The Eight Types of Mineral Rights
Mineral rights may be acquired via purchase, inheritance or court order, and the various types each come with their own plusses, minuses and risk profile.
There are eight types of mineral rights you should be made aware of, and these include mineral interest (MI), royalty interest (RI), overriding royalty interest (ORRI), working interest (WI), non-operated working interest, net profits interest, leasehold interest and non-participating royalty interest (NPRI). In this post, we will briefly explore each of these – also important to keep in mind is that “working interest” is the only type of mineral right that comes along with an obligation to pay expenses related to drilling, operating and plugging a well.
Mineral Interest (MI)
A mineral interest ownership includes the executive rights to explore, develop and produce the minerals under a specific tract of land. Put simply, a mineral interest refers to a real property interest, which can be received when minerals are severed from a land’s surface; this is different from, say, royalty interests, which ensure that holders enjoy a fraction of the generated production revenue.
Further, a mineral interest grants its holder the right to explore and exploit subsurface minerals, and when the aforementioned severing from the surface occurs, the entity that acquires the mineral interest may have complete control of the subsurface resources – even though the right over everything above the land belongs to another party.
Royalty Interest (RI)
As we alluded to above, royalty interest owners are entitled to a percentage of the well’s revenue without having to pay for any of the expenses associated with drilling or operating the well.
Working Interest (WI)
Working interest includes the right to explore, develop and produce minerals granted by an oil and gas lease, in addition to the obligation to pay expenses (along with royalty payments).
Non-Operated WI (Non-Op)
Non-operated working interest owners do not make operating decisions, but are still obligated to pay for the drilling and operating expenses; both types of working interest are eligible (and receive) tax benefits.
Non-Participating Royalty Interest (NPRI)
An NPRI is an interest in the proceeds from the sale of minerals, carved out of the mineral estate. These types of owners do not possess “executive” rights, meaning they cannot sign an oil and gas lease.
Overriding Royalty Interest (ORRI)
An ORRI is an interest in the proceeds from the sale of minerals instead of an interest in the actual minerals, carved out of the working interest.
Leasehold Interest
A leasehold interest is another term for working interest, and is often used to describe working interest in a lease that has not yet been developed.
Net Proceeds Interest
Net proceeds interest (also referred to as net profits interest) describes an interest in proceeds from the net profits; this is the least-common type of mineral rights.
If you’re in the market to buy mineral rights or are looking to sell your mineral rights, get in touch with Ten Cow Holdings by calling (210) 960-1564.
