Common deductions on a royalty check

By Bill Givens · Published October 8, 2026

Most royalty checks show some money taken out between what the oil and gas sold for and what you were paid. Some of it is taxes. Some of it is the cost of getting the product ready to sell. Whether a given deduction is allowed depends on your lease and your state, so the first job is knowing what each line is.

Taxes

14Production, severance and ad valorem taxes. States tax oil and gas when it comes out of the ground, and some counties tax the value of the well as property. The operator pays these and takes your share out of your check. The rates differ by state, and the ones in the example are made up. If you see a tax line, you can usually look up your state's rate.

Costs after the well

Raw gas has to get from the wellhead to a buyer. The charges below are called post-production costs. They are the ones owners ask about most.

• 2Gathering. Moving the gas through small pipelines from the well to a processing plant or a main line.
• 3Compression. Squeezing gas so it keeps flowing through those pipelines.
• Treating or dehydration. Removing water, carbon dioxide or hydrogen sulfide so the gas can be sold.
• Processing. Separating the valuable liquids, like propane and butane, out of the gas. You may see a separate line, and a separate payment, for those liquids.
• Transportation or marketing. Getting the oil or gas to the place it is sold, and the fee for selling it.

In the example, gathering and compression together took $10.13 out of a $54.00 gas value. That is about 19%, which is a lot, and is the kind of line worth a question.

Whether a deduction is allowed

This is the part no website can answer for you. Some leases say royalties are paid on the full sale price with no costs taken out. Others allow reasonable post-production costs. Courts in different states have treated the question differently. Your lease is the starting point; for a firm answer, ask the operator or an attorney who works with mineral owners.

What to look for

• A new line. A deduction that was not on last month's stub.
• A big change. The same line, much larger than before, with no change in volume.
• Costs on oil. Oil usually carries fewer deductions than gas. A transportation line on oil is worth a question.
• Different charges on neighboring wells. If two nearby wells with the same operator show very different gathering costs per mcf, ask why.

A good way to compare is cost per unit: divide the whole-well charge by the volume. In the example, gathering is $6,300 ÷ 18,000 mcf = $0.35 per mcf.

Then see questions to ask your operator for how to put it.

This is general information to help you read your statement. It is not legal, tax or investment advice. Your lease and your state's law decide what applies to you.