The 5 Oil Royalty and Mineral Interest Types.
Mineral ownership isn’t always a clear cut proposition. There are layers of complexity that can make it difficult for the average landowner to accurately and confidently assess both the value of their assets and the long term financial outlook of said assets.
It’s key to have a solid foundation of understanding of the basic industry terms and definitions used in the mineral rights industry. By the end of this brief article, you will be able to differentiate between the 5 common oil royalty and mineral interest types. The interest type you own will greatly affect the valuation of your mineral assets and what options you have to monetize those assets in the future.
This is the most commonly held type of mineral interest and indicates that the owner retains full ownership of all minerals and has full rights to develop the property and extract all oil and gas resources from the property at will.
This type of ownership grants the landowner the ability to retain full control of all lease negotiations associated with the property. Additionally, the mineral owner is entitled to all royalty payments and bonuses generated by oil production on the property.
Non-Executive Mineral Interest
Non-executive mineral interest, or (“NEMI”), is a mineral interest type commonly seen in assets attained through inheritance and is distinctly different from the more common mineral interest type in that NEMI leases lose the ability to negotiate any lease details.
A NEMI owner is eligible for royalty and lease payouts but only as designated by the terms of the lease, which are determined by the main mineral interest holder.
Non-Participating Royalty Interest
An “NPRI” owner is a “step down” from the “NEMI” owner type. Much like the NEMI owner type, a non-participating royalty interest type doesn’t have the ability to negotiate lease details, but in addition to that, an NPRI owner also loses any share in the lease bonus.
An NPRI ownership stake is oftentimes a percentage of royalty payouts that are set aside by the main mineral interest owner and has ownership designated to another party.
Overriding Royalty Interest
The ORRI ownership type is one of the more limited ownership types out of the five. An ORRI owner can expect to receive a share of production value until the underlying lease expires. The key differentiator for ORRI is that unlike NPRI, the ORRI isn’t designated by the main mineral interest owner but instead is a percentage of the working interest of the asset, usually as a result of negotiations in regards to the development of the oil and gas lease on the property.
Mineral Classified Interest
The mineral classified interest ownership type is less commonly seen and retains all of the rights and privileges as the main mineral interest owner but with one important distinction; in these instances, the state government retains precisely 50% of all mineral rights associated with the assets.