Alabama levies the highest headline oil and gas production tax rate in the country, and it withholds income tax from a nonresident's sale proceeds at closing. The state takes a bite from the income and a bite on the way out, and both are worth understanding before you price anything.
Alabama is a heavier tax state than most owners expect and a lighter forced-pooling state than most owners fear. It also has one of the cleanest county records systems in the country, which offsets a good deal of the friction.
Berlin buys Alabama minerals and royalties, from Smackover oil in the southwest to Black Warrior coalbed methane in the west central counties, including the small gas interests other buyers will not look at.
Alabama stacks two production taxes.
Oil and Gas Privilege Tax, under Title 40, Chapter 20, Articles 1 and 1a, §§ 2 and 21:
| Rate | Applies to |
|---|---|
| 8% | All other taxable production, the default |
| 6% | Wells permitted July 1, 1988 or later; offshore wells over 200 Mcf or 25 bbl per day at depths under 8,000 feet |
| 4% | Oil wells at or under 25 bbl/day; gas wells at or under 200 Mcf/day; offshore wells at or under 200 Mcf or 25 bbl/day at under 8,000 feet; incremental production from Board-approved enhanced and supplemental enhanced recovery projects |
| 3.65% | Offshore production more than 8,000 feet below mean sea level |
Reduced privilege rates of 3 and 2 percent exist under § 40-20-2(a)(8) for wells permitted between July 1, 1996 and July 1, 2002, for five years from first production, where the well would otherwise sit at 6 or 4 percent.
Oil and Gas Production Tax, under Title 9, Chapter 17, §§ 25 to 35: 2 percent of value at the point of production as the default, 1.66 percent for offshore beyond 8,000 feet, and 1 percent for wells permitted between July 1, 1996 and June 30, 2002 for five years from first production.
Returns and payments are due on or before the 15th day of the second month following the month of production.
The 8 percent headline is the highest state production tax rate in the country. Most Alabama production does not sit at 8 percent, because the rate steps down sharply for wells permitted after mid-1988 and for marginal wells, and a great deal of Alabama's producing inventory qualifies. But it is a real burden and it comes off before your royalty is calculated, which is why an Alabama interest and a Texas interest producing identical volumes do not pay identically.
Income tax is graduated with a top rate of 5.00 percent, and some Alabama jurisdictions add local income taxes.
Ala. Code § 40-18-86 applies to any sale or transfer of real property on or after August 1, 2008:
The forms are NR-AF1 for the Affidavit of Seller's Residence, NR-AF2 for Seller's Gain, NR-AF3 for a Certificate of Exemption, plus WNR and WNR-V. They were updated in September 2025.
One honest caveat. The Department of Revenue's published guidance does not address a pure mineral or royalty deed expressly. It does reach standing timber, which is real property in Alabama, and by the same logic a mineral conveyance is a conveyance of Alabama real property. We plan for the withholding on every Alabama transaction and confirm treatment with the Department rather than assuming. Using Form NR-AF2 to withhold on gain rather than on gross price is frequently the difference between a manageable holdback and a large one, particularly on an inherited interest with a stepped up basis. See taxes when you sell mineral rights.
We would rather tell you this plainly than fill the space with a rule that does not exist.
There is no reported Alabama appellate decision squarely allocating post production costs between lessor and lessee. Alabama does not appear in the standard state-by-state alignments, in either the at-the-well column or the marketable-product column.
What follows from that:
Our royalty statement decoder explains the lines, and royalty payment laws by state covers the payment deadlines. If your Alabama deductions are large enough to matter, that is a question for an Alabama oil and gas lawyer, and we will say so rather than pretending otherwise.
Alabama pools under Ala. Code § 9-17-13, "Integration of interests," implemented through State Oil and Gas Board Rules 400-7-2-.01 and 400-1-13-.01.
| Election period | 30 days after commencement of actual drilling operations, or prior to reaching total depth, whichever is earlier |
| How you elect | Pay your proportionate share of drilling and completion costs, or deliver a notarized statement agreeing to pay them |
| Risk compensation fee | 150% of the tract's or interest's share of actual drilling and completion costs |
| Protected royalty for unleased owners | A 3/16ths part, or the actual landowner royalty if less, treated as royalty and distributed free of development costs, operating costs, and any risk compensation fee lien |
| If the operator cannot locate you | Where the operator makes good faith efforts and cannot find a nonconsenting owner, the risk compensation fee shall not be imposed against that owner's interest |
Two things stand out.
The trigger is the spud, not the order. In Oklahoma, Kentucky, and Mississippi the clock starts when the order issues. In Alabama it starts when drilling begins, which can be months later and arrives without a second notice. Owners who file the order away after reading it are the ones who get caught.
The 3/16 floor is generous. Arkansas and Kentucky protect an unleased nonconsenting owner at 1/8. Alabama protects at 3/16, free of costs and free of the risk fee lien. Combined with a 150 percent risk fee rather than 250 or 300 percent, Alabama is meaningfully gentler on a nonconsenting owner than most producing states. See the rule of capture for why integration exists at all.
We could not locate an Alabama dormant mineral act, and Alabama does not appear on multi-state dormant mineral survey tables. A corroborating signal: Ala. Code § 24-9-8(e), the Land Bank Authority quiet title provision, expressly excepts from extinguishment "prior reservation or severance of all mineral, mining, oil, and gas rights within and underlying the property," along with severed rights, mineral leases, and agreements. That is Alabama's legislature carving minerals out of an extinguishment mechanism, which is consistent with there being no lapse statute, though it is not proof of one. If your Alabama interest has sat unused for decades, get an Alabama title attorney to confirm rather than relying on this page.
Separately, Alabama's unclaimed property law has a detailed mineral proceeds regime covering bonuses, royalties, compensatory royalties, shut in royalties, minimum royalties, delay rentals, overriding royalties, extraction payments, and production payments. That specificity is good news for an heir, because suspended money was categorized rather than lost. See unclaimed royalties and small mineral interests.
The regulator is the State Oil and Gas Board of Alabama, administered through the Geological Survey of Alabama. Free public tools include a well database, production lookup, an online map, and full text document search. Alabama also feeds the free GWPC WellFinder app.
Two quirks worth naming before you go looking:
Land records are county by county, recorded with the Judge of Probate in each of 67 counties, and there is no statewide portal. See well records by state.
Alabama probate runs through the Probate Court of each county, and unusually the same office, the Judge of Probate, holds both the probate records and the land records. A mineral title chain and the estate file behind it sit in one building. After working Kentucky's 120 county clerks and Mississippi's chancery proceedings, that is a genuine convenience.
Alabama has no dower, which was abolished, and no state estate or inheritance tax. Ancillary administration is available for a nonresident decedent who owned Alabama minerals. We cure title at our own cost as part of a purchase. See inherited mineral rights and selling inherited minerals before probate is done.
Black Warrior coalbed methane royalties are exactly the interests the industry has abandoned: small monthly checks from shallow gas wells drilled in the 1980s and 1990s, split across several generations. Most buyers have a minimum transaction size and simply do not respond.
We run our own title, we have no minimum, and we pay all closing costs. Send a check stub, a deed, an integration order, or just the county and operator name. We will identify what you own, work out your withholding exposure before you commit to anything, tell you where your integration deadline actually falls, and value the interest with the reasoning shown. Free, and if keeping it is the right answer we will say so.
Last reviewed August 2026. Rates and forms change. Berlin Royalties is a mineral buyer and a landman shop in Tulsa, not a law firm or a tax advisor, and this page is general information rather than advice about your interest. Where Alabama law is unsettled, as it is on post production costs and as it may be on dormancy, we have said so rather than filling the gap.
Upper Jurassic oil across the southwest counties, the same formation now driving the lithium brine story in south Arkansas. Long-lived conventional production and deep family ownership.
The coalbed gas fields of west central Alabama, among the first commercial CBM development in the country. Thousands of small, durable gas royalties, most of them ignored by every large buyer.
The deeper section beneath the Smackover, including the offshore and Mobile Bay gas that made Alabama a serious gas state.
Periodic unconventional interest across north Alabama, with acreage positions that come and go.
Smackover oil runs through the southwest counties; Black Warrior coalbed methane runs through Tuscaloosa, Jefferson, Walker, and Fayette. We buy in all 67 counties.
Everything a Alabama owner needs in one place: who owns what under state law, how royalties must be paid and by when, what a buyer can and cannot deduct, the tax treatment of a sale, and the deadlines that quietly cost people their minerals. Free, and no sign-up.
Read the Alabama guideThe things owners here most often wish they had read first. All free, none of it gated.
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