ROYALTY OWNERS: VITAL TO THE ONGOING SUCCESS OF OIL & GAS DEVELOPMENT
Royalty owners comprise an important segment of the oil and gas industry, and are crucial to the economy. Royalty owners, who lease the mineral rights beneath their land, help allow for increased exploration, and in turn, support growing production of oil and gas across the nation. There are millions of royalty owners throughout the United States, with a large percentage living in the Lone Star State. Over 600,000 Texas households receive billions of dollars in oil and gas royalties each year.
Surface owners vs. royalty owners
Before beginning operations, producers must first obtain permission from surface owners and royalty owners. Although ownership of land and minerals may belong to one person, often times that is not the case. Frequently, a person may have sold surface ownership of their land, but retained mineral rights. Also common is an owner passing on their mineral ownership to multiple heirs, who each gain a fraction of ownership. Regardless, permission to conduct operations must be acquired from all parties before producers may move forward with plans to drill.
Government royalty ownership
In Texas, traditionally royalty payments are directed to the State’s Permanent School Fund and Permanent University Fund to help finance public schools. Texas oil and gas producers have paid billions of dollars into the state’s Permanent School Fund and Permanent University Fund.
Different types of oil and gas interests
Although there are several types of oil and gas interests, the most common are known as royalty interests and working interests.
A royalty interest is a mineral owner’s share of production as reserved in an oil and gas lease, usually 1/8 of the total oil and gas production. Although typically not subject to the costs of production, this kind of interest can be subject to a share of the gross production and oil extraction taxes and post-production costs.
Meanwhile, a working interest is the interest obtained by a lessee under an oil and gas lease. Owners of the working interest are responsible for operating the property and paying for all costs of drilling, completing and operating wells on the lease.
According to the Texas Natural Resources Code, initial payment of royalties should occur 120 days after the end of the month of the first sale. Ongoing payments should then be made 60 days after the end of the calendar month in which oil production is sold, and 90 days after the end of the calendar month in which gas production is sold.
A variety of factors can affect the sum of the payment, including market conditions, regulatory or contractual changes, increases or decreases in production rates and seasonal conditions.
IT IS ONLY WITH THE COOPERATION OF
ROYALTY OWNERS THAT OIL AND GAS IS PRODUCED.