Oil and Gas Royalty Payments
- Craig Kaiser
- Aug 13, 2025
- 5 min read
Navigating the complexities of oil and gas royalty payments can be daunting for landowners and stakeholders involved in the mineral rights industry. These payments, which represent a portion of the revenue generated from the extraction and sale of oil and gas, come with a variety of terms and conditions that can significantly impact their value. To help clarify this process, we've compiled a comprehensive resource featuring answers to frequently asked questions about oil and gas royalty payments.
What are Oil & Gas Royalty Payments?
Oil and gas royalties are payments made to mineral rights owners for the extraction of oil and gas resources from their land. These royalty payments are calculated as a percentage of the revenues generated from the sale of the extracted minerals. The exact percentage or royalty rate is typically negotiated in the mineral lease agreement and can vary based on several factors, including the location, the type of resource being extracted, and market conditions.
Royalties serve as an ongoing source of income for landowners, allowing them to benefit financially from the extraction activities without having to invest in or manage the extraction process themselves. They play a vital role in ensuring that landowners are fairly compensated for the resources produced from their property and provide a financial incentive for allowing exploration and development. Understanding how these royalties are calculated and the factors influencing them is crucial for mineral rights owners looking to maximize their returns.
FAQ's About Oil & Gas Royalties
If you own oil and gas royalties, you likely have questions about how they work, their value, and the options available for selling or leveraging them. This FAQ section addresses the most common questions landowners have, helping you make informed decisions about your royalty income.
1) Why are my mineral royalty checks less than they used to be?
There can be several reasons why your oil and gas royalty payments are reducing over time. The most common reason is that oil & gas production declines with time. Just like poking a hole in a balloon, the pressure drops as air is released. In fact, the majority of an oil & gas well's cash flow is generated in the first two years of production. Eventually, the decline stabilizes but is still declining. When an operator drills new wells, the production is likely to jump back up, but it might take decades for an operator to circle back to a lease and drill new wells. Many other factors can affect a royalty check including commodity prices, pipeline constraints, and wellbore problems.
2) Why did I stop receiving oil royalty checks?
There are several possible reasons you’ve stopped receiving mineral royalty checks. Perhaps the most common reason is that the well(s) stopped producing, or the operator temporarily shut off the well. There could be a number of reasons a well stops producing. Such as, anything from the well having problems to it not being economically viable at lower commodity prices. Another reason is that the contracts which dictate the sale of oil & gas (called marketing contracts in the industry), are being renegotiated or transferred. Unfortunately, these contracts can sometimes result in lower prices of oil and gas, ultimately hurting the mineral owner. Normally, a mineral owner does not have to pay for transportation costs, but sometimes the operators add it to the lease or try to apply the transportation cost to the oil or gas price. As an engaged mineral owner, it’s important to understand what the operator is doing and why they are doing it. If an operator is using tactics that are not favorable to the mineral owner, it can be difficult to resolve these issues. One reason people sell minerals and royalties is because they are frustrated with the operator and would rather own minerals somewhere else under a credible operator. If you're interested in learning how much your mineral rights or oil and gas royalties are worth, get a free LandApp Property Report and check out the Mineral Value Index Score.
3) When will I start receiving royalties from production on my minerals?
Prior to receiving payment on your minerals, you would typically receive documents from the operator indicating a well may start producing soon . You will first receive a Division Order from the operator. A division order is basically a document which reflects the ownership interest you have in production from a well. If you agree with the interest you are being credited with, you will sign the Division Order and return it to the operator. You should begin receiving royalty checks no later than two to three months from the time a well starts producing on your property, assuming you own the mineral rights associated with the producing well. If you think you should be getting paid a royalty, but you’re not, it’s best to contact the operator in your lease agreement to try and resolve the issue as quickly as possible.
4) What is the average oil & gas royalty payment?
Oil royalty payments typically fall between 12.5% and 25% of the revenue generated from oil and gas production, though rates can vary depending on location, lease terms, and whether the land is federal or private. Currently, federal land royalties are set at 16.67% for onshore leases and 18.75% for offshore leases, while private land rates can be higher, particularly in high-production regions like the Permian Basin. The exact rate is always specified in the individual lease agreement.
5) How are oil & gas royalties paid?
Oil and gas royalties can be paid either “in kind," receiving a portion of the actual product, which is more common for oil, or in cash, which is the standard for gas, representing a share of the sale proceeds. The payment amount is typically a percentage of production, as outlined in the lease agreement. Once a Division Order is signed, royalty payments are generally sent by mail or direct deposit, accompanied by a statement showing production, pricing, and any deductions. Payments may take a few months to arrive after production begins due to the time required for accounting and sales data processing.
6) How much are my mineral rights worth?
The value of mineral rights is influenced by several key factors. Location plays a critical role, as properties in high-production regions or near existing infrastructure tend to be more valuable. Commodity prices for oil, gas, or other minerals directly affect potential revenue, while current production levels indicate the immediate income potential. Lease terms, including royalty rates and duration, also impact value, as do the reputation and financial stability of the operator managing the site. Finally, the potential for future drilling or development- whether through untapped reserves or emerging technologies- can significantly enhance the long-term worth of mineral rights.
The best way to find out how much your minerals are worth is to generate competitive offers from buyers to see how much people are willing to pay. You can list your mineral rights or royalties for sale or for lease on LandApp's marketplace for free with no obligations to accept any offers:
