How Do I Figure Royalty on Oil & Gas Wells?

The United States produces 9,056,000 barrels of oil every day.

If you want to make money off oil and gas wells without taking part in the drilling, extraction or production process, you can purchase or lease the land where the wells are located. As the owner or leaseholder of the land, you're entitled to royalties or a percentage of the profit from the sale of the oil or gas extracted from the land. Royalties are calculated on a monthly basis and vary based on the price of oil and gas production.

Things You'll Need

• calculator

Instructions

1. Request a report from the drilling company about its monthly production and sales. This report should include the total profit made from the well(s) on your land in the specified month.

2. Convert your royalty percentage into decimal format by moving the decimal point two digits to the left. For example, 2 percent is .02 in decimal format.

3. Multiply your royalty percentage in decimal format by the profit made that month. The result is the royalty you will receive for that month.

4. Recalculate this amount every month to determine each month's royalties.

References

• Legacy Royalties: Frequently Asked Questions
• Index Mundi: United States Oil Production