Whenever oil or gas production begins, the mineral owner is entitled to part of the total production. A royalty is agreed upon as a percentage of the lease, minus what was reasonably used in the Lessee’s production costs.
The royalty is paid by the Lessee to the owner of the mineral rights, the Lessor in the Lease. It is based on a percentage of the gross production from the property and is free and clear of all costs, except for taxes.
WHAT IS THE DIFFERENCE BETWEEN ROYALTY INTERESTS AND MINERAL RIGHTS?
Mineral rights owners typically have the right to negotiate and sign leases on their minerals, as well as the right to receive bonus consideration and yearly rental payments. They also have the right to receive royalty payments as outlined in the lease.
Royalty owners have the right to receive royalty payments for the oil & gas produced from the lands under which they own royalty. They have no right to lease and receive bonus and rental payments from the lease. Both, however, are considered real estate for tax purposes.
| Minerals | Royalties | |
|---|---|---|
| Right to negotiate and sign leases | X | |
| Right to receive royalty payments | X | X |
| Right to receive lease bonuses | X | |
| Right to receive yearly rental payments | X | X |
| Right to negotiate surface damages and right of way | X | |
| Do not share production costs | X | X |
| Considered real property | X | X |