As house Republicans remain in the house while house Democrats go home leaving the public to suffer under the high costs of oil, the focus is shifted to the oil companies for making excess profits. There is talk of nationalizing the oil companies, windfall profits taxes and severe consumer cutback's. I hear a lot of complaining about existing oil leases being held but not drilled on by the oil producers, the Democrats obstinately demanding they drill on existing leases before any new ones are granted. Oil exploration is a high risk venture, the oil companies use seismic methods to find a potential area then they petition for a lease on those parcels from the land owner. Once they get drilling permits and have satisfied all the environmental impact issues they can drill exploratory wells to determine if there is oil or gas present, the quantity and quality and the boundaries of the find. This is all before any production wells are even spudded. If there is sufficient oil to justify extraction and shipping they will invest in the drilling, production and transportation of the oil. All too often there is oil that is not practical or profitable to extract, some of the leases have a tiny section of oil and the rest is barren. Who owns the land? Some land is held in private ownership, most is on Federal or State land whether that land be offshore or onshore. If the oil explorer suspects there is oil on any of these lands they petition the land owner to lease drilling right on their property. Those oil companies simply don't drill without a proper lease and all the related restrictions under the law. A royalty is the landowner's share of the gross production, which is free of the costs of production. It is probably the most important part of the lease to the landowner. A nationwide leftist organization founded by Ralph Nader makes some heavy charges as follows: "A bureaucratic oversight has allowed 24 oil companies to avoid more than $1.3 billion in royalties for the privilege of extracting oil and natural gas from U.S. territory in the Gulf of Mexico - with foreign companies responsible for 55 percent of that total. But this $1.3 billion in forgone royalties pales in comparison to the $60 billion that Americans stand to lose in royalty revenue over the life of these leases. And if Congress repeals the moratorium on Outer Continental Shelf (OCS) drilling that has existed since 1982, these freeloading oil companies will be eligible to bid on new leases, providing them with more record profits while American families are left holding the bag. These 24 companies have posted a combined $365 billion in profits since 2006." OK, some oil companies got a good deal on a federal lease offshore, back to the issue of royalties, Ralph's shadow organization didn't specify whom, nor over which period of time nor cite the royalty agreement in place. Sure there have been record gross profits reported by the oil companies, the same record oil profits are realized by the landowners as a percentage of that dollar per barrel wellhead extraction price. You didn't hear the land owners whining about excess profits when they were content at $6/bbl oil nor do you hear them complain at $130/bbl because that royalty is based on a percentage of the price per barrel, usually 12.5% or 1/8 the price per barrel, sometimes it's as low as 1/5th and as high as 1/3 the price per barrel but seldom if ever zero. The typical fractions used in oil and gas leases can also be expressed in percentages such as 1/16 = 6.25%, 1/8 = 12.5%, 1/7 = 14.29%, 5/32 = 15.63%. The current trend is to counter the lease royalty offer with what the landowner considers a fair percent of the 100%. The landlords don't have any reason to complain when they are not under the spotlight of windfall profits scrutiny. "On gas that is not sold, but is used by the Lessee for the manufacture of gasoline or other products, Twelve and One-half Percent (12½%) of the market price at the point of sale shall be used for these products, less reasonable deductions for refining costs, as determined by the State." There are certain costs in drilling and producing a paying oil or gas well. The costs are divided between the production company and the landowner. The production company bears the exploration, production, and marketing costs unless there is a clause in the lease that states differently. Expenses that occur after production can be borne by the production company or shared by the production company and the landowner. The royalty clause can specify that the royalty be established at the well, which means that the landowner's royalty payment is free of production costs. The landowner's royalty can also bear a share of the costs that occur after production. If the lease reads that the royalty is fixed in the pipeline or at the place of sale or at some other delivery point, then a new set of costs occur and are part of the deductions from the royalty. It will be the costs after the oil or gas has been extracted at the well. There are three methods generally used for computing and establishing the royalty payment and how it is valued. The first method is market price and value of the oil or gas. Sometimes the market price at the well in the field is used as the prevailing price. Landowners usually have been taking the field price at the well because it allows the price to rise as the price of crude oil and gas rises. Some leases have royalty clauses that state that the royalty is set at the highest price or percentage posted for fields within one hundred miles by any major oil company for similar grades and gravity on the day that the oil is removed. The second method ties the royalty to actual revenue received from the sale of the oil or gas. In this case, the royalty received may or may not be equal to the actual market price of the oil or gas. This method of computing royalty is used mainly with gas royalties. The production company can and has committed to long-term contracts and the royalty, in that case, is more dependable. Unfortunately, in a rising market, the production company cannot be flexible with set in place long-term contracts. Another method of commuting royalty is the "in-kind." The landowner takes possession of the oil or gas produced for the landowner's share of the oil or gas production before the oil or gas is marketed by the production company. The landowner can insert a clause in the lease to take royalty either "in kind" or "in proceeds." This clause allows the landowner more flexibility and a higher royalty based on decisions of the market. The landowner is subject to taxes on the royalty from the production company. The taxes are federal taxes and state taxes on the royalty. The landowner can also be subject to the cost of moving the oil or gas from the well to the refinery and storage tanks. Royalty interests on a lease can be sold in part or in the entirety by the landowner. A royalty can be split among several persons, such as surviving relatives and family for the life of the lease. Remember that those obscene profits are gross profits, that the royalty increases with the increasing price of crude and remember that the politicians never mention that the government takes the lion's share of the royalties as well as taxes. I'll gladly blame the oil companies when the government admits they are a big part of the ponzi scheme and when they will cut back on their windfall royalty monies as a good will gesture to cut consumer suffering and job losses. Impose windfall profits on the oil companies if you will but impose those same restrictions on the stock market speculators and the landowners to be fair, it's the Democrat(Socialist) way.