Frequently Asked Questions
What are oil and gas mineral, royalty and overriding royalty interests?
How is the value of my interest determined?
Why do royalty checks vary in amount?
How come I don’t receive a royalty check anymore?
How can I transfer my interest to my heirs before I die?
What are oil and gas mineral, royalty and overriding royalty interests?
Minerals, royalties and overriding royalties receive revenues from the production of oil and gas from a well without paying the drilling or monthly operating expenses from the well. The term “royalties” can be used interchangeably to mean mineral interests, royalty interests, or overriding royalty interests. However, there is a difference between minerals and royalties, and an even greater difference between overriding royalties and both minerals and royalties.
The similarity between mineral interests and royalty interests is that both involve ownership of minerals under the ground. Both receive portions of the income from the production of oil and gas. However, the difference is that the owner of a mineral interest also has the right to execute leases as well as collect bonus payments; whereas, the owner of royalty interests does not execute leases or collect bonus payments. Even though mineral and royalty owners receive income when the well is producing, only the mineral owner receives the bonus payment upfront.
Overriding royalty interests does not constitute an ownership of minerals under the ground. Rather, it constitutes ownership of a portion of generated revenues from oil and gas production in which the ownership expires when the lease has been neglected due to termination of production. Overriding royalties are created from the working interest. Therefore, like mineral and royalty owners, overriding royalty owners also receives a portion of the income from the production of oil and gas. However, the difference is owners of overriding royalty own only proceeds from the production of minerals and not the minerals under the ground. Overriding royalty interest expires once the lease has expired and production has stopped, whereas, minerals and royalties owners maintain their ownership after production stops.
How is the value of my interest determined?
To determine a fair sales price on your interest, a registered professional petroleum engineer performs an engineering and economic evaluation, such as analyzing historical production data, calculating production decline rates, and reviewing historical cash flows. The information is then used to forecast future well performance, calculate remaining oil and gas reserves, and predict future revenues.
Why do royalty checks vary in amount?
Due to variations in volumes of oil and gas production as well as oil and gas prices, fluctuations in your checks take place from month to month.
Also, over a period of time, most wells experience a decline in oil and gas production because there is only so much oil and gas that is recoverable by the well. Therefore, as the months pass, less oil and gas is produced which leads to a steady reduction in production as well as a decrease in the amount of your monthly check.
How come I don’t receive a royalty check anymore?
The following may have happened: 1) A different company may be responsible for disbursing your revenue and may be working to set up your interest for payment. 2) The amount due to you may not be enough to distribute to you at the time and is said to be in “petty suspense”. However, you will receive a payment in the future once it has accrued to the company’s minimum disbursement amount. 3) Your interest may be in “legal suspense” due to reasons such as a change of address or change in ownership in which the company is unable to disburse the revenues to you. 4) The well may not be producing oil and gas.
How can I transfer my interest to my heirs before I die?
There is a required conveyance document that an attorney can generate. We can help you take care of your conveyancing needs and also assist you in finding the best possible buyer.
This website is neither an offer to sell nor a solicitation of an offer to buy. No offer can be made except by a current prospectus, which includes a complete discussion of the risks involved in each investment.
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