How to Read a Royalty Check Statement
Your first royalty check comes with a statement that can look confusing. Here is exactly what every line means and what to watch for each month.
By Richard Partin, Managing Member, Texas State Royalties LLC Fort Worth, Texas | Published: October 7, 2026 | Last Updated: October 16, 2026
Your first royalty check arrives with a statement that lists production volumes, prices, deductions, and a net payment figure. For new mineral interest owners, the statement can look like a foreign language. Understanding every line — and knowing what to watch for each month — is essential for confirming that you are being paid correctly.
Quick Answer: A royalty check statement shows gross production volume, commodity price, gross revenue, deductions (post-production costs and severance tax), and net royalty payment. The Texas Comptroller imposes severance tax at 4.6% on oil and 7.5% on gas. Post-production deductions are allowed by leases lacking "free of cost" language. Verify the decimal interest on every statement against your division order.
What Does a Royalty Check Statement Show?
A typical royalty check statement includes the following lines:
Property/well identification. The API number, well name, and lease name identifying the specific well generating the royalty. If you own interests in multiple wells, each well will appear as a separate line item.
Production month. The month of production being paid. Royalty payments typically lag production by 60 to 90 days — a January production payment arrives in March or April.
Product. Oil, gas, or natural gas liquids (NGLs). Each product is listed separately with its own volume, price, and deduction lines.
Gross volume. The total production from the well for the month, expressed in barrels (oil) or Mcf (gas). This is the operator's reported production — cross-reference against Texas Railroad Commission (RRC) production records periodically to confirm accuracy.
Price. The price per barrel or per Mcf used to calculate gross revenue. For gas, this is typically the index price minus post-production deductions. For oil, it is typically the posted price or index price.
Gross revenue. Gross volume × price = gross revenue for the well for the month.
Your decimal interest. The fraction of gross revenue payable to you. Verify this against your division order on every statement. Decimal interest errors are common in estate proceedings — a 1/4 royalty on a 1/8 mineral interest equals 0.03125, not 0.25.
Gross royalty. Gross revenue × your decimal interest = your gross royalty before deductions.
Severance tax. The Texas Comptroller imposes severance tax at 4.6% on oil and 7.5% on natural gas. This appears as a deduction on the statement.
Post-production deductions. Gathering, compression, processing, and transportation costs deducted from the royalty if the lease allows them. In the Fort Worth Basin, Barnett Shale post-production deductions of $0.35–$0.60 per Mcf reduce effective royalty by 15–25%. If your lease contains "free of cost" or "at the wellhead" language, these deductions should not appear.
Net royalty. Gross royalty minus severance tax minus post-production deductions = net royalty payment. This is the amount of the check.
What Should You Watch for Each Month?
Verify the decimal interest. Confirm the decimal interest on the statement matches your division order. If it changes without explanation, contact the operator immediately.
Check for unusual deductions. Post-production deductions that exceed the amounts typical for the basin may indicate an error or an aggressive interpretation of the lease. In the Fort Worth Basin, deductions of $0.35–$0.60/Mcf are typical; deductions significantly above this range warrant investigation.
Monitor production trends. Wolfcamp/Barnett wells show 60–80% first-year decline; mature Barnett wells decline 5–10% annually. A sudden production drop that exceeds the expected decline rate may indicate a well problem or an operator reporting error.
Cross-reference RRC production data. Periodically compare the gross production volumes on your statement against RRC production records for the well. Discrepancies may indicate reporting errors.
Qualifying owners may deduct percentage depletion at 15% of gross income under IRS Publication 535. Reserve classifications follow SEC Regulation S-X Rule 4-10. Under Texas Natural Resources Code, the operator is obligated to pay royalties as specified in the lease. Under Texas Property Code § 1.002, mineral interests are real property.
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Key Takeaways
- A royalty check statement shows gross production, price, gross revenue, decimal interest, gross royalty, severance tax, post-production deductions, and net royalty payment — verify the decimal interest on every statement against your division order
- The Texas Comptroller imposes severance tax at 4.6% on oil and 7.5% on gas; post-production deductions are allowed by leases lacking "free of cost" language — Fort Worth Basin Barnett Shale deductions of $0.35–$0.60/Mcf reduce effective royalty by 15–25%
- Royalty payments typically lag production by 60 to 90 days; cross-reference gross production volumes against Texas Railroad Commission (RRC) records periodically
- Wolfcamp/Barnett wells show 60–80% first-year decline; mature Barnett wells decline 5–10% annually — a sudden drop exceeding the expected decline rate warrants investigation
- Qualifying owners may deduct percentage depletion at 15% of gross income under IRS Publication 535; reserve classifications follow SEC Regulation S-X Rule 4-10
- Under Texas Natural Resources Code, the operator is obligated to pay royalties as specified in the lease; under Texas Property Code § 1.002, mineral interests are real property; under Texas Estates Code, interests held individually pass through probate at death — unestablished heirship is the most common title defect in Comanche and Eastland County acquisitions
- Decimal interest errors are common in estate proceedings — a 1/4 royalty on a 1/8 mineral interest equals 0.03125, not 0.25; verify the decimal interest on every statement
Frequently Asked Questions
Why is my royalty payment different each month?
Royalty payments vary because production volumes and commodity prices change each month. Production declines over time as the well depletes. Commodity prices fluctuate with market conditions. Post-production deductions may also vary. Review each line of the statement to understand which factor drove the change.
What should I do if my decimal interest on the statement is wrong?
Contact the operator in writing immediately. Provide your division order and the independently calculated decimal interest. Request a corrected division order and retroactive payment of any underpaid royalties. Do not wait — operators may have statutes of limitations on royalty payment disputes.
How do I know if post-production deductions are legitimate?
Review your lease. If the lease contains "free of cost," "at the wellhead," or equivalent language, post-production deductions should not appear on your statement. If the lease does not contain this language, the operator is generally entitled to deduct post-production costs under Texas law. Consult a qualified oil and gas attorney if you believe deductions are being taken improperly.
About the Author
Richard Partin is the Managing Member of Texas State Royalties, a Fort Worth-based, buyer-first firm that sources producing oil and gas mineral interests through established industry relationships. He holds a degree from the University of Texas at Arlington and has years of hands-on experience in oil and gas acreage interests, working interests, and capital formation across active Texas producing regions.
Texas State Royalties facilitates mineral-interest acquisitions and works exclusively with buyers. Information is for educational purposes only and is not legal, tax, or investment advice. Buyers should consult qualified legal, tax, and financial advisors before making any acquisition decision.
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About the Author
Richard Partin is the founder of Texas State Royalties, a Fort Worth-based, buyer-first firm that sources producing oil and gas mineral interests through established industry relationships. His website biography describes years of hands-on experience in oil and gas, including acreage interests, working interests, and capital formation across active producing regions nationwide.
TSR works with buyers to understand their criteria, source and screen opportunities, and review available information about location, production and revenue history, operator, and ownership documentation. Buyers review the details and decide whether to proceed. When a transaction moves forward, the mineral interest is conveyed by deed.
Texas State Royalties works with buyers and facilitates direct mineral-interest deed conveyances. TSR is not a neutral advisor, and its materials reflect its role in helping buyers source and review opportunities. Information is for educational purposes only and is not legal, tax, or investment advice. TSR does not determine whether a particular mineral interest qualifies as replacement property for a 1031 exchange. Buyers should consult their Qualified Intermediary and qualified tax, legal, and financial advisors before making a decision.
