Minimum Royalty

Definition - What does Minimum Royalty mean?

Minimum Royalty is the amount of gas, oil and shut-in royalties sufficient for maintaining the UT lease in effect and force. Annual minimum royalties are the annual fees which are paid in order to let the license stay in place when the sale of products does not reach the minimum brink. When the sales reach to a level at which running royalties exceed the Minimum Royalty, then the company is required to pay a larger amount. The annual minimum royalties are not addition to the royalties on sale.

Petropedia explains Minimum Royalty

Licenses require a Minimum Royalty because the licensors need to assure themselves a good amount of income even when the license fails to sell the licensed products diligently. The renters are responsible for the payments of the difference between total amount of the royalties and the rental that is stated in the lease. To force the hand of a licensee who is making an overly optimistic sale projection is one the reasons for using the Minimum Royalty. Under its provision, even if licensees are not selling enough licensed products to achieve the amount of the minimum Royalty, they are required to pay the same amount to the licensor as if the sales have occurred.

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