Oil & Gas Royalty Definitions

I spoke with a woman last week who was trying to determine whether she was being paid the proper amount for her gas royalty interest. She also wanted to know whether she could “break the lease”. After a few minutes we determined that while she held a royalty interest , she did not hold a mineral interest and, therefore could not undertake an action to break her lease.

So what’s the difference? Both mineral interests and royalty interests have ownership of minerals “in the ground.” Both receive income when oil and gas is produced from those minerals. However a mineral interest owner has the right to execute leases and collect bonus payments related to those leases. This is called the “executive right.” This is an extremely important right to hold.

An executive owner owes certain responsibilities to his co-tenants and other royalty interest owners. I will discuss those rights later this week.

Another royalty interest that does not involve ownership of minerals in the ground, is the “overriding royalty interest” (ORRI). The ORRI is typically created from a working interest in a specific well(s) and expires when those wells cease production.

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