I have been getting the ownership straight on some mineral rights, the owner died in 1997! Finally got one done today and was really surprised. The company (EGL) had been holding royalty payments since 2014 pending me forwarding documentations. Here was the surprise: After four and a half years of production from two wells, one gas and one oil, the total check was for $215.49!. Gas royalty for the period was a total of less than a dollar, the oil produced was 66,074.36 barrels. Our percentage was .00009764. Doing the math that means every barrel of oil gets us a payment of approximately .003 cents or about a penny for every four barrels! I understand the inheritance has divided things a bit, but to get only a penny for probably close to $400 of production seems outrageous. Can someone help me make some sense of this ?
Don, I don’t know why it seems “outrageous” to you. You are only going to be paid based on you share of ownership in the unit.
We see this often with city lots platted in the 30-50s. Great-Great grandparents had a home on a 1 acre lot with fee simple ownership. 5 children received .2 net mineral acres each. You would kind of expect that to be split by at least 2 each generation.
The only true way to find out is to run your title back to the original patent to see what you actually own and determine the splits.
However that is very time consuming and you will likely spend much more than the 4.5 years of production revenue you received to hire out that task.
Maybe the word outrageous was not the best. I know pretty much the splits, great grandfather scouted out likely sites in the late 20s and early 30s. That is the only split I cannot verify, but I have been told that probably the land owner got a third, he got a third, and the well driller got a third. Anyhow when he died, it got a four way split, one of which was grandfather. When he died it got split 5 ways, one of which was my wife, she died with one daughter. If my figures are correct then for each $50 barrel of oil, her share would be .80 cents, a long ways from the .003 cents actual, that is why I called it outrageous. I agree, for whatever it is, probably not worth pursuing except for personal satisfaction. That said, NOTHING in their accounting sheet shows how much they actually got for a barrel of oil! I know the well produces huge amounts of water, and I suppose it costs to transport and dispose of it as well as getting the crude to market to SUNOCO. If anyone has information on the percentage splits of the early oil finders, I would appreciate knowing. I guess one could do some reverse math. For instance one month the well produced 2111.94 barrels of oil, the revenue was $10.42 based on the revenue percent of .00009764. Is anyone math wise enough to determine how much revenue per barrel of oil was received?
Don,
Just divide the 10.42 by .00009764 = $106,718.60 to get the gross sales amount. Then divide by the number of barrels and you get $50 a barrel. See what the WTI price was for that time. Be careful though, there are factors that can influence the price. But if WTI is $50 it shouldn’t be $20.
There are basically 3 things needed to calculate the “decimal interest” (DI) (that you are calling revue percent) in the wellbore.
- The unit size (UNIT) assigned to the well.
- The net mineral acres owned (NMA) If you own all of the rights in 10 acres, you one 10NMA. If you own an undivided 1/20 of 10 NMA you have .5 NMA
- The royalty interest (RI) you were leased at. If he scouted it, it may be an overriding royalty interest (ORI or ORRI)
NMA/UNIT x RI = DI
You only have one number. We can calculate any one number if we have the remaining three numbers.
Give me three and I’ll calculate the rest.
But until then, all you are doing is making very unrealistic assumptions.
A “scout” likely never received 1/3 of the gross revenue is your first “outrageous” assumption. Assuming everyone owned 100% of the unit: 20s and 30s the land owner probably received 1/8 royalty. The scout "might’ have received a 1/16 the remaining 7/8 interest. Usually it was more like 1/16 of a 1/8 overriding royalty interest. 1/16 of 1/8 is .007813 splt that among the 20 you listed and you .000390625. So you only have to divide x 4 (4.0000666 to be more exact) to come up with your .00009764. Hmmmm… “Scouts”, the landman, the attorney, the geologist, the petroleum engineer, the banker… there is a long list of people that were willing to take a portion of their compensation as part of an override in that wellbore or lease.
Lots of assumptions on my part as well, but I feel they are more realistic to your 1/3 numbers.
Best of luck to you.
That is just what I needed in information, thanks a lot Rick for taking the time to share your knowledge. This is only one of a number of mineral interests and I will now be able to understand it much better. “Scout” is a new name and probably more accurate than most. I know the scout and his son lived VERY WELL from the royalty checks back a few years ago.