How to Read and Understand Your Royalty Statement
All,
If you own oil and gas mineral rights, receiving a royalty statement can feel overwhelming. With deductions, fluctuating production volumes, and varying payment amounts, it’s easy to feel uncertain about what you’re actually earning.
In this guide, we’ll break down the key components of a royalty statement, helping you make sense of the numbers so you can ensure accuracy and maximize your income.
Key Components of a Royalty Statement
Every operator or purchaser presents royalty statements differently, but most will include these essential sections:
1. Production Volume
Your royalty payment is based on the amount of oil, gas, or natural gas liquids (NGLs) produced from your mineral interest. Your statement will include:
Gross Production – The total volume of hydrocarbons extracted.
Net Production – Your proportionate share based on your interest in the well.
Tip: Compare your production numbers with state-reported data from regulatory agencies like the Texas Railroad Commission or Oklahoma Corporation Commission.
2. Sales Price
This section shows the price per unit (barrel of oil, thousand cubic feet of gas, or gallon of NGLs) at which the operator sold the production. Since oil and gas prices fluctuate daily, your royalty payment may vary even if production remains the same.
Tip: Cross-check prices with market benchmarks like WTI Crude or Henry Hub Natural Gas to ensure fair pricing.
3. Deductions
One of the most confusing parts of royalty statements is deductions, which reduce your total payment. These can include:
Transportation Costs – Moving hydrocarbons from the well to market.
Processing Fees – Costs to separate gas into NGLs.
Marketing Costs – Fees associated with selling the production.
Severance & Production Taxes – State-mandated taxes deducted from revenue.
Tip: If you own a lease with a “cost-free” royalty clause, review your deductions closely to ensure compliance with your lease terms.
4. Owner Interest and Decimal Interest
Your royalty statement will list your decimal interest, which determines your share of production revenue. This is calculated as:
(Net Revenue Interest) = (Royalty Rate) × (Your Acreage / Total Unit Acreage)
Example: If you own 10 acres in a 100-acre unit with a 25% royalty rate, your decimal interest would be 0.0250 (or 2.5%).
5. Payment Summary
This final section lists your total earnings after deductions and taxes, often including:
Gross Revenue – Your total earnings before deductions.
Net Revenue – What you receive after expenses.
Tip: If your payment is lower than expected, review each section to identify discrepancies.
Common Issues to Watch For
Many mineral owners experience problems with their royalty payments. Here are a few red flags:
Unexpectedly high deductions – If your costs seem excessive, request a breakdown from the operator.
Inconsistent production volumes – Compare your statement with state-reported production data.
Missing payments – Some companies only issue checks when your balance exceeds a certain threshold.
What If Your Royalty Payments Are Declining?
If your royalty payments are decreasing, it could be due to:
Natural well decline – All wells decline over time, leading to lower production.
Increased deductions – Review your statement for rising transportation or processing costs.
Market conditions – If oil and gas prices drop, so will your payments.
If you’re noticing a steady decline and want to explore your options, selling your mineral rights or royalties might be a smart move—especially if you’d prefer a lump sum over unpredictable future payments.
Thinking About Selling Your Royalties?
At Berlin Resources, we specialize in evaluating and purchasing mineral rights and royalties. Whether you want to cash out or simply understand your options, we provide fair offers with transparent terms.
Contact us today for a no-obligation evaluation!
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