Gross Overriding Royalty
How Oil and Gas Royalties Work
Oil and Gas Royalties can generate profit for you. Let's assume a conservative price of $80/barrel. After 2008's wild ride, predicting oil pricing is hazardous at best. We'll stick with the current price range for now.
Let's also assume a conservative production of 40 barrels/day. (Often valuable gas is produced along with – or instead of - the oil, but we'll ignore the gas to keep it simple; just remember that associated gas production will increase these revenue figures.) A 4% overriding royalty is assumed.
40 barrels/day x $80 = $3200/day gross. Gross Overriding royalty essentially means “off the top”, but a few minor taxes do get deducted, so we'll assume a net basis of $3,100 to calculate your royalty.
48 weeks/year production is assumed to allow a month's downtime during the year for repairs, maintenance, etc.
- $3,100 x 4% overriding royalty = $124.00 royalty per day.
- $124.00 x 7 days/week = $868.00/week; x 48 = $41,664/year
To estimate your returns from higher - or lower - production, simply multiply the above figures by the corresponding factor. For instance, for 80 barrels/day, increase all figures by 2, giving a yearly income of $83,328/year.
Successful Oil and Gas Leases
Approximately two-thirds of our client leases which have been drilled have produced royalties. We expect this trend to continue or improve in the future due to rapidly developing technologies such as 3-D seismic profiling and the long-term bullish outlook for crude and natural gas.