How do people make money from oil and gas wells?
There are two main ways people earn from oil and gas wells: through royalties and as business partners. Both can generate income from production but have different responsibilities and structures.
The Royalty Side
What is it: Royalty owners usually have mineral rights or an overriding royalty interest. They receive a portion of the revenue from oil or gas sold that comes from their land.
How it works: Royalty payments are calculated before any of the operating costs are taken out. This means that royalty owners get their share no matter what the well’s operational costs are.
Example: If a lease agreement gives a landowner a 20% royalty interest, the royalty owner gets 20% of the revenue from the oil or gas produced.
Key benefit: Royalty owners do not pay for drilling, production, or maintenance. They receive payments as long as the well produces.
Important note: Royalty interests can be passed down through generations, bought or sold, and continue as long as production happens.
The Business Side (Working Interest)
What is it: Working interest owners are partners in the oil and gas operation. They share the profits after all operational costs, like drilling and maintenance, have been paid.
How it works:
Working interest owners put up money to drill and operate the well.
After selling the oil or gas, revenues first go to pay royalty owners and cover expenses.
The leftover revenue is shared among working interest owners based on how much they own.
Example: If an oil and gas well makes $100,000 in revenue:
$20,000 (20%) goes to the royalty owners.
The remaining $80,000 goes to cover operational expenses.
The leftover profit is then shared among working interest owners based on their investment.
The appeal: Working interest can offer high returns, especially in successful wells, but it requires sharing costs and risks.
@Piper
Yes, there is some risk but that’s true for any investment and not really what I wanted to highlight.
Working interest can be non-operating or operating. If you are the operator, then yes, you manage the well. But if you are simply investing, there’s no involvement from you.
Keeping track of production? You just get a letter or email showing what’s produced monthly. Reading that statement isn’t working; it’s just reviewing your income. Your role doesn’t impact the revenue, so it can be truly passive income.
You can call it suspicious if you want. There are real opportunities available. I do recommend doing your research before buying. Feel free to check up on me. I’m in the industry and easy to find.
On one of my wells from last year, I bought just 1% interest for $20k, but if I had spent $500k, it could have returned $275k in the first year. So that’s pretty close to what you mentioned but on a smaller scale.
@Jess
Where did you find this? I would only be willing to do maybe $5k max, which would give me a quarter percent interest. But I’m guessing there are different contracts and opportunities out there.
Brady said: @Jess
Where did you find this? I would only be willing to do maybe $5k max, which would give me a quarter percent interest. But I’m guessing there are different contracts and opportunities out there.
Chen said:
Where can I get involved in this? Is there an online option or do I need connections?
Energynet holds auctions for deals, but be careful with what you choose. Sellers are skilled at making high dollar sales. I work on new drill projects of all kinds.