• Sell Your Mineral Rights
    • Sell Oil & Gas Royalties
    • Why Sell Your Mineral Rights?
    • How to Value Mineral Rights
    • Are Your Minerals in an Active Area?
    • Four Things for Older Mineral Owners to Consider
    • Oil & Gas Slowdown: A Mineral Owner’s Perspective
  • Manage Your Mineral Rights
    • Types of Mineral Rights
    • Mineral Management
    • Locating Your Mineral Rights (and Leases)
    • Oil & Gas Royalty Statement
    • Transferring the Ownership of Mineral Rights
    • Mineral Management Books
    • Ownership Risks
  • Learn to Buy Minerals
    • Buying Mineral Rights
    • Online Course
  • Contact Us
    • About
    • Contact
  • 214-444-8805

Overriding Royalty Interest (ORRI)


Interest in the production from an oil or gas well, carved out of the working interest


Request an offer for your Overriding Royalty Interest (ORRI):








Congratulations. Your message has been sent successfully.
Error, please retry. Your message has not been sent.

We never spam or give your address away.

What is an Overriding Royalty Interest?


An Overriding Royalty Interest IORRI), commonly referred to as an override, is a fractional, undivided interest granting the right to receive proceeds from the sale of oil and gas. It is not an interest in the minerals themselves, but rather in the proceeds of the sale of oil and gas. ORRIs are often assigned to geologists, petroleum engineers, landmen, and other professionals as compensation for their services.

Overriding Royalty Interest is carved out of the working interest (WI) of the well and usual conveyed to geologists, landmen, and other oil and gas professionals as financial compensation.


Overriding Royalty interest is free from the cost of production. The owner does not invest in the drilling activities or sharing well operating expenses.


Overriding Royalty Interest (ORRI) agreements terminate when the oil and gas terminates. It is not an interest in the mineral, but rather a share of the production. When the well or wells become uneconomical, the lease is released, terminating both the royalty and overriding royalty interest.

Calculating Overriding Royalty Interest


Because Overriding Royalty Interests are carved out of the working interest in an oil and gas lease and is not based on acreage, the calculation is simple.

An ORRI is a straight percentage.

For example, a 2% override would appear on the royalty statement as 0.02 interest in the proceeds from the sale of the lased hydrocarbons.

The exact details of an override are dependent on the language. ORRIs can be interpreted literally or may have proportionate reduction language. It is always a good idea to have an attorney review the ORRI language and the oil and gas lease.

Just like any other mineral right, ORRIs can be purchased or sold.

Overriding Royalty Interest Example


The mineral estate can be severed from the surface, beginning two separate chains of title. The mineral owner has the right to explore and develop the minerals, but the vast majority do not have the finances or knowledge to drill and operate a well.

When XYZ Oil and Gas Company identifies a drilling location, negotiate leases with the mineral owners. In Texas, mineral owners typically receive 25% of the royalties (free of the cost of drilling and operating). The XYZ Oil and Gas Company receives 75% of the royalties in the form of Working Interest (WI) but also incurs the burden of paying for all expenses related to drilling and operating the wells.

Because drilling a well is very expensive, with most of the costs incurred before the well begins producing, operators often grant landmen, geologists, petroleum engineers, and other professionals an Overriding Royalty Interest in the lease. The override is usually a small percentage that is carved out of their 75% working interest.

Overriding Royalty Interest (ORRI) can be assigned at any time. A landman may agree to acquire leases for XYZ Oil and Gas Company in exchange for 50% cash and 50% ORRI (value = 0.05 ORRI) on future wells drilled on a specific tract (or tracts) of lands. However, the ORRI will not be of economic value until an economically producing well is drilled, at which point the landman will receive his or her share of the royalties. ORRIs may also contain proportionate reduction language.

A lot of ORRI's are sold in the first three months of production, before the well declines in value (and before anyone really knows how successful the well will be). This is a way for the landman to turn ORRI's into cash.

The same process is often used to compensate geologists, petroleum engineers, and other professionals.

How to Find Out Of You Inherited an ORRI


You might have inherited an Overriding Royalty Interest (ORRI) and not realize it. How do you find out?

  • Perform a title search.
  • Hire a Landman.

Obviously, the cheaper option to do your own title search. Running the title is not as difficult as it sounds.

First, locate the county office where deed records are kept. This is often the County Clerk or the County Courthouse. Some states have an office for the "Recorder of Deeds" or the "Register of Deeds".

Search Google for: [state] + deed records

Some counties have online records going back a few decades. Others do not. If you live closeby, you can search the deed records in person and perhaps enlist the assistance of the people working there. Being able to ask questions can be really valuable - especially when you get stuck, are having trouble reading hand-written documents, or are unsure of what something means.

What to search for

There are two main ways to search the deed records. The most obvious way is to enter your name (or the name of relatives who have passed away) into the grantor/grantee search box. The other is to search by legal description. You will need to follow the chain of title back to the land patent (when the land was first granted by the government).

You are looking for:

  • Oil and Gas Leases
  • Mineral Deeds
  • Conveyance Documents
  • ORRI Assignments
  • Deeds (sometimes minerals are reserved or granted or a deed might reference a previous reservation)

When to Hire a Landman

If you want to perform a title search yourself, or you try but get stuck, you can hire a landman to search the records for you. Most landmen are highly skilled in running title, spending much of their careers searching for mineral owners for companies that want to extract oil and gas from a specific tract of land.

Overriding Royalty Interest (ORRI) Value


ORRI and MI/RI (mineral/royalty) interests in the same tract of land may be valued differently. Unlike the mineral interest, which lasts in perpetuity, overriding royalties expire with the lease. Therefore, overrides tend to be valued less than MR/RI. Also, non-producing ORRIs are extremely risky and because there is no production, they are difficult to value. The following factors influence the value of mineral rights, including overriding royalties:

Minerals in the hottest shale plays are more valuable than those in older fields with conventional wells.


Producing minerals are worth more than non-producing minerals because they are generating revenue.


Highly productive wells (and off-set wells) can increase the value of your minerals.


Favorable lease terms (such as a 25% royalty) favorably impact the value of the leased minerals.


A small number of operators are unethical, and their reputation automatically devalues your minerals.


When oil and gas prices drop, revenue drops, and sometimes operators are unable to continue operations..


Why Sell?


People sell mineral rights for a variety of reasons. As a mineral owner, you are fortunate to own an asset that can be quickly converted to cash. It is advisable to sell while you are still receiving royalties - after all, oil and gas are finite resources and all well eventually run dry. It's better to sell early and maximize the value.

Why People Sell Their Minerals Rights:


With the price of oil declining and operators practically giving gas away, I decided to sell before the bottom falls out.J. Cruz

I am on a fixed income, and the sale of these minerals will help me secure stable housing. My children will be okay if even if they don't inherit these minerals.S. Owens

My oil wells have been producing for decades and the reserves are almost depleted. Once the wells are plugged, the value will be significantly lower. I'd rather cash out now.R. Robertson

I inherited mineral rights, but don't want to be involved with fracking and fossil fuels. I would prefer to support renewable energy and do my part to reverse climate change.P. Harris

Request an Offer:









Success! We will contact you shortly. Meanwhile, free to contact us at 214-444-8805
Error, please retry. Your message has not been sent.



About Blue Mesa Minerals

We buy producing and non-producing minerals

in Texas, New Mexico, Kansas, Oklahoma, North Dakota, and

other oil and gas producing states.


We also buy wind energy royalties from landowners who host wind turbines on their property.


Contact Us

214-444-8805

Privacy Policy

Terms and Conditions

Disclaimer



© Copyright 2021 Blue Mesa Minerals LLC. All Rights Reserved.


Blue Mesa Minerals
✖
A-
On a scale of A+ to F

Reviewed, Evaluated and Accredited

Meets All 26 Standards of Accreditation

BBB Accredited since 9/2/2019

Click here for BBB Business Profile Report on Blue Mesa Minerals

BBB Accredited:

BBB Rating as of:

Verify Blue Mesa Minerals