CPL Mineral Rights & Royalty Calculations 3

Question 1

Under a 640-acre pooled unit, a tract of 80 acres is included. If the unit well produces $100,000 net revenue per month, what is the tract's proportionate share before royalty?

Accepted Answer

$12,500

Answer

80/640 = 1/8 tract participation; $100,000 × 1/8 = $12,500.

Question 2

A lease grants a 1/8 royalty. The lessor later conveys a 1/32 NPRI to a third party. What royalty does the lessor now effectively retain?

Accepted Answer

3/32

Answer

Lessor's royalty remains 1/8 (4/32), but 1/32 is burdened to the NPRI, so lessor nets 4/32 − 1/32 = 3/32.

Question 3

Which of the following best describes the 'market value' royalty calculation method?

Accepted Answer

Royalty is based on the prevailing market price at the wellhead regardless of contract price

Answer

Under the market value method, royalty is calculated using the market price at the point of valuation, not necessarily the price the lessee actually received.

Question 4

A 'Pugh clause' in an oil and gas lease primarily serves to:

Accepted Answer

Release acreage outside a pooled unit from the lease at end of primary term

Answer

A Pugh clause (or 'freestone rider') releases non-pooled acreage — and in a vertical Pugh clause, non-producing depths — from the lease when pooling holds only part of the tract.

Question 5

Royalty interest is classified as which type of property interest?

Accepted Answer

Real property

Answer

Royalty interests are real property interests running with the land, not personal property.

(CPL) Certified Professional Landman Practice Test

(CPL) Certified Professional Landman Practice Test

CPL Mineral Rights & Royalty Calculations 3