What is an Overriding Royalty Interest?

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Answers to what is an Overriding Royalty InterestAn overriding royalty interest is the right to receive revenue from the production of oil and gas from a well. The overriding royalty is carved out of the lessee’s (operator’s) working interest and entitles its owner to a fraction of production. It is limited in duration to the terms of an existing lease, but is not subject to any of the expenses of development, operation or maintenance.

Overriding royalty interests are not connected to an ownership of minerals under the ground, but derive from the ownership of a portion of generated revenues. It is a fractional, undivided interest in the proceeds from the sale of oil and gas produced from a specific tract or tracts. An overriding royalty interest expires once the lease has expired and production has stopped, whereas minerals and royalties owners maintain their ownership after production stops.