Many land owners are not interested in developing their mineral estate and often tend to sell them in order to avoid huge burden. However, there are few people who want to enjoy consistent amounts of income on the wealth they are possessing. In this case the land owners lease the lands for a particular period of time for the oil and gas companies on which they will be paid royalties and the other bonuses.
To bring the oil and gas beneath a particular property to the market the oil companies through a legal contract known as oil, gas and mineral lease makes a deal with the concerned land owner. In exchange the company pays lease bonus payment and a royalty percentage of the value of the production and grants the company the right to drill and produce.
The moment the oil or gas production begins, the land owner is a part of the total production. A royalty is paid on the agreed norms as a percentage of lease minus the production costs of the drilling. The royalty is based on the percentage of gross production from the property and is free from all costs, except the taxes. In general the percentage of royalty is 1/8th of the production, and changes according to the points mentioned in the royalty clause in the lease agreement.
In some places or in accordance with the agreements oil royalties can also be paid in oil. The land owner will receive the oil from the oil company and then market it to earn income out of it. In such cases, in depth knowledge is required by the land lord, if not it becomes a disadvantage to him. Hence many of the land lords decide to get royalties in cash. Whereas, the gas royalties are often paid in cash. Due to the fickle nature of the gas price the amount of royalty often varies according to it.