This episode of the Mineral Rights Podcast explores the critical distinction between fixed and floating Non-Participating Royalty Interests (NPRIs). Did you know that an NPRI allows owners to receive royalty payments without the right to lease minerals or receive bonus payments? They are derived from the mineral estate and allow the grantee to receive a royalty on production. We also discuss how the classification of an NPRI as fixed or floating can significantly impact royalty payments. Fixed NPRIs are calculated based on total mineral production and remain constant regardless of lease terms, while floating NPRIs are calculated as a fraction of the lease-specified royalty and can vary. If you own mineral rights that are burdened by an NPRI or if you own an NPRI, this episode is a must-listen!
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What is a Non-Participating Royalty Interest?
NPRIs allow you to receive royalty payments without the ability to lease minerals or get bonus payments. NPRIs are carved out of the mineral estate so they are generally perpetual in nature. They also can be granted even if there are no producing wells on your minerals. If you own a floating Non-Participating Royalty Interest (NPRI) (more on that below), it means you’re at the mercy of whoever holds the executive rights to make good leasing decisions on your behalf.
The classification of an NPRI as fixed or floating can dramatically affect how much you’re paid in royalties. In some cases, the difference can be substantial – potentially shifting from a minority to a majority share of the royalties. If your mineral rights are burdened by an NPRI, this classification can significantly impact how much you get paid.
What is the Difference Between a Fixed NPRI and a Floating NPRI?
Fixed NPRIs are based on total mineral production and don’t change with lease terms. This means your share remains constant regardless of the royalty rate negotiated in the lease. Floating NPRIs, on the other hand, are calculated as a fraction of the lease royalty and can vary over time. This means your payments could increase if a higher royalty rate is negotiated, but they could also decrease if a lower rate is accepted.
How Do I Tell Which One I Have?
The language in your deed is crucial. Even small differences in wording can determine whether your NPRI is fixed or floating. For example, phrases like “one-fourth royalty in all oil and gas” often indicate a fixed NPRI, while “one-half interest in all royalties received” typically suggests a floating NPRI. However, interpretations can vary, and historical context (such as the common one-eighth royalty of the past) can complicate matters further.
It’s essential to consult with a qualified attorney to interpret your specific NPRI, as misunderstandings can lead to significant underpayment of royalties. An attorney can help you navigate the complex language in deeds and understand how courts in your state have interpreted similar provisions. This is especially important before signing division orders or when you notice changes in your royalty payments.
Keep copies of all your deeds and leases. This documentation can be vital if there’s ever a dispute about your royalty payments. Having these documents readily available can help you quickly address any discrepancies in royalty calculations, particularly if there’s a change in operators or if you suspect you’re not being paid correctly based on your understanding of your NPRI.
Remember, understanding what you own is key to maximizing the value of your minerals and royalties. Don’t leave money on the table – take the time to understand your NPRI classification.
Want to learn more? Listen to the full episode above or on your favorite podcast app.
Resources Mentioned in this Episode
- MRP 3: How to Calculate your Net Revenue Interest in 3 Simple Steps
- Fixed vs. Floating Non-Participating Oil & Gas Royalty in Texas: And the Battles Rage On . . .
- Fixed vs. Floating Non-Participating Royalty Interests in Oil & Gas (NPRIs)
- Fixed vs. Floating Royalty?
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