Whether you are new to owning minerals or have received mailbox money from oil & gas producers for years, managing your mineral interests can be tricky with the complex legal and oil & gas language involved. This quick reference guide breaks down key mineral management concepts into clear definitions.
What are Royalties and Mineral Interests?
For most individual mineral owners, there are only two types of ownership that matter.
If you own the Mineral Rights under your land and have signed a lease with an oil & gas company to drill and produce wells on the property, you own a Royalty Interest. This entitles you to receive payments from well production sales first without having to pay the related expenses. You are also eligible to receive lease bonus payments. However, as the landowner you must maintain lease agreements.
If you have inherited mineral interests and are receiving checks from a producer, chances are you have a Non-Participating Royalty Interest (NPRI). NPRIs allow the Mineral Rights owner to easily designate a portion of their Royalty Interest for family members or even retain mineral income even if the owner sells the land. NPRI owners do not have to manage lease agreements but do not receive lease bonuses.
If you own Mineral Rights and a Royalty Interest, you might be interested to know what types of mineral interests the oil & gas company operating on your land owns. An oil & gas company owns a Working Interest, which entitles it to revenue from wells on your property after Royalty Owners have been paid while also bearing the cost of drilling and operating the lease. Some producers have a 100% Working Interest, but many companies split the costs, in which case you will receive payment from the majority owner (the operator). An Overriding Royalty Interest (taken from the Working Interest) is often given as a bonus to people at the oil & gas company involved in leasing your land, such as a landman or geologist.
Top Oil & Gas Terms Every Mineral Owner Should Know
Lease: Legal document that governs the terms of what an Operator can and cannot do with a landowners mineral estate.
Division Order: Document that provides the decimal ownership in a well for multiple owners. It must be signed before you can receive royalty payments.
Forced Pooling: A legal statute that allows an Operator to “pool” or group multiple leases together in order to drill a well without having all mineral owners consent.
Check Stub: A term used to describe the statement you receive from an oil & gas company listing sales for a lease and your specific portion.
Severance Tax: A common state tax listed on your check stub that charges your producer for oil & gas sold in other states.
Producing Minerals: The Mineral Rights leased to an operator that have actively producing wells in which interest owners receive payment.
Non-Producing Minerals: Mineral Rights that have not yet been leased by an operator.
Drilling Permit: Regulatory filing to drill a well. Even though a permit is filed on your property, it does not ensure a well will be drilled.
Completion: The process of completing well construction to allow oil and gas to flow into the well by perforating the well casing with explosive charges often followed by hydraulic fracturing.
Hydraulic Fracturing: A “frac” job involves pumping large volumes of sand and fluid into a well to fracture rock and increase oil and gas production.