Understanding Oil and Gas Royalties

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Understanding Oil and Gas Royalties
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Intoduction

• Oil and gas royalties are payments made to
  mineral rights owners for the extraction and
  production of oil and gas from their land.
• These royalties are typically calculated as a
  percentage of the revenue generated from the sale
  of oil and gas produced on the property..

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What Are Oil and Gas Royalties?

• Royalties are a percentage of the revenue
  generated from the sale of oil and gas extracted
  from a property.
• They are typically paid to mineral rights owners
  as compensation for allowing companies to access
  and extract resources from their land.

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There are four types of oil and gas royalties

• Working Interest (WI)
• Royalty Interest (RI)
• Non-participating Royalty Interest (NPRI)
• Overriding Royalty Interest (ORRI)

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Working Interest (WI)

• Exploration and production companies secure
  subsurface rights through a lease known as
  Working Interest (WI).
• WI grants them authority for exploration,
  drilling, and mineral extraction

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Royalty Interest (RI)

• When a landowner grants a Working Interest (WI)
  in mineral resources, they receive a Royalty
  Interest (RI) in return.
• The RI owner is entitled to a percentage of the
  revenues generated when a well is in production.

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Non-participating Royalty Interest (NPRI)

• A Non-participating Royalty Interest (NPRI) is a
  lease granted by the Royalty Interest (RI) owner.
• The NPRI holder is entitled to a share in
  royalties generated from production revenues.

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Overriding Royalty Interest (ORRI)

• An Overriding Royalty Interest (ORRI) is
  established when a Working Interest (WI) owner
  leases a portion of their WI to a third party.
• ORRI grants an undivided, non-possessory right to
  a share of the production, excluding production
  costs associated with the mineral lease.

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