Being a royalty owner, have you ever received the royalty amounts that don’t match your desired royalty income? It may sometimes happen due to a lack of participation in royalty statements or remaining unaware of it. Royalty statements set a standard term that not only secures you legally but also supports you financially.
This comprehensive draft will assist you in understanding oil and gas royalty statements. Uncovering the crucial components of a royalty rate and agreement helps you navigate the pivotal elements while receiving royalty income, ensuring maximum financial benefits. Let’s dive deeper!
What is a Royalty Statement in the Oil and Gas Industry?
Royalty Statement refers to a detailed legal report offered to the royal owner by the oil and gas firms. The statement outlines the details of mineral production and sales and revenue generated from selling minerals from leased surfaces. The royalty statement is made to clarify the royalty amount to be provided to the royalty owner on a percentage basis.
This statement also acts as a crucial tool against legal and financial disputes. As it includes all the necessary terms and conditions, the royalty owner typically can not claim additional payments besides those mentioned in the statement.
Following are some important components included in the Royalty Statement.:
- Accurate Date and Month of Oil and Gas Production
At this point, you will find the exact month and date on which production has started. After the 2-3 months of production started, you become eligible to receive the royalty amount. Before receiving the royalty income, officials keep the division order in front of you to sign, which decides your interest in production.
- Overall Well Data of Oil and Gas and Well Identification Data
Your royalty statement informs you of accurate well data: which includes well name, well depth, API number and so on.
- Production Data and Production Type
This column shows the recent production data for minerals such as oil and natural gas. It also shows the type of production being sold.
- Volume
The oil and gas production is measured in certain volumes with their standard units. This column will inform you of the production volume of oil in BBLs and Gas in MCFs.
- Cost of the Product
The cost of the products (oil and gas) is mentioned in this column in detail.
- Deductions
Several mineral owners are often dissatisfied with the royalty check as it is not as per their expectations. This column demonstrates all the deducted amounts from total production. The major cost deductions include compression cost, transportational cost, and processing cost.
Along with the above crucial factors, the royalty statement also includes the information associated with taxes, owner interest and net value. The mineral owners prefer the royalty income, based on types of royalty statement.
What are the Types of Oil and Gas Royalty Statements?
| Types of Oil and Gas Royalty Statement | |
| Monthly Royalty Statements | These statements include detailed information regarding royalty income to be offered to the royalty owner on a monthly basis, including production volume, deductions, and other details. This statement separates the royalties according to lease, informing accurate costs, deductions, and production volumes for every well. |
| Quarterly Royalty Statements | These statements hold the information on royalty payments to be given to the royalty owner on a quarterly basis. These can involve the details of payments for each month within the quarter. |
| Annually Royalty Statements | These include the royalty amount to be paid to the royalty owner on an annual basis along with detailed production and financial statistics.These statements are also put into service for the purpose of tax reporting. |
| Check Stub Statements | These statements are attached with royalty checks, which involve cost per unit, payment details, production data, the period covered and deductions if any. |
| Electronic Statements | Several firms offer electronic statements that are accessible through online portals or through emails. These statements include all the essential components that should be involved in any royalty statement. |
How to Read Your Oil and Gas Royalty Statement?
Reading oil and gas royalty statements can be time consuming and complex as it includes standard legal terms and conditions. However, with proper observation and emphasis on certain factors, royalty statements can be read thoroughly, which ultimately helps attain desired royalty income.
Below are some important factors you should not overlook while reading the royalty statements.
- Make sure the owner information mentioned on the statement is yours or not. In case of a similar name, verify your unique identifier number.
- Thoroughly check the property data, including lease number, lease name, and legal descriptions.
- Check out the production period during which the production has been done on your land to ensure total months of production verifying your monthly royalty income.
- Check the product information deeply, verifying the correct volume of product in BBLs or MCFs.
- Check the appropriate sales data in order to ensure that you receive the proper share of revenue.
- Check the deductions one by one, to verify if any additional costs have been deducted besides mentioned in the statement.
- Verify the net value you received, along with royalty calculations and payment summary.
Being the royalty owner, you must undergo all the above aspects in the royalty statement to receive the maximum possible royalty income. This informative piece comprehensively addresses all the crucial facets associated with the royalty statement. However, you must consult mineral experts and seasoned royalty owners to ensure you receive the desired royalty payments.
Qamer Javed