+ What’s the difference between a mineral interest and a royalty interest?

These terms are often used interchangeably, but they do differ in meaning. Although there are numerous differences, we will highlight the most important.

A “mineral interest” is an interest in the right to explore and produce all oil, gas, and other minerals (sometimes referred to as “hydrocarbons”) underlying the surface. A mineral interest owner has the right to drill their own well, but due to the high cost of drilling, it's usually not economically feasible. In lieu of drilling their own well, a mineral interest owner can execute an oil and gas lease, which permits an oil and gas company to drill a well. Upon executing an oil and gas lease, a mineral interest owner will receive a bonus per acre and delay rental payment.

A “royalty interest” is an interest in the right to payment of production if a well has been drilled. This is typically called a royalty payment. These payments are based off the royalty stated in the oil and gas lease and the amount of production from the well. Unlike a mineral interest owner, a royalty interest owner does not have an ownership interest in the minerals underlying the surface, but instead only has an ownership interest in the royalty payments from the production of the minerals.

Can you own a mineral interest and a royalty interest?

Yes! Typically in Oklahoma, most mineral interest owners will also own the royalty interest, however, you can also only own one or the other.

I’ve inherited a mineral interest. What should I do?

If you think that you’ve inherited a mineral interest, you’ll want to make sure that this transfer of interest has been recorded with the County Clerk of each County that your mineral interest is located in. A transfer of mineral interest can take several forms. One type of transfer is through a Deed. Another is by order of a judge in a probate case. If the minerals under the lands are being produced you will also want to give a copy of the transfer to the Operator of the well in order to transfer payments into your name.

Where can I find information about my mineral interest, including how much I own and where to look?

All transfers of ownership of mineral interest are filed in the public records with the County Clerk in the County the minerals are located. These records are grouped (or, "indexed") by land section. Each index is a catalog of all deed, mortgages, oil and gas leases, and other documents that affect the lands. For example, the index for Section 30-14N-05W in Canadian County, State of Oklahoma, contains a complete list of every deed conveying lands in Section 30-14N-05W.

There are also online resources that index documents recorded with the County Clerk such as OKCountyRecords.com. Commonly, only documents recorded in recent decades appear in the online resources, and there are a handful of counties that are not available online at all. If your County isn't found on OKCountyRecords, you should search online to see if those records are available elsewhere.

I keep getting Applications and Orders from the Oklahoma Corporation Commission. What are they?

The Oklahoma Corporation Commission (the “OCC”) is responsible for all orders that govern the drilling and production of wells in Oklahoma. Owners of mineral interests covered by these wells are named as respondents on the applications for a number of these orders.

If you are listed as a respondent, you should have received notice of these applications by mail. You should find your name listed as a respondent. If your name is not listed, try checking for the names of your relatives. These applications will also name an Applicant who has applied for the order and is generally the party planning to drill. Generally, the Applicant has already preformed a title search and knows which parties own a mineral interest. You can contact the Applicant via their contact information if you have any questions.

What is a Force Pooling Order?

Wells are drilled on defined tracts of land called “drilling and spacing units.” The Operator of a well can only drill when all mineral interest owners have agreed to produce the minerals in a unit. The mineral interest owners can lease their minerals or they may choose to participate themselves in the drilling, thereby sharing in all drilling and associated production costs. But what if the Operator can’t find the owners of the minerals or what if not all mineral interest owners want to develop the minerals in a unit?

The Oklahoma Corporation Commission (the “OCC”), the governing body of all drilling and production in Oklahoma, allows Operators to force pool any mineral interest owners. Force pooling is accomplished through a Pooling Order granted by the OCC. Operators can only force pool mineral interest owners once they have attempted good-faith negotiations to reach an agreement to produce the minerals through leasing or participation. Operators may also force pool mineral interest owners that they were unable to locate after making a good-faith effort to do so. Force pooling allows the Operator to continue moving forward with their drilling plans, ensuring the minerals underlying the unit are not wasted. The OCC has provided more information about Pooling Orders HERE.

Where do I find information about production on my land?

Production on wells is reported to the Oklahoma Corporation Commission (the “OCC”). You can search for activity HERE. There, you can search for production on your land by entering in the legal description for the section of land you own in, for example Section 30-14N-05W. You’ll be able to see the wells drilled and the corresponding documents of activity for each well.

I’ve received an offer to lease or purchase my minerals. Why am I being contacted and how is my information being found?

All information for your mineral rights are filed with the County Clerk in the County where the minerals are located. Oil and Gas companies, including landmen, use these public records to find you. Before signing any sort of lease or purchase agreement, it’s important that you determine what mineral rights you actually own and whether it’s in your best interest to lease or sell.

How can I determine the value of my mineral interest?

The value of mineral interest can be difficult to pinpoint since this value frequently changes. While mineral interest values are dependent upon a number of factors, we’ll discuss some of the most common ones below:

• Oil and gas prices: Oil prices are constantly changing and are not only dependent on supply and demand, but on predicted future supply. When oil prices are high, so are mineral interest values. And when oil prices are low, so too are the values of mineral interest.
• Location of the mineral interest: Oil and gas is not evenly distributed underground and is instead found in reservoirs below the surface. Mineral interests located in areas with known reservoirs have greater value than mineral interests located where no reservoirs exist.
• Size of the mineral interest: Although important, location isn’t everything—the amount of mineral interest that you own is also taken into account. The greater amount of mineral interest that you own, the greater the value of that interest.

I've signed an Oil and Gas Lease. What happens next?

By signing an Oil and Gas Lease, you have granted the oil and gas company the right to drill and produce the minerals that you own. In exchange for this right to drill and produce, the oil and gas company will make a lease bonus payment and delay rental payment to you upfront. If the well produces, you will also receive a portion of production profits in the form a royalty payment.

These rights have not been granted indefinitely, but for a term of years as defined in the Lease. For example, your lease may contain a three year term. This means that if no well to produce your mineral interest is drilled, the lease will expire when three years have passed. On the other hand, if minerals are produced, the lease will continue (also referred to as “held by production”) until production ceases.

Click HERE and HERE to read our post about other clauses and provisions found in an Oil and Gas Lease.

What is a Division Order?

If you own producing mineral interest, you may have received a Division Order. A Division Order is a document that is used by the Operator of a well to make payments from the proceeds of the well to the royalty interest owners.

What information is found in a Division Order?

In Oklahoma, Division Orders are required by law to include the following information:

• Your name
• Your address
• Your social number or tax identification number
• Your division of interest, which is the amount of mineral interest you own in the producing well
• A provision requiring notice of change of ownership—for example, if you sell your mineral interest, then you must notify the operator

Division Orders may also contain additional provisions, such as:

• A legal description of the mineral interest
• Warranty of title
• An indemnification clause
• Terms of revocability
• Terms of payment more specific than provided in the lease, like purchase price deduction provisions or minimum payment provisions

Note that if any terms of the Division Order conflict with the terms of your lease, the conflicting terms found in the Division Order are not valid, unless you have previously agreed to these changes.

Do I have to sign a Division Order?

In some states, royalty owners must execute a Division Order before the Operator will make royalty payments. In Oklahoma, however, you are not required by law to sign the Division Order. The only prerequisite to payment in Oklahoma is that you have marketable title. You will need to fill out a W-9 for tax purposes.

What is a division of interest? How is it calculated?

Your mineral interest in the unit will be reflected as a division of interest, also known as a DOI, on the Division Order. Click HERE to read our post about how this DOI is calculated.