Why Your Royalty Check Price Doesn't Match Oil Prices

You turn on the news and oil is at $80 a barrel. A few weeks later, your royalty check arrives and the price per barrel on your check stub is $62. You didn't get cheated. The numbers are just measuring different things at different times.

Your Check Is a Rearview Mirror

The price on your royalty check stub reflects what the operator actually received for the oil or gas produced from your well during a specific month. That production month is typically two to three months before the check arrives because operators need time to compile production data, reconcile sales, and process payments.

In Texas, royalties are due 60 days (oil) or 90 days (gas) after the end of the production month. In Oklahoma, oil royalties are due by the last day of the second month following the sale, and gas royalties by the last day of the third month. On federal leases, royalties are due at the end of the month following production.

So the check you receive in March probably covers January production. And the price on that check reflects what January's oil sold for, not what oil is trading for today. If oil was $72 in January and $80 in March, your March check shows the $72 reality, not the $80 headline.

This works both ways. When prices crash, your checks hold up for a couple of months because they're still reflecting the higher prices from before the drop.

Your Price Isn't WTI

The price you see on the news is almost always West Texas Intermediate (WTI), a benchmark for light sweet crude oil traded at Cushing, Oklahoma. Your well's oil may trade at a discount or premium to WTI depending on:

Where the oil is. Moving oil from the wellhead to a refinery or pipeline hub costs money. The EIA publishes "first purchase prices" showing what producers actually receive at the wellhead, which is typically less than the Cushing hub price. If your well is far from major pipeline infrastructure, the local price may be several dollars below WTI. In 2018, WTI Midland traded at a $10-15/barrel discount to WTI Cushing when Permian pipeline capacity couldn't keep up with production growth.

What kind of oil it is. WTI is a specific grade: light (low density) and sweet (low sulfur). Your well may produce heavier or lighter crude, or crude with higher sulfur content, which trades at a different price.

Local supply and demand. If a region has more oil than pipeline capacity can handle, local prices drop even if WTI stays high. This has been a recurring issue in the Permian Basin and the Bakken.

Contract pricing. Many operators sell production under contracts that fix the price for a period or tie it to a different index. The contract price, not the spot price, determines what shows up on your check.

Gas Is Even More Variable

If your well produces natural gas, the disconnect can be even wider. The Henry Hub benchmark you see quoted nationally may have little to do with what gas sells for in your region. Gas prices vary significantly by location because gas is harder to transport than oil.

In the Permian Basin, natural gas at the Waha Hub traded at negative prices for 158 days in 2024 (43% of the year) due to pipeline takeaway constraints, averaging well below Henry Hub. In Appalachia, prices are typically discounted to Henry Hub for similar reasons, though winter demand spikes can occasionally push regional prices above the benchmark.

Regional pipeline constraints, seasonal demand, and local supply all affect the price your operator receives, and that realized price is what shows up on your check stub.

The Math Behind Your Payment

Your gross royalty is: Volume x Price x Your Decimal Interest.

The "price" in that equation is the realized price the operator received at the point of sale, after any quality and location adjustments, for the specific production month your check covers. It is not the national benchmark. It is not today's price. It is not the highest price that month.

What You Can Do

You can't control the price, but you can understand what you're looking at:

• Compare the price on your stub to WTI for the production month (not the payment month). Look up what WTI averaged during the month your check covers. The difference between that and your stub price is your effective discount, sometimes called the "basis differential".
• Track your price over time in MinRight. Over several months, you'll see what your typical discount to WTI is. If it suddenly widens, something changed and it's worth asking the operator about.
• Don't react to headlines. A single month's commodity price movement doesn't warrant a phone call. Look at the trend over six months to a year.
• Know your product mix. If your well produces gas and NGLs in addition to oil, each product is priced differently. A check that looks low might just reflect weak gas prices even if oil held steady.

For more on what goes into your check amount, see our post on how to read a royalty check stub.