Royalty Calculations 101

Mineral royalty owners in Texas are entitled to their proportionate share of oil or gas royalties. But many owners rely on the producer to determine the proper amount owed. It is important that you have an understanding of how your royalty is calculated. Below are the basic steps in calculating your interest.

You must first determine your percentage of mineral ownership in the land. For our example let’s assume you own 25% of the minerals. (This is an important calculation because you may own that mineral interest jointly with others. This example assumes that you are the sole owner of an undivided 25% mineral interest.)

Next you determine the number of surface acres in which you hold a mineral interest. Let’s assume you own 100 acres. So, your net mineral interest means that you effectively 25 net mineral acres (25 percent of 100 acres=25 net acres).

Then you determine the number of acres in your pooling unit (also known as a pro ration unit). A pooling unit is the area of land that is “pooled” together from which the well will drain. These units are typically 80 to 320 acres. You are only compensated for your proportionate share in a pooling unit. Using our example above let’s assume the pooling unit is 320 acres. Therefore, your contribution to that unit of 100 acres means that your 100 acres is entitled to .3125 of the minerals (100 divided by 320). 

Next you need to determine the percentage of royalty you are entitled to receive as per the lease agreement (usually 1/16 to 1/4). For our purposes let’s assume that the lease grants you a 1/8 royalty interest (.125).

Finally multiply the above figures to determine your interest.

.25 x .3125 x .125= 0.00976563

This means that for every dollar that well produces you should receive .009 of those proceeds.

The calculations above are for illustration purposes only and you must understand that every royalty interest (and therefore every calculation) is unique.


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