CPL Mineral Rights & Royalty Calculations 2 — Questions and Answers
Question 1: A tract contains 320 acres. An operator leases the minerals and the lease provides a 3/16 royalty. The well produces 10,000 Mcf/month at $3.00/Mcf. What is the monthly gross royalty value before deductions?
- $5,625.00 (Correct answer)
- $4,687.50
- $1,875.00
- $18,750.00
Correct answer: $5,625.00
10,000 Mcf × $3.00 = $30,000 gross; $30,000 × 3/16 = $5,625.00.
Question 2: Which doctrine holds that a severed mineral estate is the dominant estate over the surface estate?
- Accommodation doctrine
- Mineral dominance doctrine (Correct answer)
- Rule of capture
- Ad coelum doctrine
Correct answer: Mineral dominance doctrine
The mineral dominance doctrine gives the mineral owner/lessee the right to use as much of the surface as reasonably necessary to develop the minerals.
Question 3: A non-participating royalty interest (NPRI) owner receives royalties but does NOT receive which of the following?
- Lease bonuses
- Delay rentals
- Shut-in royalties
- All of the above (Correct answer)
Correct answer: All of the above
An NPRI owner has no executive rights and typically does not share in bonus, delay rental, or shut-in payments unless specifically provided.
Question 4: An overriding royalty interest (ORRI) differs from a landowner royalty because it:
- Is carved out of the lessee's working interest (Correct answer)
- Is retained by the lessor at lease execution
- Survives lease expiration
- Is paid from the royalty owner's share
Correct answer: Is carved out of the lessee's working interest
An ORRI is carved out of the working interest owner's share and expires when the underlying lease terminates.
Question 5: A royalty clause states 'free of cost at the well.' This language most likely means:
- The royalty is calculated on net proceeds after all costs
- Post-production costs cannot be deducted from the royalty (Correct answer)
- The lessee pays all transportation costs on behalf of the lessor
- The lessor pays gathering fees directly
Correct answer: Post-production costs cannot be deducted from the royalty
'Free of cost at the well' protects the lessor from having post-production costs (gathering, compression, transportation) deducted from their royalty.
Question 6: A lessee owns a 640-acre lease and drills one well. The well's allocated production is calculated using which unit size if the state requires 640-acre units for gas?
- 160 acres
- 320 acres
- 640 acres (Correct answer)
- 1,280 acres
Correct answer: 640 acres
A single 640-acre state-mandated unit would allocate all production to the entire 640-acre unit.
Question 7: Participating Royalty Interest (PRI) differs from a standard NPRI in that the PRI owner:
- Has the right to execute leases and share in bonus and rentals (Correct answer)
- Receives royalty only during the primary term
- Cannot share in production royalties
- Is subordinate to mortgage liens
Correct answer: Has the right to execute leases and share in bonus and rentals
A participating royalty interest owner retains executive rights and participates in bonuses and delay rentals in addition to production royalties.
CPL Mineral Rights & Royalty Calculations 2
A tract contains 320 acres.
An operator leases the minerals and the lease provides a 3/16 royalty.
The well produces 10,000 Mcf/month at $3.00/Mcf.
What is the monthly gross royalty value before deductions?