Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1939-03-25
BATTLE GOES ON:
Royalty Acres VS.. Acre Point

apparent that each acre must produce
an average of $1,000 TO pay out the
cost of the well. II the operator is
going to double his money, each acre
must produce an average of 5000
worth of oil. In the former case, the
royalty owner gets 1 % of $1,000 or $40
and In the latter case he gets 10 of
5000 or $32. Naturally, If the opera
tor cannot get back the cost of his wells,
he will not drill. SO If 1t is worth
drilling, it offers some idea of the value
of the royalty.
In the AIidcOntinent they would say
that our royalty at 81 per cent per
acre costs $3.50 per royalty acre. The
owner of one royalty acre would receive
.30O625 barrels out of every 100 barrels
produced on the $40 acres we have I'm
mind. The owner of royalty acre gets
one three hundred twentieth of one
eighth of each 100 barrels produced. The
man who has an eighth of the land
owners eighth can figure it out, but
we would much rather stay with the
simpler basis of one barrel out OF every
100 produced, for we were never good
at mathematics, anyway.
We have spent years In urging on
our members the Importance of thinking
of royalties in terms of THE PURCHASE
OF OIL IN UNDERGROUND STORAGE.
IL q man reduces his investments TO
that form. he will not go far wrong. 1t
is ONE thing to buy a royalty on a
tract of land that contains NO oil. That
is a fair gamble. But when a man pays
too much for a royalty it is not fair
gamble.
That is the reason that it is so easy
to "slip up on producing royalties.
We find a royalty that is in flush pro-
duction and paying perhaps 80 per cent
on the investment. We feel certain that
it will produce for three years and
therefor pay out, but THEREAFTER
must come our profit. So If we pay
500 per cent per acre for a royalty
covering ground that viii produce 10000
barrels per acre, we find that we have
made no money, even though it is pay
ing 80 per cent or more.
The royalty investor does not have to
be a mathematician to arrive at the
figure. If a royalty costs 81 an acre
point (1% on one acre) the acre must
yield 500 worth of oil. If the royalty
costs $50 an acre point, the acre must
yield $4,000 worth of oil. Likewise, if
the royalty costs 500 an acre point, the
acre must yield 100 times 500 or
$4,000 worth of oil.
In California there are fields that have
produced 100000 and more per de-
veloped acre. There are other CONNER
ciaI oil fields that have yielded only
$500 per acre. We can take the av-
erage of the 80 leading fields in the
United States (incIuding Montana's oil
fieIds) and find that the average yield
is around $4,000 worth of oil per acre.
But that again is no yard stick TO meas
ure royalty values in Montana If we
figure Montana oil fields at $4,000 per
acre recovery we are nearer the facts.
The average developed acre in Kelvin
Sunburst, according to the figures of
the Oil Conservation Board of Montana,
has not yet produced $4,000 worth of
oil. Cut Bank field, seven years in
commercial production, has produced not
quite half that amount per average de-
velOped acre. So IL follows that the
proper yardstick must be used in ar