Owning mineral rights can lead to consistent income through something called a royalty interest. But what exactly is a royalty interest, and how does it work? If you’re earning income from oil or gas wells, or thinking about selling your mineral rights, understanding the basics of royalty interests is essential.

In this post, we’ll walk you through the most important things to know about royalty interests, how they generate income, and what to consider before selling.

There are a few main types of royalty interests, and knowing the difference matters.

Mineral Rights vs Royalty Interest

Owning mineral rights means you own the underground resources. A royalty interest, on the other hand, gives you a percentage of the income from oil or gas production without having to pay for drilling or operations. You may hear this referred to as a non-operating interest.

Types of Royalties in Oil and Gas

There are a few key types of royalties:

• Landowner’s royalty: This is the share you keep when you lease your mineral rights.

• Overriding royalty interest (ORRI): This is carved out of the lease and doesn’t last forever.

• Non-participating royalty interest (NPRI): You don’t take part in leasing decisions, but you still earn a royalty.

Each type affects your income, your rights, and how easy it is to sell your interest.

Royalty income depends on production volume and market prices. If the well produces oil or gas and it sells, you get paid.

How Is the Royalty Calculated?

Your royalty check is calculated by multiplying the production revenue by your royalty percentage. So if your lease gives you 20% and a well sells $100,000 in oil that month, you’d be owed $20,000 (before any deductions).

When and How You Get Paid

Most royalty owners get paid monthly. Oil companies typically provide a check stub or statement that shows how much was produced, what it sold for, and your portion. It’s important to keep track of these for taxes and accounting.

There are two main ways to earn money from mineral rights: leasing and royalty payments.

Lease Bonus Payments

When you sign a lease, you may get a one-time bonus payment up front. This is just for agreeing to lease your rights.

Ongoing Royalty Income

Once a well is drilled and producing, you’ll start to get monthly royalty income. This income lasts as long as the well produces.

Which Pays More?

The lease bonus is a one-time payment, while royalties can provide long-term income. However, royalty checks can shrink or stop if production slows down or stops altogether.

Keeping up with your royalty income helps you stay informed and make better decisions.

Review Your Check Stubs

Look closely at your monthly statements. Make sure the volumes, prices, and deductions look reasonable.

Use Software or Spreadsheets

Many royalty owners use spreadsheets or online tools to track payments and compare them month to month. It helps to spot trends or errors.

Ask Questions if Something Seems Off

If your check is suddenly smaller or stops altogether, don’t be afraid to reach out to the operator. There might be a simple explanation, or it might be time to explore your options.

Selling a royalty interest can be a smart move, especially if the income has declined or you’d rather get a lump sum now.

You Can Sell Even Small Interests

At Fraction Royalty, we specialize in buying small royalty interests that other buyers won’t even look at. No interest is too small for us to evaluate.

You’ll Pay No Closing Costs

We cover all the fees and paperwork. We also give you a no-pressure offer within 24 hours and can close most deals within 7 days.

Timing Matters

If production is declining or the well is nearing the end of its life, selling sooner can help you capture the most value for mineral rights.

Not sure what your royalty interest is worth? That’s okay. We make it easy to find out.

Quick, Easy, No Obligation

We’ll look at your royalty statements, production data, and other factors to make you a fair offer. You’re never obligated to accept it.

Why Choose Fraction Royalty?

We focus on making the process simple. We respond fast, don’t pressure you, and close deals quickly. Even if you’re just curious, we’re happy to talk.

If you’d like to see what your royalty interest in oil is worth, fill out the contact form below. We’ll get back to you within 24 hours with an offer.