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How Are Mineral Rights Inherited or Passed Down? 

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how are mineral rights inherited or passed down?

How Are Mineral Rights Inherited or Passed Down? June 3, 2024

If your family member owns mineral rights, they may transfer these valuable assets to you through a deed during their lifetime …

Mineral Rights in West VirginiaMay 6, 2024

Table of Contents Whether you bought or inherited mineral rights in West Virginia, these rights can be a source of …
Net mineral acres vs net royalty acres

Ad Valorem Tax in the Oil and Gas IndustryJanuary 15, 2024

Oil and gas ad valorem taxes are critical because they help local and state governments generate a significant source of …

History of Marcellus Shale and Utica BasinsJanuary 15, 2024

If you own mineral rights in Appalachia, you have likely heard about the Marcellus and Utica shale formations. With many …

Understanding Mineral Rights in PennsylvaniaDecember 20, 2023

Table of Contents With the recent attention on the Appalachian basin — specifically, the Marcellus shale and the Utica basin …
An oil rig with text overlayed stating: "The Landowner's Guide to Mineral Rights in Ohio"

The Landowner’s Guide to Mineral Rights in OhioDecember 4, 2023

Table of Contents Although Ohio’s oil production peaked in the 1890s, the state is still rich in natural resources. The advent …
Mineral Rights Tax Guide

Mineral Rights & Royalties Tax GuideJuly 15, 2023

Whenever you earn income, the tax agency typically wants to receive its cut. That’s also true when you sell the mineral rights to your land or lease the rights and receive royalty payments. The taxes you might owe on your land’s minerals depends on where in the U.S. your land is and what you decide to do with your mineral rights. The income you earn might be taxed like regular income or considered a capital gain. Learn more about how the sale of mineral rights is taxed and what options are available to reduce your tax obligations. Are you considering selling your minerals or mineral royalties? Contact us today for a free valuation.  Are Mineral Rights and Royalties Taxable? Any income you earn from the sale or lease of your land’s mineral rights is taxable. Income, severance and ad valorem taxes are some of the taxes you might need to pay. Each type comes from a different entity. For example, income taxes are usually paid to the state or federal government and, in some cases, both. Ad valorem taxes are usually paid to the county and severance taxes to the state. Ad Valorem Tax Ad valorem is Latin for “according to the value.” The amount of the tax is based on the assessed value of a property or item. A common example of an ad valorem tax is a real estate property tax. When you own a home or land, the real estate’s assessed value determines the amount of taxes you pay. The tax due on land worth $100,000 will be less than the tax due on land worth $200,000 if the real estate is taxed at the same rate. In Wyoming, ad valorem tax is a county-level tax. Each county in the state has its own rate, which can vary slightly from year to year. As of 2018, the average ad valorem tax statewide was 6.9%. To charge an ad valorem tax on oil and gas or minerals, the county needs to assess the minerals’, oil’s or gas’s fair market value on the property. Usually, the tax is only due when there is active production on a property. State and Federal Tax The income you earn from mineral royalties or the sale of mineral rights is often subject to federal and state taxes. The type of tax you need to pay depends on the type of income you earn. Is the sale of mineral rights a capital gain? If you sell the mineral rights, you might have to pay a capital gains tax on the sale profit. If you purchased the minerals, the profit is based on the difference between the value or price you paid for the mineral rights when you made the purchase and the amount you sold the rights for. If you inherited the minerals, the profit is based on the difference between the value of the mineral rights when you inherited them and the amount you sold the rights for. The tax rate depends on what your income bracket is and how long you had the asset. If you owned the mineral rights for less than one year before deciding to sell them, the tax rate would be the same as your income tax. If you owned the asset for more than one year, you qualify for the long-term capital gains tax rate. The rate for long-term capital gains is based on your income level. If you earn less than $80,000, your capital gains rate is 0%. The rate is 15% for single people earning between $80,000 and $441,450. Those who earn more than $441,451 each year pay a rate of 20%. According to the Internal Revenue Service (IRS), income taxes on mineral rights royalties work a bit differently. Capital gains taxes apply to the sale of mineral rights. If you retain your rights and lease them, therefore earning a royalty on the production, the royalty amount is taxed as regular income. Income tax rates tend to be higher than capital gain tax rates. Depending on the state you live in, you might need to pay income tax on your mineral royalty earnings, too. Income tax rates vary wildly from state to state, with some states charging a progressive tax, similar to the federal tax structure. Some charge a flat rate. Others, such as Wyoming, have no income tax at all. North Dakota has a progressive tax that ranges from 1.1% to 2.9% of income. Severance Tax What is a severance tax for oil and gas? Thirty-four states collect a severance tax on oil and gas extraction, among them North Dakota and Wyoming. Because North Dakota and Wyoming are mineral-rich states, the severance tax often proves to be a significant revenue source for each state. In 2017, 22% of North Dakota‘s revenue and 8% of Wyoming’s came from severance taxes. Severance tax rates vary based on the state and the extracted material. In Wyoming, the severance tax rate for minerals such as limestone, jade or clay is 2%, while natural gas or oil is 6%. In North Dakota, the severance tax is imposed in place of a property tax on land that produces oil or gas. The gross production tax for oil is 5%, while the gross production tax for gas is adjusted each year. Taxes on the Sale of Mineral Rights You might decide to sell your mineral rights for various reasons, such as the need for an immediate influx of cash or a desire to diversify your investment portfolio. It’s important to understand that if you sell your mineral rights, the tax situation will be different than if you kept the rights and leased them or earned a royalty from them. Tax Implications of Selling Mineral Rights Selling your mineral rights creates a different tax situation than earning a royalty. The IRS views the profits from the sale of mineral rights as a capital gain, not income. To figure out how much you might need to pay as a capital gains tax, you need to figure out your cost basis in the mineral rights. The cost basis is the original price or value of the asset — in this case, mineral rights. Figuring out the cost basis can be complicated, depending on how you acquired the rights in the first place. Generally speaking, the IRS considers an owner’s mineral rights cost basis to be zero, with three distinct exemptions: The cost included a specific amount for mineral rights. The minerals and surface were valued separately during the real estate tax valuation that determined the seller’s basis. There was ample evidence of the minerals’ value on the date of acquisition. Cost basis can also differ depending on whether you purchased the property or inherited mineral rights. Inheriting property often includes a step-up in basis, leading to a reduction in capital gains tax. Many owners do not know what the value of their minerals was at the time of inheritance, so don’t worry if you fall into this category. Professional mineral appraisers like Flat River Minerals can easily calculate historic values for you. Quick tip: if you inherited your interest via a probated estate, look through the probate documents for an estimated value. A few examples can help you see how to calculate capital gains and figure out what you might owe in taxes. Let’s say your income qualifies you for the 15% capital gains tax rate. You purchased the land and have a basis of $0 in it. Five years later, you decide to sell the mineral rights for $250,000. Since your basis is $0, your capital gain is $250,000. You would owe a capital gains tax of $37,500. In another example, let’s say you inherited mineral rights and have a cost basis of $75,000. Five years later, you sell the mineral rights for the same amount, $250,000. To figure out your capital gains, you need to subtract your basis ($75,000) from the sale price ($250,000). Your capital gains are $175,000. Taxed at a 15% rate, you’d owe $26,250. How to Report Sale of Mineral Rights on Tax Return If you have capital gains from the sale of mineral rights, you’ll need to report them on your federal income tax return for the year you made the sale. The purchaser of the mineral rights might send you a tax form, such as a Form 1099, but they might not. Keep records of your basis and the sale price to report your capital gains at tax time accurately. To report the sale, you’ll need to complete two additional forms when you file Form 1040. The first is Form 8949, which you use to tally up all of your transactions that resulted in capital gains or losses during the year. You’ll need to complete Schedule D to report your total capital gains. In this case, the tax treatment of selling mineral rights is similar to other capital gains. Figuring out how to complete the tax forms and accurately report your earnings from the mineral rights sale can be complicated. It’s a good idea to work with a tax professional to ensure you are reporting the correct amounts and avoid paying more taxes than you owe. Taxes on Mineral Royalties Instead of selling your mineral rights, you’ve decided to lease them and are receiving royalty payments. Mineral and oil royalties tax treatment is different from taxes on the sale of mineral rights. Royalties typically get taxed like your regular income. Oil and Gas Royalties Tax Treatment If you lease your land to an oil or gas company and they begin drilling, you’ll start getting royalty checks. The checks’ amount depends on the income produced by the minerals or oils and the lease terms. For example, you might earn royalties of 25% of the production income. You might earn more royalties at the start of drilling when there’s a high volume of oil or gas produced, and considerably less as the process continues and the supply diminishes. How much you earn in royalties and how much your total income determines the tax rate you pay. For example, let’s say you earn a steady $5,000 per month in oil royalties over one year. The royalties are your only source of income for the year, totaling $60,000. The IRS treats the royalty income like any other income from employment or a business. You’d be responsible for paying tax on it based on your tax bracket. If you are single and only claim the standard tax deduction, your tax rate would be 22%. Keep in mind that the royalty payments might be just a portion of the income you receive for letting a company drill on your land. If you get lease payments from the business or have gotten a lease bonus, you need to report that income as well. Rental income gets taxed at the same rate as your other income. How to Report Oil and Gas Royalties on Tax Return You should report royalty and rent payments on your federal income tax return. You’ll need to complete Schedule E to report rent or royalty payments or both. Schedule E also enables you to deduct expenses from your rent and royalty income. Your expenses might include attorney fees, surveying costs and the costs of creating contracts. It’s a good idea to work with a tax professional to make sure you claim the expenses you’re eligible for and avoid paying more taxes than required. If you purchased the land intending to lease it out to mineral companies, you might be able to claim depletion, which is the cost of your initial investment divided by the potential value of the land’s minerals. You’ll report depletion on Schedule E, too. It’s worth noting that you might need to make estimated tax payments each quarter depending on your income and tax obligation. Usually, you need to pay estimated tax payments if you expect to owe more than $1,000 when you file your return. Another option is to increase your withholding so you don’t owe additional taxes when you file your return if you have an employer that withholds tax from your paycheck. 1031 Mineral Rights Exchange If you expect to owe capital gains taxes on the sale of your mineral rights, you could defer those taxes thanks to section 1031 of the Internal Revenue Code (IRC). You can defer taxes by exchanging your property for a “like-kind” property. If you sell your mineral rights and use the proceeds to purchase something similar within 45 days — and what qualifies as “similar” will likely be broader than you expect — you can defer the payment of capital gains taxes on the proceeds of the first sale, since you used the money to buy something similar. Another way to look at a 1031 exchange is as a property swap. To report the exchange and qualify for the tax deferment, you need to file Form 8224 with your tax return for the year. It’s essential to dot all your I’s and cross all your T’s when doing a 1031 exchange, so it’s a smart idea to find a tax pro to help you out.   Sell or Lease Your Mineral Rights If you’re interested in selling the mineral rights to your land or leasing a royalty interest , work with an oil mineral buyer that lives by the Code of the West and focuses on doing the right thing — which isn’t the same as the easy thing. Flat River Minerals is a local company committed to keeping your minerals in Wyoming. We practice a buy-and-hold method, meaning we won’t flip or sell your minerals to the next highest bidder. To learn more about our process and what makes us different, get in touch today for a free valuation. { "@context": "https://schema.org", "@type": "BlogPosting", "mainEntityOfPage": { "@type": "WebPage", "@id": "https://flatriverminerals.com/resources/blog/mineral-rights-royalties-tax-guide/" }, "headline": "MINERAL RIGHTS & ROYALTIES TAX GUIDE", "description": "When you sell the mineral rights to your land or lease the rights and receive royalty payments. The taxes you might owe on your land’s minerals depends on where in the U.S. your land is and what you decide to do with your mineral rights. 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Net mineral acres vs net royalty acres

Mineral Rights Transfers ExplainedJune 2, 2023

How to Transfer Mineral Rights   The United States is one of only two countries that allow private individuals to own mineral rights. The term "mineral rights" refers to the ownership of underground resources like oil, silver, gold, copper, iron, natural gas and uranium. If you own mineral rights, you have the right to explore for, develop, and/or sell these resources without authorization from the government (you would need the relevant state permits to drill an oil or gas well). Transferring mineral rights constitutes a real property transaction, and as such, requires a deed be recorded in the county where the property lies that outlines the types of mineral rights to be transferred and to whom. If you're thinking about transferring your mineral rights, read on to learn more about our two methods of mineral rights transfers — outbound and inbound. Outbound Process We'll initiate the transfer process for minerals we've already identified. Here's a look at the process: We'll contact you via email, phone call or text message. We'll make an offer to purchase. Upon agreement of a price, you'll get a short-form purchase to review and execute. You'll need to comply with the due diligence period, which is typically 30 days for one parcel. After the completion of the due diligence period, our in-house team will run the title from homestead patent to present to ensure there are no issues that would result in a defect to your ownership of the minerals. We'll provide the mineral deed to execute the order of payment. To close the deal, we'll pay you with a wire or check based on your preference. Inbound Process Another manner of mineral rights transfer is for you to come directly to us. Here's what the process looks like when you initiate it as a seller: You provide us with what you believe your mineral ownership to be. We'll give you an offer to purchase based on what you've represented to us. Once you agree to the purchase price, you'll enter a due diligence period. The duration is usually 30 to 45 days to confirm that you own what you've stated. If we find you own more or less than expected, we'll modify the purchase price accordingly before we close the deal. Do Mineral Rights Transfer With Property? Mineral rights do not necessarily transfer with the property. A property conveyance, generally referred to as a sale, transfers the rights of the surface land, along with the minerals under it — unless and until the mineral rights have been previously sold or severed from the surface. A deed typically represents a transfer of real property, which may convey raw land, a residential property, a commercial property, or minerals amongst other classifications. A “Mineral Deed” effectuates the conveyance of mineral rights to a new owner without the surface. A Mineral Deed can be used for the initial severance of minerals from the surface estate, and is also used thereafter to convey the now severed mineral estate. Oftentimes, deeds conveying surface property - such as a Warranty Deed used when selling a home - will not reference a previous severance of the mineral estate. This means that when you buy a property, you may be unable to determine if you own mineral rights just from your deed. Instead, you'll likely need to hire a lawyer or title company to research your historical chain of title to understand whether you own the mineral estate under your property. Sell Your Minerals to Flat River Minerals If you're thinking about selling your mineral rights, Flat River Minerals is a company you can trust. We're one of the few mineral and royalty acquisition companies that focus on buying directly from the mineral owner and not through a middleman or broker. This means you get the full value of your minerals in your own pocket! With local bases in Wyoming and Pennsylvania, we're intimately familiar with the land, minerals, and communities in the Rockies and Appalachian regions, and we form genuine relationships with all our customers. When you sell to us, you can rest assured that we'll keep your minerals local. Our in-house technical team provides highly accurate valuations to ensure you get the best pricing for your mineral's worth. We also have some of the fastest turnaround rates on the market and will close your deal in 30 days or less. If you're ready to sell your minerals, submit your request for a free valuation or contact us for more information.
what happens when you sell mineral rights

Should I Sell My Mineral Rights?May 16, 2023

If you’ve inherited a piece of land with mineral rights, you may have considered what happens when or if you sell them. You may question if your mineral rights are worth anything or how selling them may alter your property. Flat River Minerals can help you understand the process from start to finish. Mineral rights property law states that whoever owns the dominant estate can alter the surface to explore natural materials. When you sell your mineral rights, you get paid the projected value of what lies underneath the surface while keeping full control of your property. Because of the nature of drilling, selling mineral rights can also change what happens to the exterior of your land. Should You Sell Your Mineral Rights? When you transfer mineral rights, we give you a lump sum estimate of your land’s worth for the entire timespan we would use it. We determine value based on our technical knowledge of hydrocarbon mining. That way, you don’t have to worry about property value ups and downs over time. Selling the mineral rights on your property might be a difficult decision for you and your family. We understand that you may have emotional ties to the land or the inheritance. We follow Cowboy Ethics and the Code of the West, which means we value your choice and provide options to make you comfortable. What Happens After You Sell Mineral Rights? At Flat River Minerals we provide a valuation that gives you a real return on investment. After you sell some, most or all your mineral rights, we create an agreement. For many, this will mean using both the surface and underneath for our procedure to take place. To transfer mineral rights without affecting the surface, you can sell part of the property or speak with our team about your hesitations. We will walk you through the process and even show you how to enjoy tax savings when you sell. Trust Us to Keep Your Minerals in the West As a Wyoming-based company, we know how important land is to your family, business or connection to the state. That is why we get rid of the middleman and keep your minerals local. Our personalized process also allows us to give you the highest price on your property’s mineral rights. Our valuation will determine if your mineral rights are an asset you’d like to sell. We project the number of wells, and when, where and who can drill them to give you the most accurate estimate. Request a free property valuation online to begin the process. { "@context": "https://schema.org", "@type": "BlogPosting", "mainEntityOfPage": { "@type": "WebPage", "@id": "https://flatriverminerals.com/resources/blog/how-will-selling-mineral-rights-impact-property/" }, "headline": "Should I Sell My Mineral Rights?", "description": "If you’ve inherited a piece of land with mineral rights, you may have considered what happens when or if you sell them. You may question if your mineral rights are worth anything or how selling them may alter your property. Flat River Minerals can help you understand the process from start to finish.", "image": [ "https://flatriverminerals.com/wp-content/uploads/2023/03/01-When-you-sell-your-mineral-rights.png", "https://flatriverminerals.com/wp-content/uploads/2021/12/02-Trust-RWW-to-keep-your-minerals-in-the-west-R01.png" ], "author": { "@type": "Organization", "name": "Flat River Minerals" }, "publisher": { "@type": "Organization", "name": "Flat River Minerals", "logo": { "@type": "ImageObject", "url": "https://flatriverminerals.com/wp-content/uploads/2023/03/flat-rivers-logo-small.svg" } }, "datePublished": "" }

what is mineral interest

Types of Mineral Interests and Royalty InterestsApril 8, 2023

Table of Contents:  Types of Mineral Interests Mineral Interest Working Interest Non-Executive Mineral Interest Royalty Interest Mineral Interests Vs. Working Interests What Is a Royalty Interest In Oil & Gas?  Types of Oil & Gas Royalty Interests  Get a Free Mineral Rights Valuation The United States is just one of a handful of countries that allows citizens to own the minerals, oil, gas and rocks found beneath the land’s surface. In most countries, anything located under the ground is the government’s property. If someone living in one of the countries that don’t allow citizens to own the minerals below the surface wanted to sell or extract the material, they’d have to get permission from their government. In the U.S., landowners have full enjoyment of their property, including what’s above and below the surface, due to an ownership structure called fee simple ownership. They have the option of splitting their estate, which severs the rights to the minerals below ground from the ownership rights of what’s on the surface. If you are curious about the process of selling your mineral rights, it helps to become familiar with the terms used in this industry and the various types of mineral and royalty interests available. Are you interested in selling your minerals or mineral royalties? Contact us today for a free valuation.  Types of Mineral Interests The different types of mineral interests determine how much sway an owner has over the land and how much they are entitled to receive from the extraction or sale of their minerals. Below, we’ll explore a few different types in more detail and outline how mineral royalty rates and payments work in various situations. Mineral Interest Someone who has a mineral interest in a property has full executive rights to the minerals found on, in, or beneath the land. They can explore the minerals, develop them and arrange for mineral production. They can receive royalties, rental payments, and lease bonuses for the minerals found on the property. A company or individual can acquire a property’s mineral interest from a fee-simple owner, thereby severing the minerals from the surface. In this instance, the original owner can retain full control of the surface while a completely separate individual or company owns and manages the mineral rights. In separating the minerals from the surface, the mineral ownership takes on a life of its own with its own chain of title through the years. An entity or individual can also own just a portion of the mineral interest. When an owner possesses less than 100% of the mineral interest, they own a fractional mineral interest. Individuals who inherit the mineral interest from their parents or grandparents might end up owning fractional interests as well. For example, a parent might leave their three children equal shares of the mineral interest. Each child owns 33% of the mineral rights. When those children pass away, they leave the right to their own offspring, further fractioning the mineral interest. Having a mineral interest in a property entitles an individual or entity to the following: The right to receive a leasing bonus. The right to delay rental payments. The right to execute a lease and transfer the rights to the lessee. The rights to royalties from production. The right to produce, develop or explore minerals beneath the surface. Another thing worth mentioning about mineral interest is that it is stronger than surface interest. Someone with a mineral interest in a property has the right to use the surface as needed to extract, develop or explore the minerals beneath. This is why minerals are commonly referred to as the “dominant estate.” Working Interest A mineral interest owner can enter into a lease with a company that wants to drill wells on the land for mineral extraction. The lease gives the oil or gas company a working interest in the property. With a working interest, the company has the right to develop, produce or explore minerals found beneath the surface (and pay for it all). The entity that holds the working interest takes care of the expenses associated with drilling and extraction. Their portion of the proceeds is equal to the production revenues less all the royalties that are paid out to the mineral owners. If they pay an average royalty of 20% to royalty owners, this may seem like a lot. However, the 80% of production revenues they receive has to cover the millions of dollars they spent drilling, completing, and producing the well. Many folks don’t realize that the oil companies are operating in the red until a well “pays out,” which is the point when they’ve accrued enough revenue to break even on the drilling and completion expenses. A well usually takes years to pay out, and if an operator has bad timing with oil prices, sometimes they never do. Luckily, the royalty owners get paid along the way, even if a well never pays out! Non-Executive Mineral Interest A non-executive mineral interest (NEMI) is similar to a full-fledged mineral interest. The most significant difference is that an individual or entity that holds a NEMI does not have the ability to enter a lease. Instead, someone with a NEMI can earn lease payouts and royalties. Usually, the size of the royalty payments and lease payouts is determined by the primary mineral interest owner. It’s common for people who inherit mineral rights to receive a NEMI for oil and gas. A landowner might also decide to cede their executive rights to the minerals when they sell the land’s surface but wish to retain a non-executive stake in the mineral interest. Royalty Interest After signing a lease with an oil or gas company, a royalty interest will be calculated in any wells that are drilled and produced using the royalty percentage set forth in the lease (“lease rate”). This royalty interest gives the owner a portion of the drilling or extraction revenue without paying for the extraction process themselves. Often, the royalty interest is described on the lease as a percentage or fraction. For example, let’s assume an owner signed a lease for a 20% royalty. This royalty isn’t for 20% of all oil and gas pulled out of the ground; it must be proportionately reduced to the number of net mineral acres contributed to an owner’s lease against the drilling unit as a whole. For example, if you leased 10 net mineral acres at 20% and the operator successfully drilled a 2-mile well, there will be around 1280 net leasehold acres sharing in that well (the “drill spacing unit”). This means your net royalty interest is 20% * (10 NMA/1280). The mineral royalty interest exists for as long as the company that leases the land continues to drill. Once the drilling stops, the interest is gone. At that point, the mineral interest holder can lease working interest to a different company. In some cases, a mineral rights owner might have several leases going simultaneously, depending on each one’s clauses and terms. Mineral rights owners might decide to sell royalty interest to a separate party, retaining the executive rights and mineral interest. Two examples of royalty interest that mineral rights owners may take advantage of include non-participating royalty interest and overriding royalty interest. Mineral Interest vs. Working Interest Simply put, the person who takes the lease from an owner (“Lessee”) is the working interest owner. They take on all the risks and pay all the expenses of drilling and completing well(s), but their right to explore for and develop minerals ends once a lease terminates pursuant to its terms. The mineral interest owner is the person granting the lease to a company or agent thereof (“Lessor”). Throughout everything, the mineral interest holder has full rights to the property and full ownership of the minerals that might exist there. What Is a Royalty Interest in Oil and Gas? What is the definition of royalty interest – oil and gas? When someone has a royalty interest in oil or gas, they own a part of a resource or have a right to some of the revenue the resource produces. The owner of a royalty interest doesn’t have any responsibility for the cost of operating wells or drilling for gas or oil. Three types of oil and gas royalty interests exist: 1. Ownership Interest An ownership interest might be the most common type of royalty interest. Someone with an ownership interest owns the property, as well as the rights to what’s beneath the surface of the land. A company that wishes to drill into the land to extract any oil or gas found beneath it has to take a lease from the mineral owner before they can begin operations. Usually, the company offers to give the owner a royalty payment. The payment might include a sign-on bonus along with the royalty interest payment. The lease rate the owner receives depends largely on (i) the competition for leases, (ii) perceived risk (i.e. an unproven area will fetch lower royalty in exchange for the risk taken on by the operator), (iii) oil price, and (iv) long-term well economics. A landowner can sell part or all of their royalty interest if they need or want to. 2. Non-Participating Royalty Interest Like an ownership interest, a non-participating royalty interest (NPRI) is a non-cost-bearing interest in oil and gas production. If a landowner wants to sell their property but maintain a stake in the payments for the oil or gas beneath the surface, they might reserve an NPRI, allowing them to keep a stake in the profits. Similar to when minerals are severed from the surface, NPRIs are essentially royalties severed off the minerals. Non-participating royalty interests are called so because unlike the mineral owner, they do not get to participate in lease signing bonuses, rental payments, or the lease negotiations themselves; they just enjoy the production proceeds that are derived therefrom. An example of an NPRI would be if a mineral owner were to carve off 3% NPRI from their negotiated lease rate. Referring back to the 20% lease example under the Royalty Interest section above, that would mean the mineral owner now gets a proportionate share of production based on a 17% royalty, while the NPRI owner gets 3%. In some cases, a landowner might decide to sell an NPRI when they need cash. If a landowner needs several thousand dollars to do something like make a big purchase, cover medical bills or complete a renovation, they can enter into an agreement with an individual or company. In exchange for a lump-sum payment, the mineral owner can offer the individual or business a percentage of the royalties on the land. When production begins on the land, the person or company who bought the NPRI will begin receiving payment from the operator based on the percentage defined in the royalty deed. 3. Overriding Royalty Interest (ORRI) Remember working interest owners (“Lessors”)? Well, let’s bring it back to them. ORRIs are additional burdens created on a lease by a Lessor, usually at the time when they sell a lease to another oil company. For example, if a landman took an 18.75% lease from you, they can sell it to another oil company while reserving a 1.25% ORRI. This doesn’t subtract from what the mineral owner gets paid, it just adds another royalty burden to what the oil company has to pay. Now they’re on the hook to pay 18.75% to the mineral owner, and another 1.25% to the landman. Unlike mineral and royalty interests, ORRIs run with the lease and not the land. That means they’re in effect for only so long as the lease is in effect – they expire when the lease expires. Historically, it’s been typical for geologists or landmen to receive payment for work with ORRIs rather than cash day rates. When the wells came in good, this was a pretty sweet deal! When the wells were dry holes, the geologists and landmen went back to their day jobs. Are You Considering Leasing Your Minerals? How much are the minerals beneath your land worth? If you’re interested in leasing your minerals or selling a royalty interest in them, Flat River Minerals can provide you with an accurate valuation backed up by honesty, integrity and transparency. Our company is rooted in cowboy ethics, meaning we believe it’s important to do what’s right, not what’s easy. We specialize in mineral royalties in Wyoming, Ohio, Pennsylvania and West Virginia and pride ourselves on using the three most important factors — drill timing, engineering and geology — when making a mineral valuation. Learn more about our process and get started with a free valuation today.