Royalty Interest

Royalties are payments made on production. These payments are calculated using a combination of information contained in the Lease and the Unit that the acreage has been pooled into.

How is my royalty interest calculated?

(Pooled Tract Acres / Total Unit Acres) x Lease Royalty Rate x Ownership in the tract = Royalty Interest

Example: Jim and Mary own 30 mineral acres and are leased at a 12.5% royalty rate.
Each owns 50% of the 30 acres, and the unit size is 400 acres.

(30 / 400) x 1/8 x 50% = .00468750 for each


What is apportionment?

The rule of apportionment is established on the principle that leased lands, specific to oil and gas, should share in the royalties derived from that lease, regardless of the location of the well. If land under a lease agreement is severed, interest must be shared by the landowners in proportion to their interests in the land under said lease.

Apportionment Example

Continuing the example from above, let’s assume that Jim was the original Lessor of the 30 acres, and he later sold 10 of those acres to Mary:

Tract A: 10 acres
Tract B: 20 Acres
Total Lease Acres = 30 acres

Lease Ownership after sale (apportionment percentage):

Tract A: 10/30 = .33333333
Mary owns 33.33% of the lease
Tract B: 20/30 = .66666667
Jim owns 66.67% of the lease

This apportionment percentage becomes an additional factor to the standard royalty interest calculation.

So if Mary’s Tract A is pooled into a 400 acre unit, while Jim’s Tract B remains outside of a producing unit, both would still receive royalties as per their apportionment percentage:

(Pooled Tract Acres / Total Unit Acres) x Lease Royalty Rate x Apportionment Percentage = Royalty Interest

Mary: 10/400 x 12.5% x 33.33% = 0.00104156 Jim: 10/400 X 12.5% X 66.67% = 0.00208344