Royalties - Non-renewable Resource Royalties

Non-renewable Resource Royalties

The owner of petroleum and mineral resources may licence a party to extract those resources while paying a resource rent, or a royalty on the value or the resultant profits. When a government is the owner of the resource the terms of the licence and the royalty rate are typically legislated or regulated. In the United States, Fee simple ownership of the mineral is possible by a private individual, therefore payments of Mineral Royalties to Private Citizens occurs quite often. The Federal Government receives royalties on production on federal lands; Managed by the Bureau of Ocean Energy Management, Regulation and Enforcement, formerly the Minerals Management Service.

An example from Canada's North is the federal Frontier Lands petroleum royalty regime. The royalty rate is determined as an incremental rate from 1–5% of gross revenues until costs have been recovered, at which point the royalty rate increases to 30% of net revenues or 5% of gross revenues. In this manner risks and profits are shared between the government of Canada (as resource owner) and the petroleum developer. This attractive royalty rate is intended to encourage oil and gas exploration in the remote Canadian frontier lands where costs and risks are higher than other locations.

In many jurisdictions oil and gas royalty interests are considered real property under the NAICS classification code and qualify for a 1031 like-kind exchange.

Royalties are paid as a set percentage on all revenue, without regard to profits or revenues to the operator. As a standard example, for every $100 bbl of oil sold on a U.S. federal well with a 25% royalty, the U.S. government receives $25. The U.S. government does not pay and will only collect revenues. All risk and liability lie upon the operator of the well.

Royalties in the forestry industry are called "stumpage".