Maybe a really dumb question, but....some of us fall into that category anyhow...

Say you have a $3000 per acre lease, and the lease is for 5 years.

Is that $3000 per acre paid yearly, or just once at the beginning of the 5 years?

When and how are the royalties paid...and how often?

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Permalink Reply by Farmhouse on August 26, 2011 at 2:18am

Just once at the beginning. The 3000 is called "bonus", paid upfront.

Royalties are paid if and when your acreage is included in a commercially productive unit (basically a big rectangle drawn on a map-usually around 640 acres for NG but varies widely, however much land you have included inside the borders is considered to be in the unit.) Of course they have to produce the unit (drill and drain the acreage) and sell the gas/oil. 

Royalties are usually paid monthly for as long as the wells are producing enough product to be sold. 

Permalink Reply by Finnbear on August 27, 2011 at 9:25am

Depends on the wording.

A $3000/acre "Paid Up Oil and Gas Lease" gets the signer a one time signing bonus payment of $3000/acre.

A $3000/acre "5 Year Oil and Gas Lease" gives the signer 5 annually paid signing bonus payments of $600/acre, totaling $3000/acre after 5 years. In this arrangement, once they drill and produce, the lease becomes Held By Production (HBP) and they don't have to pay the $600/acre/year anymore.

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