What are Royalty Interests

Oil and gas exploration is big business in the United States, and especially in Oklahoma, New Mexico, and Texas, but the industry is rife with complexities. American landowners own the right to develop the mineral resources that exist under their property’s surface, and they also can separate ownership rights of the surface and mineral rights underground.

Companies and individuals who want to develop oil and gas fields in New Mexico, Oklahoma, Texas, and other states often are concerned with surface and mineral rights as well as royalty interests. And they should be. Oil and gas companies have a reputation for shortchanging property owners on royalty payments, either accidentally or intentionally.

If your organization has a legal question about oil, gas, mineral, or royalty interests, the complex commercial litigation attorneys at Nix Patterson can help. Our law firm has extensive experience in protecting the interests of oil and gas royalty owners, including the Range Oil and Glass Class Action case settled for $87.5 million. Nix Patterson understands the complicated laws and regulations related to royalty disputes and can devise an innovative legal strategy to safeguard your rights.

Mineral Rights Overview

Mineral rights are the rights to oil, gas, and other mineral deposits under a property’s surface. These rights typically belong to the property owner but can be transferred to another party in a sale or lease. For example, Texas and Oklahoma landowners often sell or lease rights to mine for oil and gas to a company that pays them royalties for the privilege.

What Are Royalty Interests?

A royalty interest in the oil and gas industry involves ownership of part of the resource or its revenue. An organization or individual owning a royalty interest doesn’t have the operational costs necessary to produce the resource but still owns part of the resource or revenue. For example, when an oil or gas company mines land that you own, they must usually pay royalties to you, which are based on a portion of the income received from mining the oil or gas. It may be a fixed amount or based on the quantity of minerals produced in a given period.

On the other hand, a working interest involves an oil and gas operation investment where an investor is responsible for some operational costs, such as exploration, production, and drilling. When an investor has a royalty interest, they usually aren’t responsible for any operational costs associated with getting the mineral out of the ground and sold to customers.

When Are Royalty Interests Used?

When an oil and gas company wants to drill on a private citizens land, they will negotiate an oil and gas lease with the landowner. In exchange for allowing the oil and gas company to enter their property and drill for oil and gas, the landowner is given a royalty interest in any minerals that are extracted and sold. Usually, a royalty interest will be 12% to 25% of the value of the minerals extracted. Payments are often made monthly on large producing properties. Without granting royalty interests to landowners, oil and gas companies would not be able to drill for minerals on privately owned land.

Royalty interests are property rights that pass down from generation to generation or can be bought and sold. As long as oil and gas is being extracted from the land, the royalty interest usually lasts in perpetuity.

Royalty interest owners (sometimes call royalty owners) have rights under their leases, which require the oil and gas companies to follow certain rules in how they calculate the amount of money the royalty owner should received each month. While the language in oil and gas leases can vary, the vast majority of leases doo not allow oil and gas companies to charge any fees to the royalty owner related to operational costs.

Monthly royalty payments must be accompanied by a check stub or check detail that shows the volume and value of any minerals sold. The check detail must also show the amount of royalty owed and any fees that have been deducted from the royalty amount. Oftentimes, whether accidentally or intentionally, oil and gas companies miscalculate royalty payments or deduct fees from the royalty amount that they are not allowed to deduct.

What Damages Can You Receive in a Royalty Interest Claim?

Underpayment of royalties is a common dispute between oil and gas companies. The formula to determine the royalty amount is complex, so miscalculations are common. In addition, some companies want to limit their payments to property owners by engaging in fraudulent practices. These practices could be undetected for months or years, so the amount of royalties owed could be substantial.

  • Utilizing a low market price to determine royalty payments
  • Lying about the resource volume extracted from the ground
  • Deducting post-production expenses and adding unnecessary fees

If you think you were underpaid on royalties by an oil and gas company, you can take legal action. By starting a mineral royalty rights claim, you can demand fair compensation for your financial and other losses incurred by the oil and gas company’s improper actions.

Depending on the case specifics, you may be entitled to money from withheld royalty payments, underpayment, and improper deduction of fees. If you are owed money, most states require the oil and gas company to pay you interest on the amount of money they owe you.

It is advised to work with an experienced royalty rights law firm such as Nix Patterson. Our attorneys understand the complexities of mineral royalty rights cases, regulations, and proceedings specific to Oklahoma and New Mexico.

What If You Don’t Have a Lease with the Oil and Gas Company?

If you don’t have a lease or contract with the oil and gas company that extracts minerals from your land, you still may be able to obtain damages if you own at least a fraction of the mineral rights. However, working with an experienced royalty interests attorney is vital in this matter because it is challenging to obtain damages when you don’t have a contract.

Contact Nix Patterson’s Oil and Gas Attorneys

If your organization has an oil and gas dispute involving royalty interests, Nix Patterson can help. Our business litigation attorneys frequently represent classes of underpaid royalty owners, such as the recent class action against Laredo Petroleum Inc that resulted in a $6.6 million settlement on behalf of the class. Please contact our oil and gas attorneys today for a complimentary consultation about your royalty interest case.

Related Articles