What is the default point of valuation for royalties when the lease is silent on the matter?

When a lease does not specify the point of valuation for royalties, defaulting to the point of sale is consistent with industry practices and legal precedents. The point of sale refers to the location where the extracted resources are sold to a buyer, which typically occurs after any necessary processing has been completed. This approach is advantageous because it provides a clear and standardized method for valuing the resources based on market conditions.

Using the point of sale aligns with the expectation that royalties are calculated based on the value that the producer receives for the commodities sold. This valuation method captures the full market price for the resource, reflecting the value added through any processing that may have occurred before the sale.

The other locations mentioned—such as the extraction site, processing facility, or production site—are less commonly accepted as default points for royalty valuation. They do not account for the potential added value from processing or market dynamics that occur at the point of sale. Consequently, establishing the point of sale as the default ensures equitable and transparent calculations for all parties involved.