For some people, oil and gas royalties are second nature, with producing properties generating wealth for years to come. For others, oil royalties and mineral leases are both foreign terms.
If you own your mineral rights, then you can potentially earn a significant amount of oil and gas royalties by entering into a mineral lease. In this article, we are going to lay out some of the most basic information about oil and gas royalties to help you understand how a mineral lease works.
What is a Mineral Lease?
A mineral lease, also known as an oil and gas lease, is an agreement between a landowner and an oil and gas company. For many larger operations, this agreement can be expanded between multiple property owners.
In a mineral lease agreement, the mineral rights owner still retains possession of the mineral rights while they are leased to the oil or gas company. However, for the duration of the contract, the oil and gas company essentially rents the property’s subsurface in order to explore and extract minerals.
What are Oil and Gas Royalties
Once your mineral lease is up and running and the oil company is able to extract resources, then you can begin to earn oil and gas royalties. Oil or gas royalties are a monthly payment to operation stakeholders as a percentage share from the sale of the extracted resources.
Here’s an example to help fully illustrate how an oil and gas royalties work. Let’s say your mineral lease entitles you to 5% of the profits from oil sales extracted from your property. In March, the company is able to drill and sell $50,000 worth of crude oil. Here, you would earn $2,500 in oil royalties.
In the United States, one of the best ways to earn an income from your land is by entering into a mineral lease agreement. As you can see from the information provided above, successful oil and gas drilling operations can lead to significant oil and gas royalty earnings for mineral rights holders.