Types of Oil & Gas Interests

By Stephen Clayman · August 7, 2016

All,

Berlin has received a number on inquiries recently about the types of oil and gas interests one can buy/sell/trade. While these are detailed in the FAQ, they are re-posted below:

WHAT KINDS OF OIL AND GAS INTERESTS ARE THERE?

All oil and gas interests share in the revenues from producing oil and gas wells. Often you will find the terms “mineral interests” and “royalty interests” are used interchangeably. However, there are important differences between these interest types.

ROYALTY INTERESTS AND NON-PARTICIPATING ROYALTY INTEREST IN OKLAHOMA

A royalty interest owner is the person who owns the revenue interest of the producing oil and gas well. Often, the mineral interest owner is a royalty interest owner and a royalty interest owner is the mineral owner. However, in some cases, a royalty interest could also be defined as a non-participating royalty interest (NPRI). This means that the owner does not own the actual mineral rights Rather, the NPRI owner is entitled only to a revenue interest of the oil and gas produced. NPRI owners do not have executive rights, which means the right to negotiate or execute a lease or receive lease bonuses. An NPRI interest is created when a mineral owner chooses to sell the income they are receiving from a property to an investor without selling their mineral rights. In Texas, NPRI owners will be asked to ratify the oil and gas lease executed by the mineral interest owner by the oil company.

OVERRIDING ROYALTY INTERESTS IN OKLAHOMA

Overriding Royalty Interests are interests created from the Leasehold Estate. The Lessee can assign or retain a royalty interest from the oil and gas lease which is free from the costs of drilling and production.

WORKING INTEREST IN OKLAHOMA

The working interest owner is the person or company who owns the right to drill and produce oil and gas. When the mineral owner leases his mineral interest to an oil company, he is leasing the working interest. Working Interest owners are obligated to pay a proportionate share of all costs associated with leasing, drilling, producing and operating a well. After royalties are paid, the WI owners share in the production revenues based upon the percentage of the working interest owned.

More to follow.

Berlin