We all know what the term royalty means in relation to oil transactions, but how many of us aggressively buy or sell royalties or maximize the use of them in connection with our exploration efforts? Royalties in their various forms provide almost unlimited potential for added profits in every prospect we generate and develop. They are virtually risk free, have no operating costs and usually provide income throughout the producing life of the property. Royalties can be bought from the landowner or created by the lease owner. They can be perpetual or for a fixed term, cover all formations or have depth limitation, have full bonus and rental rights or have none. Whatever the nature of the royalty it can provide the bolder the potential for substantial income from the re-sale of the royalty or by production from the land of which the royalty is a part.

There is no profit or income in the act of simply owning or holding a royalty interest before the lease is productive. To make a profit from mineral interests they must be leased to someone or sold at a profit. In the case of an overriding royalty it must be sold before the lease from which it is derived expires. A profitable policy is to sell one-half your royalty before a well is drilled or the lease expires. Few geologists do this. Pride of ownership or strong belief in their prospect or their failure to accept the reality of more prospects being dry than productive keep them from selling. There are good markets for royalties of every kind, but as “Oil Is First Found In The Mind” so must you first mentally decide to sell and then follow through with a sale.

Hone your trading skills and profit from your royalties. Royalties have many advantages over working interests including their worry-free simplicity. Your heirs will appreciate your sagacity and your proper handling of royalties can greatly enhance your net worth.

AAPG Search and Discovery Article #90937©1998 AAPG Annual Convention and Exhibition, Salt Lake City, Utah