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Lease Bonus & Royalty

Updated: Nov 6, 2023

Man standing in front of an oil rig

Mineral Owners can be compensated by receiving a lease bonus and royalties when leasing their minerals.

DO NOT lease your minerals to the first landman who asks you to sign a lease. Is he leasing for the company who will drill a well on your land? Or is he wanting to lease your minerals and pay you a small lease bonus and low royalty, then take your lease and sell it to an operator for much more than he paid you? He will likely also retain an overriding royalty when he flips your lease.

Instead, lease your minerals directly to the operator who will drill on your minerals. Or lease your minerals to a competitor company who will want to participate in the drilling of a well with the operator. This can put extra cash in your pocket and possibly a higher royalty.

Mineral owners can list their oil and gas for lease for free on LandGate's marketplace for exposure to a large group of investors and developers. By entering your property into a competitive marketplace, you can be sure that you're getting the most value for your minerals.

What is a Lease Bonus?

The lease bonus is a one-time payment made to you, the mineral owner, on a per/acre basis at the time the lease is signed.

What is a Royalty?

The Royalty is a percentage of the proceeds from the sale of production paid monthly to the Mineral Owner.

Historically, royalties retained by the Mineral Owner in lease agreements have ranged between 12.5% to 25%.  The lower royalty you retain in the lease, the higher net revenue retained by the operator.  As an example, if you retain a 25% royalty, the operator could pay 100% of the cost to drill, complete and market the production and retain 75% of the revenue interest. If you retain a 12.5% royalty, the operator retains 87.5% of the revenue and recovers its investment much faster. Operators certainly prefer to drill on leases with a lower royalty.  So, accepting a lower royalty and taking more cash in lease bonus could increase the chance your minerals get drilled.

Some mineral owners could receive a much higher lease bonus if they retain a lower royalty. An oil & gas royalty is only received IF a well is drilled and IF it is completed as a producer. If a well is drilled and is a dry hole, or if a well is never drilled, the mineral owner could be very happy to have received a higher lease bonus.

LandGate is disrupting this ‘traditional’ leasing business by putting the Mineral Owner’s property in front of several Operators to obtain the best offer for the Mineral Owner. To get started with a no-fee, commission-free listing, generate your free Property Report on LandGate's map today:


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