Royalty Interests

Royalty Interest refers to ownership of a portion of a resource or the revenue it produces.

What are Royalty Interests?

The mineral owner is entitled to a portion of the overall production when oil or gas production begins. A royalty is agreed upon as a percentage of the lease, minus any reasonable production costs incurred by the Lessee. The royalty is paid by the Lessee to the Lessor in the Lease, who owns the mineral rights. It is based on a percentage of the property's gross production and is cost-free, with the exception of taxes.

What is the difference between Royalty Interest and Mineral Rights?

Mineral rights owners often have the ability to negotiate and execute mineral leases, as well as obtain bonus consideration and yearly rental payments. They also have the right to royalties based on the terms of the lease.

Royalty owners are entitled to royalties on the oil and gas produced on the properties under which they own royalty. They do not have the right to lease and collect bonus or rental payments as a result of the lease. For tax purposes, however, both are considered real estate.

Is selling Royalty Interest the same as selling Mineral Rights?

No. Perpetual minerals belong to the owner in perpetuity. Although royalties are commonly associated with mineral ownership, they are not the same thing. Royalties are dependent on an operator producing oil and/or gas and are tied to a time horizon governed by a lease or an outside agreement. If you sell your royalty, you will be bound by the terms of the agreement you reach, but you will retain ownership of your mineral rights.