Video · 4 minutes · captions on
What does your decimal interest mean?
Transcript
One number, times everything
The long number on your royalty stub is called your decimal interest. It is your share of everything the lease sells. Texas law says every stub must show it, written as a decimal. A decimal of 0.00097656 means you receive roughly one dollar in every thousand the lease brings in. If the lease sells ten thousand barrels in a month, your share is about nine point seven seven barrels. Every dollar on your stub is that number, times something else.
Three numbers build it
First, the royalty fraction written in your lease. One quarter, in this example. Second, your net mineral acres. That is the tract's acres, times your share of the minerals. Five, here. Third, the unit: the acres of every tract pooled together to drill the well. Twelve hundred and eighty. A quarter, times five, divided by twelve-eighty, is 0.00097656.
The royalty fraction moves it most
Here is the same five acres, in the same unit, under four common leases. An old one-eighth royalty pays exactly half of a one-quarter royalty. So if your stub shows the one-eighth number and your lease says one quarter, you are being paid half of what the lease promises. That is worth a question.
Royalty, override, working interest
Your stub also says which kind of interest you own. A royalty interest is a share of production, free of drilling cost. That is the recipe we just used. An overriding royalty is a share carved out of a lease, often kept by whoever sold the lease. A working interest is a share of the well, and of its costs.
A small error is not small
The number multiplies everything, so a small error is not small. Say the lease sells ten thousand barrels, at seventy dollars. The right decimal pays $683.59. A decimal of 0.00095 is two point seven percent low, and pays $665. That is $18.59 short, every month, on oil alone. A mistake in the eighth digit does not matter. A mistake in the fourth does.
Why it changes
Owners see the decimal change for a handful of reasons. Some are correct. A new well with a different unit. An allocation well that splits production across tracts. A sale, a gift or an inheritance. Or a revised title opinion. Some are mistakes: a dropped digit, or an old unit size. A decimal that changes with no letter from the operator is worth a question.
How to check yours
Here is how to check yours. Find your division order and your lease. The lease gives the royalty fraction. Find your net mineral acres, in your deed or a title opinion. Find the unit acres, in the operator's pooling notice. If you cannot, ask. Work out the arithmetic, and match your stub to the fifth digit. Then check the volume against the Railroad Commission's record: the lease's oil sold, times your decimal.
If it is off, ask in writing
If your number is different, ask in writing. Here is a line you can use. Please send me the division order for this lease, showing my decimal interest, the unit acres you used, and how my net mineral acres were counted. And if the decimal is wrong, ask for corrected payments back to the first month it was wrong.
What to do next
Try it in our free decimal interest calculator. It does the arithmetic and shows the working. The sources for this video are on screen.