Energy Industry (Oil & Gas)/Royalties vs. Mineral Rights

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Question
I am thinking about selling my portion of some mineral rights that I share with about 30 of my cousins. The mineral rights were retained by my great grandfather, so there is some sentimentality within our clan. I have begun to make inquiries to buyers. One potential buyer asked if I meant to sell my "Royalty Rights" (or something like that), which are currently being leased by an energy company;  and I have been receiving small monthly checks from them. The other question was if I wanted to sell my "Mineral Rights". I have a general idea of the difference between the two in terms of absolute definition. However, I would like a better definition of what the impact of selling either one would be on 1) myself and 2) my cousins that own the other portions from the same land in Hill County,  TX. Does it have any impact on them at all down the road?

Answer
Hello Josephine. Lets start with some definitions here.  A mineral interest is a real property interest (in most states) that has the right to execute oil and gas leases, and enter onto the surface for oil and gas exploration. Once an oil and gas lease is executed, the mineral owner is entitled  to the royalty interest percentage negotiated in the lease.  A royalty interest is also a real property interest (in most states), but is entitled to only a percentage of royalty if, as and when production occurs. An example of a royalty interest is when the mineral owner conveys, for example, a 1/32 of royalty in the land, which will reduce the royalty payable to the mineral owner.  A royalty interest has no leasing rights, bonus rights or delay rental rights unless expressly conveyed in the instrument creating the royalty interest.

Another difference between mineral rights and royalty rights is demonstrated by the following example:  If you own a 1/32 royalty interest, you will receive from production a .03125  share of production. If you own a 1/32 mineral interest, you will receive a royalty share of 1/32 of 25%,  if the lease royalty is 1/4.  Whether a royalty or a working interest is worth more in the market place depends on the property involved.

Given that the mineral or royalty rights retained by your grandfather have been so fractionated (30 heirs or more), its unlikely that a sale of royalty rights would have little effect on you.  If you own mineral rights that have executive powers (leasing rights), there might be more impact on your family because of the leasing rights, but I doubt that the family would be significantly affected by a decision to sell your mineral or royalty interests.

Good luck and let me know if you have any other questions.  

Energy Industry (Oil & Gas)

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David B. McCall

Expertise

Questions regarding oil and gas exploration and production, the operation and management of oil and gas producing properties, and questions related to mineral ownership, title problems, and oil and gas leases.

Experience

I am Board Certified in Oil, Gas and Mineral Law in the state of Texas. I have more than 37 years of experience in the industry as both an in house attorney for major oil companies and as a partner in oil and gas firms. I am also a mineral owner and receive royalties from oil and gas production. I have extensive title examination experience, and have represented clients in many administrative and court proceedings.

Organizations
State Bar of Texas, Texas Bar Foundation, and Austin Bar Foundation.

Publications
Various state bar seminars on Oil and Gas matters.

Education/Credentials
I have a business degree in marketing from McMurry University, 1971, and a JD degree from Texas Tech University in 1974, where I graduated 17th in my class. Board Certified in Oil, Gas and Mineral Law in 1986.

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