My grandfather purchased 107 acres of royalty in Doddridge Co. in 1908. This royalty has been leased for vertical drilling for several yrs. I don't think we have ever signed a lease or received a bonus, although we have received royalty payments since 1994. I have been the agent for my family since 1996.
I have been contacted recently about this royalty by a landman, I gave him all the family info I have. I called him since and he tells me we are non participating royalty owners and have no rights to lease. I do not understand this. It seems like another way that out of state owners have been swindled out of our rights. Can anyone explain this to me? Thanks BL Stringfellow
Bertie, a non participating royalty interest is fairly common and does not imply fraud on anyone's part. The owner of the mineral interest is the only one who decides if they want to lease the minerals, and if they do lease they are the only one paid the lease bonus. They are the one who "participates" in that end of the business. However the owner of a royalty interest is paid a percentage of any production if oil and gas is produced from that property. They are "non participating" on any leasing decisions but will still enjoy the benefits of the minerals which are produced.
There are several scenarios as to how your royalty may have been severed from those minerals. Yet most likely back in 1908 someone wanted (or needed) some cash and sold your Grandfather some (or all) of their royalty off the minerals they owned. Others can explain this better and more fully but hopefully this gives you a general idea of what you hold.
Yes, non-participating royalty interests (NPRIs) are simply a "cut of future production," and NPRI owners are not entitled to sign a Lease or receive bonus consideration. Typically, though, they will be asked to sign a Ratification IF the land underneath which they own royalties are to be combined with OTHER lands to create a "pooling unit."
It would be roughly comparable to the following scenario. XYZ Company owns apartments. XYZ Company needs some capital, and your Grandfather agrees to provide a cash infusion in exchange for a guaranteed percentage of any future rental income from the apartments. In that case, your Grandfather would never sign any legal documents on behalf of XYZ Company, such as Rental Agreements with tenants, because he does not own any portion of XYZ Company and therefore has no authority to do so. However, he WOULD get a "cut" off of any rental income pursuant to his agreement with XYZ Company. Perhaps this analogy is helpful.
Here's an article I wrote on the fundamentals of NPRI's.
Austin:
Would you be kind enough to share another link to those articles you authored. I was utilizing them and it appears the Oil and Gas Law Digest took down the links you refer to above.
Thanks:
jg