Replies to This Discussion

Permalink Reply by obed w odom on December 7, 2011 at 0:16

Ken,

I don't think a nonparticipating royalty interest is ever as good as a participating royalty interest, but it's certainly better than no royalty interest. The nonparticipating interest would usually be something negotiated between the parties involved and spelled out in a legal document. For example, if one is selling property but wants to retain part of the mineral rights, the buyer of the property may insist that the retained mineral interest be only nonparticipating. Or, if one is buying a fractional royalty interest only, the seller may insist that this royalty interest be nonparticipating. Sometimes in the succession of an estate, for one reason or another, either because of a will or an agreement between heirs, some heirs might have a participating royalty interest while others have only a nonparticipating interest. [Caveat: I am not an attorney.]

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Permalink Reply by Skip Peel - Mineral Consultant on December 7, 2011 at 3:19

Owners of nonparticipating royalty interests are due a fractional portion of royalty income.  However they are not due other payments associated with the lease creating the royalty such as lease bonus, surface damages, shut-in payments, etc. nor do they have executive rights.  In other words they are simply along for the ride.  The specifics are dependent on the mineral laws of the state in which the mineral interest lies.

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Permalink Reply by robert minton on December 7, 2011 at 14:36

In Texas, non-participating royalty interest is a cost-free interest in production. Costs of development, completion and production, including transportation, separation, compression and other charges cannot be attributed against the NPRI. such costs can amount to  up to   10-20 percent of gross value of interest.   This is cost, i.e., $.15 per mcf., gets to be important when the production declines 80% or the price declines, yet the charge remains the same. EXAMPLE: $500 check less $50 vs.  $250 check less $50.Participating  royalty pays above cost, unless excluded in lease.

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Permalink Reply by Mark on December 8, 2011 at 3:34

No quite accurate Mr. Minton.  Non-participating royalty interest (NPRI) refers to the owner of a NPRI not participating in the negotiation and execution of oil and gas leases, the receiving of lease bonus monies, and the receiving of delay rental monies.  NPRI receive royalty monies if and when distributed.  Of course, all of the particulars of a NPRI are typically set forth in the document that reserves the NPRI.  The fact that it is called 'non-participating' has nothing to do with wether or not the interest participates in post-production cost.  Both participating and NPRI can and do pay some post-production cost.  From an Operators point of view, once a lease is executed, save for pooling in Texas, the NPRI and royalty interest are treated the same as far as what they will and will not be charged with.

 

Royalty (as you called it 'Participating royalty') and NPRI are cost-free in that they do not pay for drilling, completion, etc.  The lease document controls as to other charges, regardless of wether or not it is a royalty interest or NPRI, such as compression, dehy, etc and as we know, some organizations will pass as much of these cost to royalty owners as they can get away with.  Texas has some case law that allows for royalty owners, including NPRI, to be charged for some reasonable cost to make the product 'marketable'.  Even leases that state that post-production charges are not allowed are finding that the language, in some cases, is not sufficient to eliminate all post-production charges. 

 

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Permalink Reply by robert minton on December 8, 2011 at 15:12

CHECK Texas case law

 

 

 

 

 

 

 

 

 

Check Texas case law

 

 

 

 

 

 

Check Texas case law!

 

 

 

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Permalink Reply by Ken Boone on December 7, 2011 at 5:04

How can someone tell if they have a non participating royalty interest(NPRI)? Is this informtaion

stated in a deed?

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Permalink Reply by Skip Peel - Mineral Consultant on December 7, 2011 at 5:07

There would be a document filed in the parish courthouse/clerk of court records that conveyed the nonparticipating mineral interest to you or your predecessor if you inherited the interest.

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