Definition - What does Overriding Royalty mean?
An Overriding Royalty, also known as overriding royalty interest is a concept of monthly royalty payments made to the overriding royalty owners by oil and gas operators who own working interest rights on a particular lease. The royalties are only paid if a particular lease is producing. If a particular owner owns an overriding royalty interest in a producing lease, he/she has the right to receive revenue from the sale of hydrocarbons produced without investing anything into the drilling activities or sharing any well operating expenses.
Petropedia explains Overriding Royalty
There are three types of royalty ownerships that exist in the oil and gas royalty business:
- Working Interest (WI)
- Overriding Royalties (ORRI)
- Royalty Interest (RI)
Overriding royalty interests are fractional proportions of ownerships that a person owns in a particular acre of land, specified tracts, or pooled units which are limited in duration to the terms of an existing lease and are not subject to any portion of the expense of development, operation or maintenance. The operators who generally owns a working interest type ownership in a particular lease/leases bear all the expenses in such scenarios.Overriding royalties are abbreviated as “ORRI type royalties” and are very much similar to mineral royalty interest with only a small difference that any owner who owns an ORRI type of ownership is not entitled of owning minerals under the ground whereas if any owner owns RI type ownership, he is entitled to have ownerships of minerals as well receive royalty payments from operators.