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Last month, this well produced 673 barrels of oil, averaging about 22 barrels per day. This rate of production sets the foundation for calculating the well’s revenue, but it’s important to understand the various deductions that occur right from the gross figure.
The primary consideration is the royalty paid to mineral rights owners. According to the lease agreement, the mineral owners receive 15% of every barrel produced, leaving the operator with 85% of the gross production. Applying this percentage, the well’s net revenue for the month amounted to approximately $30,283 after paying the mineral owner.
Taxation and Transportation Costs
Next, the operator incurs several vital expenses before arriving at the net income: