The United States produces more barrels of oil than any other country in the world. Within the US border, no state produces more oil than Texas, and this is by a landslide. In fact, according to the U.S. Energy Information Administration, oil production in Texas produces over 3 times as many barrels as North Dakota, the second leading state.

Where is Oil Found in Texas?

So where is all of this oil found? In this article, we are going to explore some of the densest spots for oil production in Texas.

Major Oil Producing Regions

Within the Lone Star State, there are seven large basins which produce the majority of oil production in Texas. They are as follows:

• The Permian Basin
• The Gulf Coast Basin
• The Anadarko Basin
• The Fort Worth Basin
• The Maverick Basin
• The Val Verde Basin
• The East Texas Basin

Among them, the Permian Basin is the most widely known and highest-producing region. In fact, the massive 250 by 300 mile landmass extends into Southern New Mexico and is divided into several different regions in itself. Within the Permian Basin, oil is found in:

• The Delaware Basin
• The Midland Basin
• The Central Basin Platform
• The Eastern and Northwest Shelves
• The San Simon Channel
• The Sheffield Channel
• The Hovey Channel
• The Horseshoe Atoll

After the Permian Basin, perhaps the second most famous region for oil production in Texas is called the Eagle Ford Group. The Eagle Ford Group, also known as the Eagle Ford Shale is found in southern Texas and extends between the Maverik and East Coast basins. The area ceased producing oil after a strike, caused by rapidly declining oil prices in 2015.

The Largest Oil Towns in Texas

Of course, in order for oil to be found, individuals and companies need to raise capital to explore and drill. After production has begun, oil royalties are only earned by mineral rights holders if the barrels are sold. In terms of related jobs and local economies, the largest “oil towns” in Texas are:

• Houston
• Dallas
• Austin
• San Antonio
• Midland

Mineral rights and oil and gas leases tend to be a bit more complicated than ordinary surface rights leases. When you sell or lease a home, there is a pretty obvious boundary (oftentimes marked by a fence) that designates what the lessee can control. Below the surface, however, the spaces occupied by precious mineral reserves rarely follow the same pattern.

If an oil reserve is under multiple different parcels of land, it can still be entirely depleted from a single well. For this reason, mineral rights owners often enter into contract agreements to ensure that they are able to benefit from the sale of the oil or gas below their property.

Pooling and Unitization

Pooling and unitization are two of the most common methods for the consolidation of mineral rights. Although the two terms are often used in place of one another, they actually refer to different kinds of agreements.

What is Pooling?

Pooling is a process that combines several tracts of land together in order to cover the area of a single oil well. In a pooling agreement, all of the parties own their portion of any oil that is produced from within the pooled land. Essentially, instead of digging a new well on each separate piece of land, the reserve is drilled in the best way possible and each owner can benefit from the sale of precious minerals with oil royalties.

What is Unitization?

Unitization is a process that merges different pieces of land together across an entire oil field. Unlike pooling, unitization can combine the production of many different oil wells into one shared contact.

Compulsory and Voluntary Pooling and Unitization

Voluntary pooling and unitization agreements occur when independent owners agree to work together. The documents can be signed by the owner themselves, a legal representative, or heir. Agreements are generally made to be mutually beneficial. Voluntary pooling offers can be declined without any consequence.

Compulsory, also known as forced, pooling or unitization is a mandatory consolidation of oil and gas leases. They are conducted by a regulatory committee, most commonly the Oil and Gas Conservation Commission.

Joint Operating Agreements in Oil and Gas Leases

Lastly, two active oil and gas leases can be combined into what is known as a “joint operating agreement (JOA),” or a “joint lease.” In a JOA, operators agree upon a community lease in which assets are shared and new royalty percentages are defined. In addition to oil and gas agreements, joint leases are common across other industries such as health care.

If you are selling or leasing your mineral rights, you may have some competing offers sitting on your desk. In an oil and gas lease, you can potentially earn a large amount of money over time. This is through the acquisition of oil and gas royalties. Does a company particularly have an interest in your mineral rights? If yes, then you may even receive a hefty offer on oil and gas lease bonus payment. In this article, we will make understanding oil and gas easier. We are going to explore the most commonly asked questions regarding lease bonus payments.

What is Oil and Gas Lease Bonus Payment?

A lease bonus payment is an amount of money you will receive as payment immediately. This is upon signing an oil and gas lease. Much like “signing bonuses” in professional sports. This is the lump sum of cash receiveable prior to a sale. Moreover, the purpose is in order to entice a quick contract completion.

In an oil and gas lease, the contract secures an oil and gas company’s right to explore a property’s subsurface. If the production never actually starts or the operation is a failure, the initial bonus payment may be the signer’s only form of income on the property in the event that there are no oil and gas royalties.

When Do You Receive Oil and Gas Bonus Payments?

Of course, nothing is “immediate,” as the money will not magically appear in your checking account after signing the contract. The general rule of thumb is that oil and gas companies will receive a request to pay out the bonus payment 60-90 days after signing the lease.

How Much Money Can I Receive as a Lease Bonus?

An oil and gas bonus payment is completely negotiable and is largely dependent on the size of the property, the number of wells, past production, future estimates, and the current price of minerals. Oil and gas contracts are not required to be made public record and vary heavily between states, so an average bonus payment is fairly difficult to calculate.

Oil and Gas Lease Bonus Tax Treatment

Under the eyes of the IRS, oil and gas lease bonus payment is considered “advanced royalties.” They are taxed as ordinary income. In most cases, tax on oil and gas lease bonus payment is made within the same year of signing the contract.

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If you own mineral rights and receive oil royalties, then you are probably curious about the oil well production levels. In an oil and gas lease on your property, you may have one or more oil wells on the land that is being drilled by the oil company.

How Many Barrels of Oil Does a Well Produce?

With oil royalties, you can earn a direct percentage of the sale of oil barrels that are extracted and sold from producing oil wells. Although there are wells of all shapes in sizes across the globe, in the article, we are going to explore the national averages for daily, annual, and lifetime production from oil wells in the United States.

Average Daily Oil Well Production

In the early days of American oil exploration, flowing wells in modern Texas are rumored to have the capacity for up to 100,000 barrels per day. On the other hand, there are countless shallow wells across the country that have been dug to accommodate no more than a single barrel each day.

Today, most oil operations are performed by large companies working to produce as much as possible while the well is in use. When a large oil well begins producing, successful drills can expect a daily production of anywhere from 500 to 5,000 barrels per day.

Average Annual Oil Well Production

In order to calculate the average annual production of an oil well, let’s use some real numbers to provide a helpful figure. In 2014, Texas led the nation in producing 3.17 billion barrels per day. It also is the most heavily explored region in the world with an estimated 151,605 active oil wells. By this calculation, the average annual production of an oil well in Texas is roughly 21,000 barrels of oil per year.

Average Lifetime Oil Well Production

In general, an oil well is at its most productive during the initial exploration and drilling. After extended daily use and depending on environmental factors and chosen technologies, an oil well’s production will slowly decrease until the operation is deemed unprofitable. Oil wells typically last between 15 and 30 years. As an example, an oil well in the Bakken fields of the United States can produce roughly 540,000 barrels over the course of its lifetime.