Let's Talk Royalties
What is a royalty? How is it calculated? What is it based on?
Whenever oil or gas production begins, the landowner is entitled to part of the total production. A royalty is agreed upon as a percentage of the lease, minus what was reasonably used in the Lessee's production costs. The royalty is paid by the Lessee to the owner of the mineral rights, the Lessor in the Lease. It is based on a percentage of the gross production from the property and is free and clear of all costs, except for taxes.
It is probably the most important part of the lease to the landowner. There are certain costs in drilling and producing a paying oil or gas well. The costs are divided between the production company and the landowner. As a revenue accountant working in an oil and gas company the role of processing revenue accurately is critical to the team and company.
Source: Oil and gas leases.com
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