Why is my royalty income falling?

Why is my royalty income falling?

This is a very common question among royalty owners.  In almost every case the reason for the drop is either the oil and/or gas produced has declined or the value of prices have declined.  However, in some cases mineral owners can be taken advantage of and if you believe this is the case for you, we have some suggestions.

The two factors

Prices – the price of oil and gas is by far the largest component of your royalty check.  If you have been following the news, the recent crash in the oil market may surprise you in a few weeks.  As royalty checks get disbursed this month for OIL production sold in December of 2014, many royalty owners are going to see their checks reduced by as much as a third.  Worse yet, is the fact that their next check received in February is going to be much worse.  In fact, over the next few months, royalty owners will have seen their income decrease by as much as half!  This is scary thought but a reality.  The fact of the matter is oil and gas prices are extremely volatile.

However, the good news is that the price appears to be bottoming out and many leading market forecasts predict crude oil prices back in the 90’s by the end of 2019.  This is good news for long term royalty owners.

Production – It is a simple fact.  Over time, the amount of oil and gas produced from a well or unit will decrease over time.  This is due to a number of things like reservoir pressures and depletion.  Brand new wells are like soda cans after you have shaken them up.  Production comes out at high rates but in a very short time they settle down. Wells that have been producing for some time have a more gradual reduction in production rates.  In either case, the amount of oil producing from your well will decrease and eventually the well will run dry.

Other Factors

There are times when dishonest practices lead to a reduction in royalty income as seen with the accusations against Chesapeake.  While this is possible, it is very likely not common.  However, if you believe you are being taken advantage of, we highly recommend you contact an attorney or reach out NARO.

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