Oil and gas revenue checks are everyone’s favorite part about mineral rights ownership. With money in the mail, oil and gas revenue checks are a great way to earn passive income from an investment in mineral rights.
In this complete guide, we will cover some of the most frequently asked questions about oil and gas revenue checks to help current and future mineral rights owners understand what to expect. After defining a few terms, we will go into detail about some of the average statistics that surround oil and gas revenue checks.
What are oil and gas revenue checks?
First and foremost let’s define what we are talking about here. Oil and gas revenue checks are monthly states that are given to the owner or partial owner of active mineral rights. Oil and Gas revenue checks may also be called “oil and gas royalties” or “oil and gas royalty statements.”
Today, most oil and gas revenue checks are still sent physically in the mail. Typically, they show a full picture of the month’s operation, resource price, ownership percentage, and actual check dollar amount.
Who sends out oil and gas revenue checks?
Oil and gas revenue checks are typically sent out by the operator or producer. In the largest oil and gas operations, companies will utilize either an in-house or third-party revenue distributor. More often than not, oil and gas revenue checks may be the only interaction between the actual extraction company and the person or entity that receives the check.
How do you get an oil and gas revenue check?
To receive an oil and gas revenue check, one must have a stake in an active and producing oil and gas operation. Most commonly, this occurs when a mineral rights owner enters into an oil and gas lease agreement for a company to locate, extract, and sell valuable resources from the owned property. Oil and gas royalty checks are typically mailed via the US Postal Service in discreet packaging.
How often are oil and gas revenue checks sent?
Across the United States, the industry standard for oil and gas revenue checks is a monthly recurring payment. If you are not a mineral rights owner, and rather have an overriding royalty interest in an oil and gas operation, then it may be possible that you only receive a one-time revenue check after you participate in the process.
How much do you get paid in an oil and gas revenue check?
Technically, there is no limit on the amount of money that you can be paid in an oil and gas royalty check. The exact figure that you will receive is based on a predetermined amount as defined in your mineral rights lease agreement contract. In most scenarios, this is expressed as a fixed percentage of the total sales revenue of an operation each month.
Most commonly, oil and gas revenue checks are paid to about 12.5% or one-eighth of the total monthly profit. More often than not, this is then divided among multiple mineral rights owners on a large, active property. In some states, there are legal minimum oil and gas royalty compensation percentages.
What is the minimum amount of an oil and gas revenue check?
In most oil and gas leases, there will be a predefined amount of money that must accumulate before a revenue statement is sent to a mineral rights owner. If an operation has been slowed due to seasonality, weather, or other condition, months in which production and sales do not meet the minimum threshold will generally cause producers to temporarily withhold payments.
What taxes are paid on oil and gas revenue checks?
There are a considerable number of taxes that may be applied to any given oil and gas revenue check, with total value varying depending on your location. Most commonly, it is not unusual to see severance taxes, conservation taxes, state taxes, and more on a monthly oil and gas revenue check. Although it may not be significant, revenue checks may be taxed at rates up to 10% across the country.
Why are there deducted items from an oil and gas revenue check?
Unlike some products, oil, gas, and other natural resources must undergo a significant amount of modification and processing before becoming ready to market and sell. For this reason, oil and gas operations incur significant expenses between the extraction and sale stages. These process costs are divided among stakeholders and credited to revenue checks based on actual expenses. Most commonly, deductions may represent costs associated with dehydration, compression, gathering, processing, and treating the minerals.