Is it Rent or Royalty?

Income from Oil and gas companies could be royalty income and the royalty owner could take 15% of gross as a depletion allowance.
However, these companies often pay a rental fee for the 'right' to drill and produce.

If there is actual production, there would be royalty payments. Also there would be statements showing deductions for expenses of getting it from the well to the buyer's meter. These would include compression, operation of gathering lines and any other cost incurred before delivery to the buyer. There would also be deductions for state severance tax (7½ % of the wellhead value in Texas). You should get statements with this information.

If all you get is a Form 1099 for a round figure that has nothing to do with actual production, you should report it as rent and take no deduction for depletion.

In either case it goes on Schedule E of Form 1040.
http://www.1040.com/taxxcpa/