Royalty statements can be confusing. Here's a plain-English guide to understanding what each section means and how your payment is calculated.
Quick answer
Your royalty statement tells you exactly how your payment was calculated. Learning to read it helps you:
Verify accuracy: Catch errors in production or decimal interest
Track production: See if wells are declining or stable
Understand deductions: Know what's being taken out
Make decisions: Better information for sell vs. hold choices
Owner name: Your name as it appears in their records
Owner number: Your unique identifier with this operator
Address: Where they send your checks
The company issuing the statement is your payor — usually the well operator. Look up any payor name from a check stub to see who they are and where they operate.
Well name: Identifies the specific well producing
API number: The well's unique government-assigned ID
Property number: Internal tracking number
Location: State, county, and legal description
Production month: When the oil/gas was actually produced (usually 2-3 months before payment)
Oil volume: Measured in barrels (BBL)
Gas volume: Measured in MCF (thousand cubic feet) or MMBTU
NGL volume: Natural gas liquids, if applicable
Oil price: Price per barrel received for the oil
Gas price: Price per MCF or MMBTU for gas
Gross value: Volume × Price before deductions
Your decimal interest (also called "owner decimal" or "interest decimal") is the fraction of production revenue you're entitled to. It combines:
Your mineral acreage out of the total unit acres
Your royalty rate from the lease (often 1/8 or 3/16)
Unit spacing if multiple tracts are pooled
Example calculation:
You own: 40 net mineral acres in a 640-acre unit
Your royalty rate: 1/8 (0.125)
Decimal interest: (40 ÷ 640) × 0.125 = 0.0078125
Depending on your lease terms, you may see various deductions on your statement:
Gathering: Cost to collect gas at the wellhead
Transportation: Moving product to market
Processing: Separating gas components
Compression: Pressurizing for transport
Severance tax: State tax on production
Ad valorem tax: Property tax in some states
Marketing: Selling the product
Other: Varies by operator/lease
Note: Whether deductions are allowed depends on your lease language. Some leases specify "free of costs" royalties, while others permit certain deductions. Review your lease if you're unsure.
Step 1: Production × Price = Gross Value
Step 2: Gross Value – Deductions = Net Value
Step 3: Net Value × Your Decimal Interest = Your Payment
Example:
Well produced 1,000 BBL oil × $70/BBL = $70,000 gross
Less deductions (5%): $70,000 – $3,500 = $66,500 net
Your decimal (0.0078125): $66,500 × 0.0078125 = $519.53 royalty
Decimal interest changed: Should remain constant unless you sold a portion
Unexpected deductions: New line items that weren't there before
Price much lower than market: Should be reasonably close to published prices
Negative adjustments: "Prior period adjustments" taking back money
Missing wells: Wells you know are producing but don't appear
If you notice any of these issues, contact the operator's owner relations department. Keep your statements organized so you can compare month-to-month.
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