By: Ross Perleberg, Trust Officer
In North Dakota, we have all heard words like mineral ownership, mineral rights, royalty rights, oil and gas interests, etc… Still, not everyone knows exactly what these terms may mean, the differences, and if it might be something that you actually own.
Mineral rights, or mineral interests, can be defined as the ownership of rights to minerals, including oil and gas, contained in a tract of land. Unlike in many other countries, ownership in the United States means these mineral rights can be privately and individually owned and developed.
It’s important to remember that surface rights and mineral rights are legally distinct, meaning that even though you own the surface rights, you do not necessarily own the mineral rights.
There are four main types of mineral ownership:
- Mineral Interest (MI) – this is the most commonly held type of mineral interest and means that the owner of this interest has the executive (full) right to explore and develop the tract of land. Owners of this interest are entitled to receive a lease bonus, delay rentals, and royalty revenue.
- Royalty Interest (RI) – this type of mineral interest is obtained when an owner decides to lease their mineral interest to a company that plans to drill and operate a well on the land. By signing the lease, the mineral interest owner is entitled to a percentage of revenue generated without having to participate in the expense of drilling or operating that well. This royalty interest is usually expressed as a fraction or percentage (3/16 or 18.75%).
- Working Interest (WI) – this type of ownership is granted by an oil and gas lease between an owner and a company. Depending on the lease and amount of mineral interest ownership of the owner, working interest rights mean that the owner agrees to participate in the costs of drilling and operating the well, and in return, they will receive a larger royalty percentage. This is the riskiest type of mineral right ownership but can result in more significant returns.
- Overriding Royalty Interest (ORRI) –this is a fractional, undivided interest granting the right to receive proceeds from oil and gas sales. It is not an interest in the minerals themselves but rather in the proceeds of the sale of oil and gas. It’s commonly carved out of the working interest of the well.
While this is not an exhaustive list, it does cover the most common types of ownership that most people own or obtain.
Understanding and managing your mineral rights can be a complicated task, and it’s important to know everything from the value of your minerals to the rights you have as an owner.
When it comes to things like division order verification, lease negotiation, or even mineral interest sales, having an understanding and groundwork can make a big difference in maximizing your mineral rights ownership.
If you have questions regarding mineral rights, please contact our Trust Department at 701-364-9006.