You open your royalty statement and look for the deductions. There is a volume, a price, a tax line, and a net amount. Nothing on the page says gathering, compression, or processing. So you assume nothing was taken.
That assumption is often wrong. Many deductions never appear as deductions at all. They are built into the price before it reaches your statement.
This is part three of What Your Oil Company Won’t Show You.
In This Article:
How Can a Deduction Hide Inside the Price?
It happens through netting. Under many sales contracts, the buyer subtracts its own costs first. Then it pays the operator what is left. The operator reports that lower price as the sale price. Your royalty is figured on it.
Processing plants can work the same way. Some plant contracts let the plant keep a share of the product as its fee. Others let it keep a share of the money. Either way, your statement shows only the remainder.
Can your royalty statement tell you what was taken?
Talk with a Texas attorney who knows what sits behind the numbers on an operator statement.
What Changes When Gas Goes Through a Plant?
Raw gas often carries liquids and other material that must come out before sale. The U.S. Energy Information Administration explains that processing removes them so gas can move by pipeline. Each step along the way can carry a charge.
The liquids removed at a plant often sell separately. Your statement may show gas and liquids on different lines, with different prices. What it rarely shows is the plant’s share, taken before any price was reported.
Volume can shrink too. Gas burned as fuel or lost along the way reduces what gets paid. None of that needs its own line to affect your check.
Plant contracts are often long-term deals the operator signed years earlier. Royalty owners are not parties to them. Most owners never learn their terms.
What Does a Royalty Statement Have to Show?
Texas law requires certain basic facts with each payment. These include the well or lease, the month of sale, and the volume. The price and the taxes paid are required too. You can find the list in Chapter 91 of the Texas Natural Resources Code.
Notice what the list does not include. It does not require the buyer’s contract or the plant contract. Nor does it require the invoices behind any cost. The statute does let an owner request an explanation of deductions. Still, an explanation is just the operator’s description of its own numbers.
Why Won’t the Operator Just Show You?
They don’t disclose it. We’re not saying they hide it. But they won’t tell you unless someone makes them.
From the operator’s side, the reasons are practical. Sales contracts are treated as confidential business documents. Detailed disclosure costs staff time. And every document shared is one more a royalty owner might question. Operators also worry about precedent. If one owner sees the numbers, others will ask.
None of this means the numbers do not exist. Nixon Daughtrey spent nearly a decade as a licensed attorney and landman inside oil companies. The backup exists for every well. Partners in the well see it every month.
The Landowner’s Perspective
A statement that shows only a net price cannot prove a deduction was fair. It cannot even prove a deduction happened. Your lease is the best place to secure a view behind the number. Rebuilding the math from public data is guesswork without the contracts.
That right has to be negotiated before the lease is signed. After signing, the operator has little reason to offer it. Our division order and lease work both start from that reality. Have your checks changed without explanation? Our post on why royalty checks stop covers related causes.
This ties back to who decides what “enhances value”. Next in the series: your oil company’s partners get a royalty audit, and you don’t.
Frequently Asked Questions
Why doesn’t my royalty statement list gathering or processing charges?
Many of those costs are netted into the price before the operator reports it. The statement shows the result, not the steps.
Is my operator required to explain deductions?
Texas law gives royalty owners a right to request an explanation. That right does not reach the contracts or invoices behind the numbers. The statute sets out what is covered.
How would I know if netting is reducing my royalty?
From the statement alone, you usually cannot. That is the core problem this series is about.
Division order review for Texas royalty owners
We review division orders and payment terms from the royalty owner's side only.
Conclusion
A royalty statement tells you the answer the operator reached. It does not show you the work. When deductions are netted into the price, a missing line proves nothing.
The Daughtrey Law Firm focuses exclusively on representing Texas landowners and mineral owners. Do your statements raise questions nobody will answer? A qualification call is the place to start.
This article provides general information about Texas property law and is not legal advice for your specific situation. Reading this article does not create an attorney-client relationship. For advice about your situation, contact a qualified attorney.
