not entitled to 1/240 of 1/16 all of the revenues unless you own 1/240 of 1/16 of all the acres within the unit.

You have to calculate your correct DOI in the unit and apply it to the revenues. To do this, you must calculate your NMA (net mineral acres). What is the gross acres under which your “stiplulation group” owns 1/16? Do they own 1/16 of 300 acres = 18.75 NMA or 1/16 of 100 acres = 6.25 NMA?

Your acre ownership is 1/240 of the NMA owned by the group. Suppose the group owns 1/16 of 300 acres = 18.75 acres; then you own 1/240 of 18.75 acres = 0.078125 NMA. What is the total acres in the unit for sharing the revenues? Every acre in the unit receives its share of the revenues, based on the owner’s royalty rate. If the unit is 640 acres, then your royalty decimal = 0.078125 NMA / 640 unit acres X 0.20 royalty rate = 0.000024414. If the sales are $14,000,000, then your royalty is $14,000,000 X 0.000024414 = 341.80. If your group owns 1/16 of 100 acres, then the royalty would be 1/3 of this amount.

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Good answer TD. Couldn’t have said it better myself.