A Brief Primer on Oil and Gas Interest Types

While all interests in oil and gas operations receive a portion of the production revenue, varying types of interests yield different rights and responsibilities. Individuals or groups holding a mineral interest do not pay any operational expenses but share a percentage of production revenue. This is because mineral interest owners possess the rights to the minerals produced. One producing well may have multiple mineral interest owners, with each earning a separate revenue interest, generally ranging from 12.5 percent to 25 percent.

Perhaps the most clearly identifiable owners in an oil and gas operation, working interest owners maintain leases with mineral owners that allow them to carry out oil and gas extraction activities. The largest working interest at one site is the “operator,” and although working interests share production revenues based on their percentage of ownership, they also pay corresponding portions of the lease and production costs.

By selling a portion of their revenue income but choosing to retain their mineral rights, mineral interest owners can create royalty interests. Although often referred to interchangeably, mineral and royalty interests differ greatly in the case of nonparticipating royalty interests, or NPRI. In an NPRI, the owner does not hold the rights to the produced minerals but is entitled to a portion of the revenue. For this reason, NPRI owners may not negotiate lease terms or accept rental payments.

Lastly, an overriding royalty interest, or ORRI, grants partial ownership of a particular lease or well rather than its mineral production. ORRI owners receive a portion of a lease’s production revenue, but the interest expires along with the lease when production ceases.

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