Our family trust gets royalties from three wells in Oklahoma County from Revolution Resources. The royalties were previously paid by Sunoco. When Revolution took over royalty payments last year, we got very short statements from Revolution. Several months back Revolution started posting the information on EnergyLink. The statement on EnergyLink has items that the Revolution statement leaves off. There are deductions for “overriding interests” on all oil, plant products, and gas production…What are overriding interests? Our Trust has owned these mineral rights since the late 1940’s and I don’t ever recall seeing a lease with the term “overriding interest” in the contract. Any help is appreciated…
Not having the documents to actually read, will give a general answer. Overriding royalty interest (ORRI) is an undivided interest in a mineral lease giving the holder the right to a proportional share (to receive revenue) of the sale of oil and gas produced. The ORRI is carved out of the working interest or lease. Since the working interest partner is paying the post production charges you listed, then that will come out of the working interest royalties. Usually an ORRI is NOT supposed to have those charges come out of the ORRI. Suggest you contact Revolution and track that answer down.
It is commonly a small share of the royalties that are carved out of the working interest to reward work by a land man or geologist who put the original deal together. Many of us have inherited these ORRIs from our ancestors who were in the oil business back in the 1920’s and even up to today. Similar to a publishing agent getting a cut from the publishing house to round up good talent and then getting a cut of the royalties from a book sale.
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If the deductions were improper, then Revolution owes that sum back plus interest.
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I was told by an Oklahoma oil & gas attorney that post-production costs COULD be taken from an ORRI in Oklahoma. We’ve had an ORRI in my family for 51 years and there were never any deductions taken until four years ago when horizontal wells were drilled. At one point the deductions were over 70% of the gross. Now around 32%. I sure would like to know if the attorney was somehow wrong about it.
You would have to go back to the original ORRI agreement for the language as to whether deductions were allowed or not.
I certainly don’t see where it says anything in the document about deductions being allowed. But here is the full wording from the document, minus names/locations etc:
WHEREAS, ………… are the present owners and holder of the leases described on Schedule “I" hereto (which Schedule “I” is hereby made a part hereof) insofar and only insofar as said leases cover and affect the lands described on said Schedule “I” with reference thereto, said leasehold rights having been acquired by …………. by the following described assignments:
…………………
…………………
And
WHEREAS, …………. wish to assign to ……………., his heirs and assigns, an overriding royalty as provide hereafter with respect to the above referred to leasehold rights:
NOW, THEREFORE, ……………… do hereby assign unto the said ……………., his heirs and assigns, an overriding royalty of ……… of production from the lands covered and affected by the leases described on Schedule “I” hereto, insofar and only insofar as said leases cover and affect the lands particularly described with reference thereto on Schedule “I”, said overriding royalty to be free and clear of all costs and expenses of development, production and operation, save and except production, severance and ad valorem taxes applicable thereto.
The overriding royalty hereby assigned is subject to proportionate reduction in the event the leases on Schedule “I” cover and affect less than all of the oil, gas and other minerals with respect to the lands particularly described on Schedule “I” and is also subject to proportionate reduction in the event the lands affected thereby are placed in a unit containing other land or lands.
This Assignment is in lieu of and in substitution for Assignment dated ………… by and between the same parties.
This Assignment is made without warranty, express or implied.
EXECUTED this the ………… day of …………., 1971, effective the ……… day of …………, 1971.
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