How do Royalties work?

Started May 17, 2017 at 03:30 am by @Bonnie Crawford in Marcellus Shale

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Bonnie Crawford
05/17/17 03:30:40AM

I will be getting $4000.00 dollars  an acre for my 1.3888 Acres in Belmont Co. Ohio. It is for a 5 year period. i will also get royalties every month but i don't know where the money comes from. Can anyone help me understand where the money comes from and about how much it will be? The minerals are part of a family heritage thing for 50 acres and 46 heirs. Thank, Bonnie

05/17/17 05:20:25PM @jett2:

Royalties come after a well has been drilled and is producing enough product to sell. How much depends on what your lease agreement says about royalty % and how it is determined. Every lease is somewhat different. There is no exact dollar amount that is automatically paid out to you.

Also, every well produces differernt volumes of oil and/or gas.

 And it depends on the amount of acreage you are getting paid on

And what the market is paying for those products.

The law is 12.5% minimum royalty but what you actually receive depends on how many expenses for operation the Oil/gas company you leased with is allowed to deduct from your share and if your lease gives you a higher royalty percentage than the minimun allow by law.

Some go through the whole lease period (in your case 5 years) and never receive royalties because a well was never drilled in that time period. If that happens then you and the Gas/oil company decide if you will lease again with them.

One other thing that you may not know is that when a well is drilled on your property, the Oil/gas company usually pays an additional amount for putting the well on your acreage. Don't know the going rate now.

Hope this helps! Anybody else want to add to this info?

Bonnie Crawford
05/19/17 01:21:40AM @bonnie-crawford:

Thank you for the reply. My contract says we will get 18% for the royalties every month. Can anyone give me an idea of what they get for their royalties per month? Also does anyone know if I will need to pay taxes for the money and royalties I receive? Thank you, Bonnie

05/19/17 10:16:36AM @bill15:

Your monthly royalty amount will depend on the well's production, and that can vary depending on where and what strata the well is drilled into.  And yes, you do have to pay taxes on the royalties, although there is a federal depletion allowance (like depreciation), and if the amount is significant, you may want to start making quarterly payments.  The lease bonus payment is also taxable. I'm not a tax expert or attorney, but that is what we had to do with our bonus royalty income. Hope this helps!


Bonnie Crawford
05/22/17 02:37:18AM @bonnie-crawford:

Bill, Thank you for the reply. It did help very much. By strata do you mean where it is drilled? The well is in Millwood Township, Guernsey Co. Ohio. I really appreciate the tax tip. I am not trying to be nosey but can you tell me the ball park of your royalties per month? I am trying to figure out ABOUT how much it will be. Thank so much, Bonnie

05/22/17 05:55:25AM @laura10:

$800.00 per month 

Bonnie Crawford
05/22/17 06:07:41AM @bonnie-crawford:

Thank you so much for all your help and for telling me how much you get in royalties. This is so overwhelming and i really appreciate all your help. My husband was the mineral heir but he died 3 yrs. ago and so i am figuring this out by myself. Bonnie

05/23/17 11:39:47AM @jett2:

Strata are the different layers in the earth - some are shale, coal, limestone.

Concerning oil and gas there are several layers underneath us. Some are the Utica shale, the Marcellus shale, the Clinton, etc. You may want to use the search on this site to learn more about all this.

It's a good idea for an accountant to help you with your taxes on these payouts as it can be confusing as to how what gets paid to the state and federal IRS.

As to royalty amounts, it varies widely amongst leases and the company you've leased with. It's been said - don't count on it as income but as an unexpected bonusWink

Bonnie Crawford
05/24/17 02:50:37AM @bonnie-crawford:

Thank you very much to everyone for the help. Thank you for telling me about strata. I feel dumb but I had no idea what it was. I will get my tax man or the financial advisor that helped me after my husband died. So, I guess, not counting on it as income means that it could be a modest amount or a little amount. Right? How long have you been getting royalties? Bonnie

05/24/17 10:38:25AM @gh:

With 1.3888 acres I would not count on this as a significant source of income, but it will be a nice little check in the mail every month.  As others have said, it varies a lot based on your specific location and the production of your particular well(s).  Millwood Twp., Guernsey Cty. is a pretty good area.  My guess would be a few hundred dollars a month.  Wells can produce for 10, 15, 20 years, sometimes more, however, the production declines as time goes on.  Utica wells in your area have not been around long enough for us to know the exact lifespan yet.

Bonnie Crawford
06/01/17 03:09:20AM @bonnie-crawford:

Thank you for the reply. A few hundred dollars a month will be very nice. The contract with the oil company said they have to pay me for the $4000.00 an acre with in 180 days. Does it usually take that long? Also the contract is for 5 yrs and they say not to expect another 5 yr. contract. Can they tell this at this point? Thank you so much for all your help. Bonnie

David Cain
06/01/17 08:11:18PM @david-cain:


O&Gs usually wait until the last few days before the lease would expire before they pay the landowners.  Another question would be if the lease says 180 business days or calendar days.  If it is not specific and just states 180 days then I think that it can be treated as 180 business days.  The O&G company will be doing title work during that time to make sure you own the mineral rights of the property.  

Good Lcuk,


Bonnie Crawford
06/06/17 11:02:45PM @bonnie-crawford:

Thanks Dave for the reply. i made a mistake. They are suppose to pay us within 120 days. But none the less it looks like I will have to wait that many days. Are the royalty's paid at that time too? Yes, i was referring to the option to extend the lease. So i guess we don't have to worry about having to sign a new contract, as it kind of takes care of itself. Thank you everyone for all your help. Bonnie

06/05/17 04:39:59PM @gh:

Agree with David Cain that they will probably wait the entire 180 days (or business days) before they pay you.  In regards to "another 5 year contract," I assume you are referring to their option to extend the lease you just signed.  If they drill a well and it is producing, the lease is extended automatically until it stops producing.  So what they mean by "don't expect a 5 year extension" is that they plan to produce within 5 years.

05/25/17 09:00:48AM @pete:
Royalty is dependent upon unit participation.
You take your acreage divided by the pooled acreage and this will give you a decimal interest in the total production.
Now take your royalty percentage and multiply the decimal interest and this will be your share of the production or your share of each dollar the well makes.




    Example: Meriweather 35 H 001

Forecasting royalties, income and production for your wells.
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