What are the different types of oil and gas interests?
A royalty interest is the interest typically retained by a mineral owner in an oil and gas lease and is typically a fraction (such as “1/8th”) or percentage (such as “15%”) of the total oil and gas production attributable to the lease. A royalty interest is typically not subject to the costs of production but is subject to a share of gross production and oil extraction taxes and post-production costs. This interest is sometimes called a “landowner’s royalty.” An overriding royalty interest is a cost-free royalty interest carved out of lessee’s interest under and oil and gas lease. Like a landowner’s royalty, an overriding royalty is usually not subject to the costs of production but is subject to taxes and post-production costs. A working interest is the interest obtained by a lessee under an oil and gas lease. The owners of the working interest operate the property and pay for the costs of drilling, completing and operating wells on the lease.
