Royalty Interest vs. Non-Participating Royalty Interest

3 related Questions listed below …….

  1. In Texas, as listed on a Division Order for “Type of Interest”, I (as a mineral owner) am trying to understand the difference between “Royalty Interest” (RI) and “Non-Participating Royalty Interest” (NPRI).

Is the distinction that with a NPRI the mineral owner has fewer rights which would include not sharing in a lease bonus or ability to execute a lease? Any other differences between a NPRI and a RI?

Where would I, as the mineral owner, look to verify if I have a NPRI or a RI? Would this be listed in the governing lease? And what terms or wording would I look for to determine which type of royalty interest I would have?

The new well listed on the Division Order is, at the surface, located in an existing “Unit” ……. HOWEVER the bottom depth of the new well extends to BELOW the bottom depth of the Unit Agreement. Could this “Non-Participating Royalty Interest” listing possibly mean that this new well does not “participate” in the terms of the existing “Unit Agreement”?

I’ve asked the Operator who issued this Division Order to clarify the meaning of the NPRI as shown on the Division Order, but I have not received a response.

  1. Is it possible that the terms of a lease could be changed by listing the incorrect wording for “Type of Interest” on a Division Order?

  2. When signing a Division Order involving a Texas location should the mineral owner always hand write on the Division Order “No terms of the lease are to be changed in any way and I am not ratifying an oil or gas contract.”? If yes, is that the correct legal wording to use? If not, what is?

A RI is the royalty interest provided on the lease form.

A NPRI is a royalty interest carved out of the mineral estate.

Best Buddy Cotten

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Thanks for your reply, Buddy.

  1. Just so I understand ……… by your use of the term “Mineral Estate” is that referring to minerals that are part of a specific lease? Once minerals are leased and become part of a “Mineral Estate” can there be various types of Royalty Interests in that Mineral Estate, with “Non-Participating Royalty Interest” (NPRI) being one of them (and others being Working Interest, Overriding Royalty, etc.)? In other words, is a NPRI one type of a RI?

  2. Do I understand correctly that when a lease is executed a Lessor has a RI (as long as Lessor doesn’t have a Working Interest, an Overriding Interest or other special type of interest), meaning that the Lessor had the right to execute a lease and to receive a Lease Bonus Payment?

  3. After a lease has been executed and say a second well (under that same Lease) is drilled on that “still under lease” area, the Division Order for the second well would be a “NPRI” “Type of Interest” to signify that the Lessor is not entitled to a second (additional) Lease Bonus for the drilling of a second well in the already leased area?

  4. Also, does the wording of “the mineral owner gives up his rights to lease” (which I’ve seen in some definitions of NPRI) simply mean that the mineral owner can not enter into a new lease while that area is still under an existing lease?

  5. Am I correct that signing a Division Order showing a NPRI type of interest, does NOT mean that a Lessor gives up his right to execute a future lease in an area or to receive a future Lease Bonus if the current lease would ever expire and the Lessor would wish to enter into a new lease in the future?

  6. I have never before received a Division Order listing an “Interest Type” of “NPRI”, so I want to make sure I understand that term before signing the Division Order.

Could it be that some Operators simply list “Types of Interest” (unless it is a Working Interest, Overriding Interest, etc) as “RI” on their Division Orders, without specifying that “RI” might is the more specific “NPRI” Type of Interest?

A royalty interest and a non-participating royalty interest are not the same. Did you sign a lease as a mineral owner or did you ratify a lease as an NPRI owner? There are varying levels of NPRI, e.g. - some cannot lease but receive bonus and royalties - others cannot lease and do not receive any bonus, only royalties. It is all in the exact wording of the deed granting or reserving minerals. Ownership starts with 100% of the minerals and then someone sells or gives ore retains a partial interest - such as the right to receive 1/64 royalty and no other interest. You need to determine exactly what type of interest you own and how that translates to the royalty decimal. Here is a link to John McFarland’s Lawyer Blog which discusses this. Herein of mineral interests, royalty interests, working interests and overriding royalty interests — Oil and Gas Lawyer Blog — March 12, 2019

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