ROYALTY EXPECTATIONS

It seems to be hard to come up with a confident estimate of the royalty payments I might receive if drilling ever takes place.I own about 50 acres in  northern Washington co. and was wondering if anyone currently receiving payments in southwestern Pa. may help  with any information as per acre payments their receiving.

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Permalink Reply by Robin Jackson on August 2, 2011 at 8:33pm
I have a friend who has 10 acres right behind me..They are receiving 3,000 pr.mo. for a good 12 months now. She said they have been told their well is "high producing"..This is in the Cherry Flats area of T ioga Co.
Permalink Reply by jeff k on August 2, 2011 at 11:09pm

   That seems realistic... Did a calculator at 10 mmcfd w/a 640ac. unit and current market rate for gas based on that acreage = abt.3 grand per mo. @ 18%.

   $300.00 is really good per acre/ mo. and doubt very many single wells produce more than $500.00 ac./mo....Higher figures are most likely multiple wells  

Hope to find out in a month or so myself
Permalink Reply by Shawn Smith on August 3, 2011 at 2:43pm

Robin,

 

Do you know the name of the unit?   Just one well producing now?

 

I have 21 acres just a few miles from the town of Cherry Flats.

 

thanks

Permalink Reply by Robin Jackson on August 4, 2011 at 6:18pm
They are receiving from the Detweiler well...Not sure how many..
Permalink Reply by Jon on August 4, 2011 at 2:00pm
Does anyone know what the federal and pennsylvania taxes are on this? I've been told that there are taxes on both the upfront and on the per month amount, but I can't find anything that says federal is x percent state is y percent. Supposedly it is different than normal income tax.
Permalink Reply by Jon Henderson on August 4, 2011 at 5:35pm

The way I understand it, Federal taxes on Leases (bonus money) are figured as ordinary income so the taxes can be quite high. On royalties you are allowed to take 15% off the top before taxes.

That's the easy quick version of how it's taxed.

Permalink Reply by craig on August 4, 2011 at 8:58pm

I'm not an Tax preparer but ,  Upfront money is treated as Rental/Lease Income, on line 17 form 1040 I believe. The same line as partnerships, royalties, etc...so royalties must be treated the same.

What schedule you use to arrive at the number to enter on line 17 I don't remember. 

 

 

Permalink Reply by Finnbear on August 5, 2011 at 8:43am

Don't know anything about the PA taxes but here is what the IRS is going to hit you for. This is a copy&paste from another post I made a couple weeks ago.

Lease bonus money is taxed as unearned (passive) income and will be in whatever tax bracket your AGI fits in. It is not all taxed at 42%. I believe Federal tax brackets are as follows:

$0-$16,750 = 10%

$16,750-$68,000 = 15%

$68,000-$137,300 = 25%

$137,300-$209,250 = 28%

$209,250-$373,650 = 33%

$373,650+ = 35%

If your income this year is approximately the same as last year (aside from the lease payment) then add your lease bonus payment to your AGI from last year to get a good estimate of your tax liability.

You also need to consider your state tax liability. In Ohio, tax rates are from 4.327% to 6.24% depending on your income.

Royalty income has a tax advantage in that you get a 15% depletion deduction so you only pay taxes on 85% of the royalty money.

If you get any sizeable lease payment you should hire a good tax adviser to figure out how to keep as much of it as possible.

Permalink Reply by Jon on August 5, 2011 at 12:33pm
Thanks for the answer! That is exactly what I was looking for.
Permalink Reply by JMS on August 5, 2011 at 4:08pm
Yeah...great answer...like the details...
Permalink Reply by Nancy LeNau on August 5, 2011 at 11:35pm
Finnbear,  GREAT INFORMATION !  Thank you............  Nancy
Permalink Reply by Finnbear on August 6, 2011 at 1:24am

At one of the landowner group meetings we had a tax expert come speak to us about the tax liability of a paid up oil & gas lease. It was well worth listening to.

 

 

 

 

 

 

 

 

 

 

 

 

 

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