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Frequently Asked Questions

Different Land Rights

What are Mineral Rights?

Mineral rights are the legal rights that a person has, to exploit, mine, or produce any materials underneath the surface of the earth. These materials may be ores of metal, coal, oil, natural gas, gemstones, stone, salt, or any other substance other than sand, gravel, or water. The owner of the mineral rights can sell, lease, gift, or bequeath these minerals to any individual or entity they choose.

What are Surface Rights?

Surface rights differ from mineral rights. The term refers to any organic or inorganic substance that lies on top of the surface. If an owner wants to keep possession of the surface area, these are known as surface rights, and these are different from mineral rights which lie beneath the surface. For example, a person can choose to sell the mineral rights to any organic/inorganic substance beneath his property but keep the surface rights which would allow him/her to keep control of things on “top” of the ground.

What are Executive Rights?

Executive rights owners have the right to negotiate and execute oil & gas leases. In addition to executive rights, the other rights associated with mineral ownership are (1) the right to receive lease bonus payments, (2) the right to receive delay rentals, if provided for in the oil & gas lease, and (3) the right to receive payment of royalty.

Royalties vs Payments

What are Oil and Gas Royalties?

Oil and gas royalties refer to the amount of money paid to the person who owns the mineral rights after the substances (gas, oil, stone, etc.) are sold by an oil and gas operating company. The amount of these payments may fluctuate per month due to the amount of substances that are extracted and sold, and due to the changing rate of oil and gas prices.

What are Bonus Payments?

A bonus payment is a one-time payment made to the mineral owner at the time the oil and gas lease is signed. It is calculated on a per net mineral acre basis.

Kinds of Ownership Interest

What is a Non-Participating Royalty Interest (NPRI)?

NPRIs are created when a mineral owner conveys all or part of the royalty interest under a given tract but does not convey any right to execute oil & gas leases. NPRI owners are entitled to their proportionate share of oil & gas revenue from the tract without having to share in the operational costs of the well(s).

What is a Working Interest (WI)?

Working interest refers to an individual’s or entity’s ownership percentage in the oil & gas operations within a well, regulatory lease or contract area. Working interest owners must account for the costs associated with the leasing, drilling, completing, and production resulting from oil & gas operations.

What is an Overriding Royalty Interest (ORRI)?

An overriding royalty interest is a cost-free royalty interest retained by a lessee when an oil & gas lease is assigned to a third-party. Such an interest expires once the underlying oil & gas lease from which it is derived expires.

Differences between Interests: MI (Mineral Interests) vs RI (Royalty Interests) vs ORRI vs WI

Generates Revenue from Well Production Yes Yes Yes Yes
Owns Underground Minerals Yes Yes No No
Ownership continues after production stops Yes Yes No No
Rights to Executive Leases Yes Yes No No
Pay to Operate the Well No No No Yes
Tax Advantages No No No Yes

About Your Check

What do the decimals on my check indicate?

This is your proportionate net share of production revenues stated as a decimal, which considers both your fractional mineral/royalty interest in the tract, as well as the lease royalty rate negotiated in the governing oil & gas lease.

Why do my checks vary every month?

Because of variations of oil & gas production along with market averages, majority of oil & gas royalties are determined off the monthly commodity averages. Additionally, productions do vary and change because of the declines in oil & gas wells. There is only so much gas/oil that can be recovered from reserves monthly and over the lifetime of the well. Hence the variation in the checks.

How do I calculate my Royalty Interest?

Enter the details in our new Royalty Calculator and get to know immediately.

About Leasing & Selling

What is a regulatory lease?

A regulatory lease is simply the acreage designated by an operator for oil & gas operations that has at least one undivided owner of the underlying mineral estate.

What is the difference between leasing and selling of mineral rights?

The main difference between the leasing and selling of mineral rights is the payment method for those rights which are: a lump sum of money at the beginning, or in payments of that sum over time. If you want to sell your minerals to a company, you will get a larger sum of money up front. With leasing, you will receive a smaller payment up front, but you will also receive royalty checks over the course of the agreed upon time of the lease once the minerals are harvested and sold.

What entails in leasing my mineral rights?

In case of leasing of mineral rights, factors that needs to be considered are that the market price for those minerals may fall over time, and you may lose money in the long run. On the other hand, the price could also rise over time, and your lease could produce more money.


Are there any tax consequences that I need to be aware of with regards to mineral/royalty interest divestment

When you sell oil and gas assets that you’ve owned for more than a year, the long-term capital gain proceeds you receive are taxed.

Divestment of a mineral/royalty interest results in a single tax event. Receipt of monthly oil & gas royalty revenue or bonus payments are taxed at regular tax rates on a continuing, annual basis. It is imperative to consult with your tax professional to accurately determine an individual’s tax burdens/consequences.

Next Steps

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What if I have additional questions?

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