How to Calculate an Oil and Gas Royalty Interest for a Lease Well
Learn how much of the mineral rights you own in the tract of land for which you want to calculate your royalty decimal., Look at the oil and gas lease covering your mineral rights interest to find the royalty rate set out in it., Know what kind of...
Step-by-Step Guide
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Step 1: Learn how much of the mineral rights you own in the tract of land for which you want to calculate your royalty decimal.
For example, if you know you own all of the mineral rights in the tract of land, then your share of the mineral rights is 100%.
If you inherited the mineral rights from a parent or other relative, and the inheritance was split between you and two siblings, then the three of you each own 1/3 of 100%.
If the parent or other relative only owned 50% of the mineral rights, then each of the three of you own 1/3 of 50%, or 1/6 of 100%. You get the idea.
If you do not know how much of the mineral rights you own, you might be able to “back into” how much you own. -
Step 2: Look at the oil and gas lease covering your mineral rights interest to find the royalty rate set out in it.
The royalty rate should be in a clause below, but close to, the legal description typed into the lease.
Not all oil and gas leases reserve a 1/8 royalty. Many leases reserve more than 1/8.
If you do not have a copy of the lease, but you know who signed it many years ago, you might be able to get a copy of it online at www.courthousedirect.com or www.texasfile.com. The first website contains many more records, but is more expensive than the second.
Both of those websites contain a huge database containing copies of deed documents filed in many counties going back many years, and charge a small fee (or a subscription) to allow downloading them as a pdf, using a credit card.
If the lease contains an Addendum (a page stapled to the back of the printed form, containing additional lease clauses that become part of the lease), you need to be sure to look in the Addendum to see if a higher royalty rate is stated there. Many leases increase the “1/8” printed in the body of the lease by adding a new clause in the Addendum that says something like “wherever 1/8 appears in this lease, 1/6 (or 3/16, or 1/5, etc.) shall be substituted.” If the lease was renewed, the Lessor (or heirs of the Lessor) who signed the renewal might have re-negotiated a higher royalty rate for the renewal than in the original lease. Just be aware. , Once you know your share of mineral rights in the tract, and you know the royalty rate in the lease covering your interest, you next need to know whether the well is producing from a single tract, or if it is “pooled” by combining several tracts that sit right up against one another. To be a “lease well”, the well must be producing from a single, large tract, and to calculate your interest in the tract well, you must own all or part of the mineral rights in that entire big tract. If you know your land is a small tract, you probably own a royalty interest in a pooled unit, so please look at How to Calculate an Oil and Gas Royalty Interest for a Pooled Unit Well., Example 1: (1/3 x 100% mineral interest) times (1/8 Royalty Rate) = 1/3 x 1/8 = 1/24 =
0.04166667 RI. You should be seeing “0.04166667” on the check detail with each of your royalty checks, or on the division order.
Example 2: (1/3 x 50%) times (3/16 Royalty Rate) = (1/3 x 1/2) x 3/16 = 1/6 x 3/16 = 3/96 =
0.03125000 RI.
Example 3: (47/1137) times (22% Royalty Rate stated in lease) = (0.04133685) x
0.22 =
0.00909411 RI. -
Step 3: Know what kind of tract you're dealing with.
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Step 4: Use this formula to calculate your decimal share of royalties from the producing well: (Mineral Interest Share) times (Royalty Rate) = (Royalty Share Decimal).
Detailed Guide
For example, if you know you own all of the mineral rights in the tract of land, then your share of the mineral rights is 100%.
If you inherited the mineral rights from a parent or other relative, and the inheritance was split between you and two siblings, then the three of you each own 1/3 of 100%.
If the parent or other relative only owned 50% of the mineral rights, then each of the three of you own 1/3 of 50%, or 1/6 of 100%. You get the idea.
If you do not know how much of the mineral rights you own, you might be able to “back into” how much you own.
The royalty rate should be in a clause below, but close to, the legal description typed into the lease.
Not all oil and gas leases reserve a 1/8 royalty. Many leases reserve more than 1/8.
If you do not have a copy of the lease, but you know who signed it many years ago, you might be able to get a copy of it online at www.courthousedirect.com or www.texasfile.com. The first website contains many more records, but is more expensive than the second.
Both of those websites contain a huge database containing copies of deed documents filed in many counties going back many years, and charge a small fee (or a subscription) to allow downloading them as a pdf, using a credit card.
If the lease contains an Addendum (a page stapled to the back of the printed form, containing additional lease clauses that become part of the lease), you need to be sure to look in the Addendum to see if a higher royalty rate is stated there. Many leases increase the “1/8” printed in the body of the lease by adding a new clause in the Addendum that says something like “wherever 1/8 appears in this lease, 1/6 (or 3/16, or 1/5, etc.) shall be substituted.” If the lease was renewed, the Lessor (or heirs of the Lessor) who signed the renewal might have re-negotiated a higher royalty rate for the renewal than in the original lease. Just be aware. , Once you know your share of mineral rights in the tract, and you know the royalty rate in the lease covering your interest, you next need to know whether the well is producing from a single tract, or if it is “pooled” by combining several tracts that sit right up against one another. To be a “lease well”, the well must be producing from a single, large tract, and to calculate your interest in the tract well, you must own all or part of the mineral rights in that entire big tract. If you know your land is a small tract, you probably own a royalty interest in a pooled unit, so please look at How to Calculate an Oil and Gas Royalty Interest for a Pooled Unit Well., Example 1: (1/3 x 100% mineral interest) times (1/8 Royalty Rate) = 1/3 x 1/8 = 1/24 =
0.04166667 RI. You should be seeing “0.04166667” on the check detail with each of your royalty checks, or on the division order.
Example 2: (1/3 x 50%) times (3/16 Royalty Rate) = (1/3 x 1/2) x 3/16 = 1/6 x 3/16 = 3/96 =
0.03125000 RI.
Example 3: (47/1137) times (22% Royalty Rate stated in lease) = (0.04133685) x
0.22 =
0.00909411 RI.
About the Author
Alexis Fox
Brings years of experience writing about home improvement and related subjects.
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