What Are Oil and Gas Royalties?

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Oil and gas royalties are similar to stock dividends or a rental payment for landlords in that they represent a reliable stream of income for the owner. They differ, however, in several key ways. 

Often, they can be larger than the above because of the specifics of how they work and why the exist in the first place. Here at TCT Financial, we specialize in loan products from these royalties.

Before we get into the specifics of the energy industry, you need to know the basics of a royalty. You might have heard the term applied to the music or film industries. 

These are payments to the owner of an asset like a song for the use of that asset. If you want to use a song in a commercial, you have to pay the song owner a payment. That payment is called a royalty.

That same logic applies to mineral companies of all kinds: mining companies and oil and gas companies alike. Developing an oil field with new wells and production equipment is costly. Oftentimes, the owner of such land will let another cover those costs and take a cut of the profits from the minerals. 

In exchange, the owner will receive a royalty payment based on those profits. With many operations, this payment can be quite large without the costs associated with the production. This system works to both the owner’s and operator’s benefits.

Specific to the oil and gas industry, a property and its resources can have several owners. Often these are formed under a single company or trust. The shareholders or trustees receive pre-determined royalty payments for every ounce of oil or cubic foot of gas that comes out of the ground. 

This is what we do at TCT Financial. The TCT oil brokers help royalty owners with loan products based on their royalties. We can help with loans of up to 25 times the monthly royalty payment, whether that’s from one or several property interests. Apply on our website if you’re in need of royalty financial services.