It’s no secret: oil and gas royalties are a great way to generate financial income if you own mineral rights. Whenever an oil and gas lease is signed and operations begin, mineral rights owners can gain mineral interests as a portion of the sale of resources extracted from their property.
Depending on the contract (and relationship to the operation), mineral interests are generally distributed in one of three ways. These include:
- Royalty Interests (RI)
- Overriding Royalty Interests (OR)
- Working Interests (WI)
Royalty Interests (RI)
Royalty interests are the most simple and common form of mineral interest payments for mineral rights owners. In this sense, they are also commonly known as lessor’s royalties for landowner’s royalties. Generally speaking the amount of a royalty interest payment is based on a fixed percentage. It is outlined in the mineral rights lease as a portion of the proceeds from the sale of resources.
Overriding Royalty Interests (OR)
Overriding royalty interests, also known simply as overrides, do not affect mineral rights owners. Although they may be seen in the supporting documents for a royalty interest payment, overriding royalty interests are generally reserved for landmen, surveyors, or other individuals and entities that aid in the production of oil but do not own the land. You can read more here.
Working Interests (WI)
Lastly, working interests are another kind of interest payment for people and entities that help produce and sell oil or gas. Working interests are operating interests or leasehold interests. They are typically reflective of the labor and equipment required to drill and extract resources from the land.
It is rare that mineral rights owners will receive any working interests, however, there is no standard oil or gas contract. In some instances, a mineral rights owner’s ties with oil and gas operations or existing oil wells may lead to the acculturation of working interests atop a steady stream of monthly royalty interest in a mineral rights lease.
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