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Video instructions and help with filling out and completing deleted interest oil gas
Okay I want to walk us through how to calculate a royalty and working interest now this is going to be helpful to you if you are a royalty interest owner and you're trying to figure out how the oil and gas companies calculate those crazy decimals or if you work for one of those oil and gas companies and you just need a better understanding of how royalty and working interests are calculated so we'll start with a couple of basic definitions and one is that the landowner the landowner is also known as the lessor and you will frequently hear them referred to as lessor so I want you to understand the terms lessor kind of rhymes with land owned or it's one easy way to remember it and then oil and gas company is also known as the lessee so company rhymes with lessee that's an easy way to remember it so we're going to look at what the royalty calculation and working interest calculation would be in an oil and gas lease before we took the lease and then after we took the lease and of course this all depends on what the royalty interest is or what the royalty fraction is some other terminologies that I want you to understand is working interest the working interest owner is the person that pays the expenses so who is responsible for the expenses and then the net revenue interest is what the revenues are so we're going to look at that for before lease and after lease now in order to understand a royalty calculation you really have to understand the basics of what we call the grand bargain and the grand bargain in the law see if I can write that down the grand bargain and the law basically says that the lessor before there is an oil and gas lease owns a 100% working interest and a 100% net revenue interest in the oil and gas lease so why would a lessor then give an oil and gas company a hundred percent of their working interest and only keep a small percentage of the revenue in most cases it's in the early leases it was like a one-eighth royalty for example and the reason is that it is expensive to drill in oil and gas well in fact it is for most people cost prohibitive and that is that an oil and gas well can cost you a million dollars and up easily and then it can get more expensive the more work and rework you have to have on it so most landowners or royalty owners say okay oil and gas company since we're going to use a 1/8 throw a I'm going to do a rough drawing please excuse my rough drawing and this is going to be 1/8 all right so right now the lessor owns a hundred percent so they own 8/8 and they also own 8/8 to the net.