I am selling 1/4 th of my royalty. My royalty is 3/16. I own 180 acres. The investors are kicking back 10% of their's to the broker who set up the deal. He in-turn is giving me back 5%. Therefore in my mind, I'm selling 20%. How do I make this calculation come out?
I'd suggest that you really look in to this further before signing away anything. From what you described above, it also does not sound like you are getting back 5% in this calculation.
Sound more like you are getting 5% of the "investor's" share (10%) of your 25% of your 3/16 royalty....
Maybe fuzzy math but it sounds more like:
Your starting royalty is 3/16 = 18.75%
You are selling 1/4 of that = 4.6875% being sold (14.0625% retained)
If whoever "The Investors" might be are giving a kickback of 10% of their share it is then likely only 10% of that 1/4 percent of your royalty that is getting kicked back then it is really only 1/40th of your 3/16 that is getting kicked back.
If you are getting back 1/2 of that 1/40th of your 3/16th - then it is not likely that the math is going to add back up that you are only selling 20% of your royalty - so either something is lost in the translation, or the broker might be being purposely vague.
In any event, make sure that you definately understand what your doing before moving forward.
My own feelings are that, unless there is dire need for cold hard cash now, it is rarely to never in your favor to look at selling your royalty for the pennies on the dollar that you are likely to be seeing from these types of transaction.
As exciting as this is, we know that we have a responsibility to do this thing correctly. After all, we want the farm to remain a place where the family can gather for another 80 years and beyond. This site was born out of these desires. Before we started this site, googling "shale' brought up little information. Certainly nothing that was useful as we negotiated a lease. Read More