ABC Company owns 100% of a lease in Kingfisher County, OKlahoma that covers 1/96 of the NE/4 with a 1/5th royalty.  They assign 87.5% of the lease to XYZ Company reserving an ORRI equal to the difference between 22% of all minerals and existing burdens of record, proportionately reduced to the interest owned by Assignor.  It being Assignor's intent to deliver to Assignee a proportionately reduced 78% net revenue interest.
My question is what exactly is the ORRI that is reserved.  
Thanks! I have seen this two different ways so I am anxious to hear your answer.  It seems like the intent to deliver a 78% NRI causes some conflict when figuring this.

Not a problem, glad to help.  To answer your question directly, a 2% proportionately-reduced ORRI is reserved in just this lease, IF the lease royalty was the only burden of record against this lease at the time the assignment was delivered.  The words "of all minerals" is superfluous--which means that they have no meaning in this context because overriding royalties are carved from leasehold working interest, not from the mineral interest covered by the lease.

One possible, correct calculation formula for the ORRI reservation would be:

87.5% leasehold conveyed x 1/96 MI covered by lease x (22% maximum burdens minus 20% actual burdens equals 2%) = 0.00018229 ORRI.

One of the correct calculation formulas for the net revenue interest delivered in the lands covered by the lease would be:

87.5% leasehold conveyed x 1/96 MI x 78% net lease = 0.00710938 WI NRI

A clearer way to show all of it would be in the form of a lease division of interest:

         0.01041667 (1/96th mineral interest in the lands covered by the lease)
 Less 0.00130208 WI (12.5% x 1/96th MI leasehold WI reserved by ABC Company)
 Less 0.00182292 RI (20% RI x 1/96ths MI x 87.5% WI conveyed)
 Less 0.00018229 ORRI (2% ORRI x 1/96ths x 87.5% WI conveyed)
         Leaves 0.00710938 WI NRI conveyed by ABC to XYZ

This would need to be further reduced by the total size of the unit if this lease is pooled.  You don't mention that, nor do you mention if this is a regular, or irregular section. If the entire lease acreage is pooled into a unit covering an entire regular section, the final calculation of ORRI would be 0.00018229 x 160/640 = 0.00004557 ORRI.


All Answers

Answers by Expert:

Ask Experts


Marsha Breazeale, M.Ed., CDOA, CPLTA


All questions regarding division orders; ownership decimal calculations; title ownership and payer record changes (testate/intestate inheritance; deed; assignment; court order); oil and gas lease analysis for record-keeping and purposes of payment by operator or payer; pooling, horizontal wells, horizontal well allocation units; unclaimed property reporting; royalty owner relations questions. All questions concerning administration of surface land contracts and payment questions, such as for Surface Right-of-Way, Sub-Surface Right-of-Way, Easement, Surface Use Agreement. All questions regarding industry-standard and company-specific policies that affect land owners.


Sr. Staff Division Order Analyst. Certified Division Order Analyst (CDOA, National Association of Division Order Analysts) and Certified Lease Analyst (CPLTA, National Association of Professional Lease and Title Analysts) with 35 years of experience as a combination division order analyst and lease analyst in exploration and production in the oil and gas industry.

National Assoc. of Division Order Analysts (NADOA), National Association of Division Order Analysts (NALTA), American Association of Professional Landmen (AAPL), American Society of Trainers and Developers (ASTD)

"How an Oil & Gas Exploration & Production Company Operates" and "Principles of Oil & Gas Lease Analysis: Standard Clauses", Oil Patch Press; Articles in NADOA Magazine; LandFocus EDU Professional Training Manuals

B.A.in Management from Our Lady of the Lake University in San Antonio; M.Ed. in Instructional Design from WGU Texas.

Past/Present Clients
Past 15 years: GeoSouthern Energy Corporation; Contango Oil Co./Crimson Exploration & Operating Inc.; Apache Corporation; BP America; Marathon Oil; Newfield Exploration

©2017 About.com. All rights reserved.

[an error occurred while processing this directive]