Tax advantages of a deferred minimum annual royalty provision in oil and gas leases

Journal Article · Tue Dec 01 00:00:00 EST 1981 · Oil Gas Tax Q.; (United States)

OSTI ID:5851871

Martin, Jr, R B

This article describes how a deferred minimum annual royalty provision can serve to meet conflicting economic demands without adverse tax consequences. A deferred minimum annual royalty provision is an economic hybrid of a production royalty and a lease bonus. To a lessor, it has the advantage of guaranteeing a minimum return without regard to production. It should also encourage prompt development of the lease since a lessee will desire to void incurring subsequent minimum annual royalties on unproductive acreage. To an accrual-basis lessee, it has greater tax advantages than a lease bonus because it is deductible in the year paid or incurred. Although it exposes the lessee to more economic risk, this risk can be reduced through proper planning. In appropriate circumstances, a deferred minimum annual-royalty provision may therefore be worthy of consideration by either or both parties in an oil- and gas-leasing transaction. 44 references.

• Research Organization: Meserve, Mumper and Hughes, Los Angeles, CA
• OSTI ID: 5851871
• Journal Information: Oil Gas Tax Q.; (United States), Vol. 30:2
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING
POLICY AND ECONOMY
02 PETROLEUM
03 NATURAL GAS
ENERGY SOURCE DEVELOPMENT
FINANCIAL INCENTIVES
LEASES
TAXES
NATURAL GAS INDUSTRY
PETROLEUM INDUSTRY
ROYALTIES
INCOME
INDUSTRY
294002* - Energy Planning & Policy- Petroleum
294003 - Energy Planning & Policy- Natural Gas
020700 - Petroleum- Economics
Industrial
& Business Aspects
030600 - Natural Gas- Economic
Industrial
& Business Aspects