You just signed your first of many mineral leases – congratulations!

You have entered into one of the most exciting industries and markets in the world. You’re excited to start collecting royalty payments, and rightfully so.

But, without knowing the ins and outs of the various payments you can receive through mineral leases, excitement can quickly become anxiety.

Mineral Leases: Bonuses, Taxes, Royalties, and More

Oil and gas companies negotiate royalty payments with mineral owners up front. These numbers are included in the language of the mineral leases they execute.

Royalties are calculated as a percentage of the revenue from the minerals extracted from the property. For example, if oil is selling for $60 per barrel and the land owner negotiated a 1/16th royalty, they would receive $3.75 for every barrel of oil recovered from their land.

Royalty payments are subject to federal, state and, sometimes, local taxes. Let’s take a look at a handful of payment and tax scenarios so you can collect royalty payments without receiving collection calls from Uncle Sam.