Types Of Mineral Rights & Royalty Interests

Mineral and royalty interests in the United States come in various forms, each representing some form of ownership of, or profit-sharing right in, the production of oil, gas or other subsurface hydrocarbons from a particular parcel of land. 

It is critical for operators and landowners alike to understand these interests and how they are utilized. Here’s a quick overview of the most common types: 

Mineral Interest (MI)

•  Full Ownership Rights: 
  • Full ownership of the subsurface resource deposits beneath a tract of land. This is different than a surface interest (SI), which refers to use and ownership of anything existing on the property surface.  Mineral and surface owners may be the same or different.  
• Full Executive Rights: 
  • The mineral interest owner has full executive rights to lease the minerals to an oil and gas company for exploration and production. 
  • Even if the surface owner is different, in most parts of the United States the mineral estate takes precedence over the surface estate, which means the mineral owner has an unobstructed right to extract natural resources from their parcel however they see fit, provided they pay surface damages to the surface interest owner for anything they destroy or impair use of.
• All Revenue Streams: 
  • Owners can receive all types of production and property-related income, including lease bonuses, delay rental payments, and production royalties.
• For a more in-depth discussion of this interest type, check out our blog What Are Mineral Interests?

Royalty Interest (RI)

•  Created From Lease Agreements
  • Royalty interests are created when a mineral interest owner leases their minerals to an exploration and production company to extract the minerals.  The royalty interest is the right to receive a portion of the revenue from the sale of the crude oil, natural gas, or other hydrocarbons extracted by the wells.
• Revenue Without Costs
  • Royalty interest owners receive this percentage of the revenue from production without bearing any of the production costs.  All costs are borne by the operator.
• Distinct From Mineral Interest
  • At the time a lease is signed, both the mineral interest and associated royalty interest are typically held by the same party. However, the two interests are technically distinct, so it is possible for one to be sold while the other is retained. Although this is somewhat uncommon, it can and does occur. 

Working Interest (WI)

• Operational Interest
  • The E&P company, or operator, who actively drills wells on a particular parcel of land will typically incur 100% of the costs associated with drilling and maintenance of the wells in exchange for interest in 75%-87.5% of the revenue from production (being the amount remaining after paying other, non-cost bearing interest types). This interest is collectively called the Working Interest (WI).
• High Risk and Reward
  • This interest type carries the potential for high returns (since the operator receives a majority share of the income from wells drilled) but also comes with significant financial obligations and risks since they must also bear very high operational costs. 
  • If a well is drilled at great expense and only a small amount of (or no) hydrocarbons are produced, this is called drilling a “dry hole”. In this case, the operator will sustain great financial losses related to the drilling of the well. The mineral interest and royalty interest owners, on the other hand, will have sustained no losses. 
• Sometimes Referred To As A “Leasehold Interest”
  • Some time will typically elapse between a parcel of land being leased and wells actively producing on it. During this initial duration, operators will typically refer to their interest in the land as a “Leasehold Interest”. This is essentially a synonym for the term “Working Interest”, but simply refers to the time period before production begins. If an operator lets a lease term lapse, it is possible that a “Leasehold Interest” might never be referred to as a “Working Interest” since no wells were ever drilled.

Overriding Royalty Interest (ORRI)

•  Carved from Working Interests
  • Overriding Royalty Interests (ORRIs) are linked to the revenue generated from the sale of minerals produced under a specific lease, rather than to direct ownership of the minerals themselves. These interests are created by operators from the Working Interest when they finalize a lease agreement with mineral owner(s). Once established, they can be bought and sold freely until the associated lease terminates. Upon lease expiration, ORRIs become void alongside the Working Interest. However, as long as there is a producing well, the lease remains “held by production” and will not expire until the well ceases production.
• Not Cost Bearing
  • Like traditional mineral and royalty interests, ORRIs are non-cost-bearing.  ORRI owners are not responsible for any costs associated with the drilling and maintenance of the wells drilled on the lease with which they are associated. 
• Common Origin
  • ORRI interests are typically created by operators as a form of incentive compensation to geologists, engineers, and landmen who work for them, without giving them ownership of the actual resource (like minerals) or responsibility for any project-related decision-making or costs.

Non-Participating Royalty Interest (NPRI)

•  Mineral Interest with No Executive Rights
  • This type of interest gives owners a financial stake in a specific mineral parcel, but they lack the authority to lease the mineral rights to others or collect lease bonuses or delay rental payments. Their earnings are solely based on the production of minerals from the land, similar to a royalty interest.
• Common Origin
  • Non-Participating Royalty Interests (NPRIs) are often established during inheritance distribution. When a mineral interest is divided, one portion may retain the executive rights—the ability to make leasing decisions—while the other parts are designated as NPRIs. This setup allows revenue from mineral production to be shared among all heirs, even though only one retains the authority to manage the rights.

Non-Operated Working Interest (aka “Non-Op Interest”)

•  A Passive Working Interest
  • This type of ownership allows individuals to share in production revenues and costs without being involved in day-to-day operational decisions. It is partitioned from the overall Working Interest that is created when an operator enters into a lease agreement with a mineral owner.
• Common Origin
  • Non-Operated Working Interests can arise in several ways, such as through joint venture agreements between multiple operators, risk-sharing arrangements, or as part of an incentive structure, much like Overriding Royalty Interests.
• Tax Benefits
  • While Non-Operated Working Interest holders assume more financial risk than those with non-cost-bearing interests, they may benefit more from tax deductions tied to their share of production expenses, all while not being responsible for managing any day-to-day operations.

Net Profits Interest (NPI)

•  Royalty Interest, With Some Deducted Costs 
  • With a Net Profits Interest, the owner’s earnings are calculated based on the net income from mineral production after specific costs are subtracted. For instance, if transporting hydrocarbons from the wellhead to the point of sale incurs significant costs, an operator may establish an NPI to deduct these expenses from royalty distributions.
• Non-Operational & Passive
  • NPIs are considered passive interests, similar to Royalty Interests, NPRIs, and ORRIs, meaning they do not involve direct participation in the production process or any costs related thereto.

Conclusion

Although this list includes all of the most common interest types, there are several other, radically less common varieties which you may encounter.  If you believe you have a different type of interest than any described here and would like to better understand it, please feel free to reach out to us (see our Contact Us page) and we would be happy to discuss with you.