Newbie here, trying to understand the terms, concepts, and which ones relate to me.
I have recently inherited some “mineral rights” (in New Mexico). My father owned 160 acres actual land, and 50% of the mineral rights on that land. These 80 acres of mineral rights have now been turned over to his children, to be split evenly between us. For sake of clarity, I’ll keep all questions regarding the 80 acres as a whole (not my smaller portion of it).
Here are my questions so far. Could anybody help clarify these for me?
I own “mineral rights” Does that mean I am a “royalty owner” too? Are those terms interchangeable?
I see a lot of questions about “leasing”… Does owning mineral rights have to do with leasing? (by owning the mineral rights am I automatically “leasing” to every operator? or are those two unrelated terms?)
I see the term ORRI in here a lot. I looked up the definition ( An ORRI is a fractional, undivided interest with the right to participate or receive proceeds from the sale of oil and/or gas. It is not an interest in the minerals, but an interest in the proceeds or revenue from the oil & gas minerals sold.) - As a mineral rights owner do I also own ORRI? Or is there a difference between “mineral rights” and ORRI? Can you own BOTH? Any clarity on ORRI vs mineral rights?
The 80 acres we inherited fall within 2 “properties” (as they are called on the document), within New Mexico (S:12, T:25S, R: 28E & S:11, T:25S, R: 28E). When I look up those two properties (by range, section, and township), I find 7 wells on one property, and 5 wells on the other property. Does this mean that we should be getting checks from every single well listed on those two “properties”? Or is there another way to determine which producers one should be expecting payments from?
What is the correct terminology of “property” (ie: S:12, T:25S, R: 28E) <–This is the information that is always asked for when looking up mineral rights. What do you call this? A property? A unit? A section?
I really truly appreciate any help on these newb questions. Just browsing has been very educational and helped me to clarify my questions.
If you own mineral rights, you might be a royalty owner if there is a lease and production. Another way to think of this is if you own a rent house, you may or not be a landlord depending on whether the house is rented. If there is no lease then you wouldn’t be a royalty owner.
If you are a mineral owner, you can certainly lease to an oil company if you wish and they want. If you own a rent house, it’s possible that nobody wants to rent your house, or you may not like their proposal. Now if inherited, your ancestor may have already leased it. You,re not automatically leasing to every lessee/ oil company. Also if you lease your 80 acres, you can’t lease to another company while the first lease is in effect.
3.as a mineral owner, you don’t own an overriding royalty interest. An overriding royalty owner is one who has made an agreement with the lessee to get a fractional share of the production. Typically it may be a geologist or the president of a company or somebody reserved it during an assignment. This would not apply to you. Can someone be a royalty owner and an overriding royalty interest owner? Yes but you wouldn’t likely be.
4…maybe. Would need more information. You should ask the operators about it, and then seek help from a Landman, or an attorney.
Tim- I don’t believe your #1 is accurate. If I am a mineral owner and elect to participate in the well, I will receive royalties for 100% of my interest. Likewise, if in Oklahoma and I choose not to lease and am force pooled, I receive royalties and there is no lease. Yes, the pooling acts as in place of a lease, but is treated all together different. Likewise, if I lease, I don’t have “royalty” until production of those minerals is established. I believe your premise is good but explanation inadequate for the novice. Mine may be as well. Unfortunately for many, there are way more questions than available space for answers.
You are correct, but I was trying to keep it general. And my point was that if there is no production, HGW is still a mineral owner, but is not a royalty owner because there is no production.
I should have added the word, generally, as in Generally, if there is no lease, then you wouldn’t be a royalty owners.
As for leases, my brother says that none of the royalty checks pertain to any leases we are on, because none of the land the wells are on is owned by my father. So the leases would be with the actual land owners.
Two different kinds of leases-one for surface and one for mineral rights. The top surface land (unless you own both surface and minerals) is leased separately from the minerals. The surface can be leased for real estate, grazing, agriculture, drilling surface location, wind farm, etc. The mineral lease is for the extraction of oil and gas (or other products) If there are checks for royalties, there is a mineral lease or a forced pooling involved. You have to have a contract in order to extract the oil and gas. You may be in a pooling unit or drilling unit that is spaced and includes your acreage. The physical surface location of the well may not be on your acreage, but your acreage may be included in the spacing/drilling unit. Contact the operators on the checks that you have received and get copies of the documents.
follow up to what Martha said. You don’t have to own the surface to have mineral interest ownership.
So, even if you don’t own the surface, you may still be entitled to royalty checks.
What if your an operator and you have a lease your trying to produce but it hasn’t sold oil or gas in 2 years and is burdened from the previous owner by so much. ORRI’s sold that you can’t make money to produce it, so you contact all the royalty owners but you can’t track down one of them, but all others agree to work a new lease what are your options to proceed?
Somewhat of a technicality, but if you were an un-leased mineral owner and chose to participate in the well, you wouldn’t receive “royalties” at all. Instead you would just be receiving your share of revenue. The concept of a royalty is only created in the lease, so if there isn’t a lease, there is no royalty.
I should have stated in Oklahoma. There is a statutory 1/8 royalty that’s paid and the check stub sets that out. It’s called the “Blanchard” interest. The remaining 7/8ths is revenue. Thanks for bringing this to my attention.
All I know is what my brother told me, which is what my the person at Cimarex told him, when he called them asking them why they were sending my father payments when my father didn’t have a lease with them.
SHE said: in the state of New Mexico there are things called “drilling pools” where they group together sections. So even though they weren’t drilling on my father’s land in section 12, they WERE drilling in a “drilling pool” that contained both section 12 and section 13. So since they were drilling on the drilling pool that included my father’s land, they were required to pay royalty payments (not sure if “royalty” is the right word here).
This is all 3rd and 4th hand information, so I only know what my father told my brother, who told me.
According to my brother there are no leases that WE owned for the payments my dad was getting. It only makes sense to me that somebody has a lease that pertains to those payments, but according to my brother it isn’t my dad (or us now).
In plain English - the property descriptions are Section 12, Township 25 South, Range 28 East and Section 11, Township 25 South, Township 28 East, NMPM (New Mexico Principal Meridian).
This property is in Eddy County, New Mexico and according to the New Mexico Oil Conservation Division GIS mapping there are 10 wells in these 2 sections so it is going to depend on the exact location in each section of your father’s mineral ownership. There should be a deed showing exactly what and where he owned the land and minerals in the County Clerk’s office in Eddy County. You may be able to search the county records online.
Below are some definitions for you:
Mineral Rights - Ownership of minerals on or under the surface and having the right to recover the minerals or delegate the right to another party to recover the minerals (Executive Rights) by negotiating a lease agreement.
Royalty - revenue ($) received by a mineral owner from the production of oil or gas.
Royalty Interest - An interest in an oil and natural gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof).
Royalty Percentage - Percentage of gross or net production that is paid to the mineral owner. Usually described as a fraction (1/8th, 3/16th, 1/6th, 1/5th, 1/4, etc.)
Non-Participating Royalty Interest - A royalty interest which “participates” in any oil or gas found but does not “participate” in lease bonuses or rentals. Technically, it is an interest that participates in the gross production of minerals that have been separated from the fee estate, but does not hold executive rights.
In New Mexico and Texas as well one does not have to own the surface to own minerals or a portion of the minerals. This is known as a severed mineral estate. The minerals are severed from the surface.
A Royalty is the Cash Flow or Revenue that is thrown off when you lease your minerals. Mineral (rights) are like a bundle of sticks and the first stick is everything under the surface except water… grab that and grab the stick that is the executive rights. You will need those (executive Rights) to collect a signing bonus for the lease (a $600 lease is typically a paid up lse and typically for 3 years). Just divide the amount you got paid by three and that is the “signing bonus”. An oil and gas lease can be for 6 months or 10 years and it can be “paid-up” or have annual rentals.
One reason that a Royalty is different than a mineral is because there is different kinds of royalties (you can sell), including an non participating royalty interest or (“NPRI”), which you can sell without selling the minerals.
The bottom line is of you think of a way to sell it (with restrictions) it is possible.
HGW, I feel your pain, I was clueless, now comprehend the fundamentals. Although you own in NM (I own in TX) you should read Plain English primers written by Texas A&M Real Estate Center, plus some other easy to find papers, if you cannot find them, establish email with me & I’ll email you PDF copies.
Texas A&M RE Center “Minerals, Surface Rights and Royalty Payments”.
Texas A&M RE Center “Pooling Clauses and Statutes”.
TA&M “Hints on Negotiating an Oil & Gas Lease”.
Mercer Capital; How to Value an Oil & Gas Royalty Interest Pooling & Unitization.
We inherited a tract (fee simple) in Texas, unleased for 100 years due to title dispute elsewhere in our section. Now days, shale drilling E&P companies prefer 2-mile long lateral wells spanning two sections, such wells costs $7-$10 million each. Such vast acreage requires “pooling” of many owners’ mineral rights. Our 40 acres was combined in a 640-acre pool, we signed a lease, we made an effort to ascertain the exact lease terms signed by other owners in our pool (section) to make sure we received fair lease terms. Happy outcome for us.
We chose to hire a lawyer, but our situation was probably more complex than yours. It wasn’t easy, but I learned how the biz works, took a lot of time but I enjoyed figuring out the enigma.
If the oil company filed for “forced-pooling” and the Corporation Commission agrees it is beneficial, unwilling mineral cannot “opt out” of the consolidated pool. Forced pooling laws allow for oil & gas drilling in a large area even if some of the mineral owners have not consented or signed leases, so it’s possible that even though they didn’t drill on your father’s land, he was force pooled even if he didn’t consent or sign a lease.