Whenever you are selling or leasing your mineral rights, negotiating the best deal is very important. If you allow an oil or gas company to explore and drill on your land, then you will want to ensure that you are compensated for the absolute highest share possible.
Two of the most common ways to be paid for the production of oil and gas are through royalty payments and royalty interests. Despite the fact that they sound so similar, the two terms actually refer to two completely separate kinds of transactions. Not knowing the difference can end up being very costly to your future income streams.
In this article, we are going to fully define royalty and royalty interests as they relate to the oil and gas industry. In doing so, we hope to provide a helpful insight for anyone looking to sell or lease mineral rights.
What is an Oil Royalty?
An oil royalty is a landowner’s share in the oil or gas production below his or her property. In some cases, single landowners may be the only parties that receive a royalty payment. More commonly, however, joint and combined subsurface rights make it possible for landowners to earn a smaller share of a larger oil production.
Those who own mineral rights of a plot of land can receive oil or gas royalties. In this scenario, the shareholder is considered a “non-interest royalty owner.” Once production begins, the royalty payments are then paid as a percentage share of the well’s output and resource sales.
What is an Oil Royalty Interest?
Of course, landowners are not the only ones involved in the extraction process. In addition to oil and gas drilling operations, there are many financiers and contractors that enable a plot of land to be explored and drilled for oil or gas. For these contributions, individuals and entities are awarded with oil royalty interests.
If you are a landowner and decide to sell, rather than lease, your mineral rights, then you still may be able to hold an oil royalty interest for the property’s future production. In addition to the large lump sum you will receive when selling your mineral rights, oil royalty interests allow the potential to benefit from the future sales of oil or gas.