GRE Reading Comprehension
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Source: Kaplan
When a property owner discovers that oil or natural gas exist beneath property for which a title has been legally and completely obtained, rights to the embedded minerals can be leased to others. Once the commodity rights are leased, the lessee will issue the owner an up-front payment to explore the property and investigate possible ways to extract the commodity. This is nonrefundable, even if the source of the mineral is less prevalent than the lessee predicted it to be or if it is in an unextractable form. Once the lessee locates the oil or gas source and is able to implement an extraction method that is sanguine to both lessee and property owner, the owner may demand a share of the profits from the commodity. Customary royalties on commodities is about 12.5%, but in cases of highly desirable properties or where there is a great deal of disruption to one's home or property, the rate can be 25% or higher.
Question List: 1 2
Based on the passage, which of the following are possible reasons that a greater royalty than the customary 12.5% can be required?
- A The up-front payment is non-refundable and a greater payment is required to cover that cost.
- B Extraction methods that disrupt the rights of the owner to use the land for other purposes should be compensated.
- C Oil and natural gas are lucrative commodities and the greater percentage would cover potential fluctuations in the marketplace.