Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1940-01-20
Not Big Business---But Profitable

There are relatively few people in the
United States who understand the term
royalty" The term as we first knew it
applied to all inventors rights on his
patents or the percentage of profits re-
ceived by an author or composer. Nine
teen years ago there were few of US
who now compose this organization who
had any more than a remote idea of the
meaning of the word royalty as applied
to the oil business. That we we're not
alone in our ignorance was evidenced by
the early history of Cat Greek where an
operator thought nothing of giving a
20% or 800 royalty. We know Of one
operator who drilled a WELL having only
SIXTEEN per cent of the oil when he
got through-the other 81 per cent had
been only 16 per cent royalty outstanding
realize. apparently, the burden of a
ROYALTY and that he should have had
the "a per cent and there should have
been only 16 per cent royalty outstanding.
That was the reason that many early
operators in Kevin-Sunburst field did
not make money. They did not realize
the significance of an overriding royalty
which took all the profit out of the pro-
duction of oil in all excepting gusher
territory. Leases which carried only rs
per cent of the oil to the operator and
25 per cent royalty were not uncommon.
That meant that the operator had to
deliver 25 barrels of oil free of cost of
production, out of each 100 produced,
having rs barrels out of each 100 with
which to pay the cost of drilling, COM
plotting and producing his wells. 1t was
the exception rather than the rule when
a IS per cent lease paid a profit.
An oil royalty is the payment Of the
operator to the landowner for the privil-
eye of producing oil from a given tract
of land. The landowner GIVES the OPP
orator 8715 per cent of the oil (87 II
barrels out of each 1000 with the pro-
viso that the operator will deliver to the
landowner 12h barrels out of each 100
produced. The landowner therefore
CANDLES along with the operator that
there is oil present. If the landowner
KNEW there was oil under his land and
the amount, he would demand a large
price for 871k per cent of his oil, but
because that fact can be ascertained only
by expensive drilling, the landowner
CANDLES the right to the leasehold share
of the oil against the operators cost of
a well or wells.
The oil business is a hazardous bust
ness so it is seldom that an operator
drills well entirely with his own money.
He allows associates, or stockholders or
DOhunolueTs 10 snare the FISK Win MIN,
agreeing to share the oil in the event
of success. Thus a failure does not
mean financial ruin to the operator as
an individual.
The landowner in turn hedges" his
risk and usually sells part of his poten-
tial share of the oil. He has 124k per
cent royalty, under Montana practice,
and he can sell any part of that. In
the Rocky Mountain region he will
usually sell from 1 % to 6H per cent,
the latter figure representing half of his
future.
With this money he may pay off a
mortgage, buy a new home or other
wise fortify his financial future. Thus
when production is found the landowner
receives ga barrels out of each 100