Very basic question: Does the price of oil affect the amount of the royalties you get? I’ve only received 2 payments so far, but one is much lower than the other, even though the production levels didn’t seem so significantly different. Leads me to believe that oil prices must also be a factor?
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Hi! Yes, oil price is essentially half of the equation, with production rate being the other. Your royalty is a percentage of the income from well (not a flat payment), and the income is based on a certain number of barrels of oil which is priced at a certain $/barrel. It’s like filling up your car at the gas station. Your car might always take between 12-14 gallons to fill up, but how much you pay the gas station goes up or down based on the oil price at the pump.
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Got it. That makes a lot of sense. I originally thought it was based on production only, but this is good to know. Thanks!
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