When oil and gas is found on privately owned property, it’s up to the property owner whether they are willing to lease the space to an oil and gas company. As part of this agreement, the property owner is typically paid oil and gas royalties. These royalties are paid above and beyond any oil and gas investing that may take place. Understanding how investing in oil and gas royalties works will help you make the smart choice for your property.
How Oil and Gas Royalties Work
When setting up your contract, you will be asked what percentage of the production you will be entitled to as a result of owning the land. In most situations, royalties range from 20-25% of the well. However, depending on the details of your contract, royalties can equal just about any fraction of the production amount. This firm rate ensures property owners get the compensation to which they are entitled for the use of their land.
Another issue that must be addressed in your contract is how the royalties are paid. In some situations, they may be paid in oil. For most land owners, this option isn’t the most lucrative because they must then market the oil themselves and sell it, which can result in a lower payment than receiving a monetary payment from the oil and gas drilling company. Instead, it is often best to request payment in the monetary value of the oil at the time. This amount is paid in the currency of the country in which the drilling takes place.
Separating Oil and Gas Royalties
While oil and gas investing seems to go together, the price of each element can vary widely. This is why many property owners choose to separate them. This ensures they get paid the proper amount based on the exact percentage of oil and gas produced. In addition, the exact details of the payments, such as due dates, should also be specified in this area of the contract.
Investing in oil and gas royalties can be a lucrative option for land owners in areas where deposits are often found. However, it’s important to fully understand how it works to ensure you get the compensation you deserve from oil and gas companies. This will allow you to request a fair percentage of the profits in exchange for allowing these companies to drill on your land.
If you’re interested in oil and gas investing, contact us. We offer many options that enable you to make smart investments.