Royalty Interests Explained: Regular, Overriding, and Non-Participating Royalty Interest

Oil and gas interests come in several forms, each granting a share of production revenue without the burden of production costs. Understanding the distinctions between regular royalty interests, overriding royalty interests (ORRI), and non-participating royalty interests (NPRI) is crucial for mineral owners and industry participants. These interest types confer different rights and financial implications. Generally, all three types provide income from oil or gas production free of drilling and operating expenses. However, they differ in origin, duration, and the rights associated with owning them. Below we clarify each type – focusing on nationwide practices with notes on Texas, Oklahoma, and Louisiana – and discuss what they mean for potential income streams and owner rights.

Regular Royalty Interest (Lessor’s Royalty)

A regular royalty interest typically refers to the landowner’s royalty reserved in an oil and gas lease. It is the share of gross production (or its value) that the mineral owner (lessor) retains when leasing mineral rights to a company (lessee). This royalty is usually expressed as a fraction or percentage of production. Importantly, the royalty interest owner does not pay any costs of drilling or production – those costs are borne by the working interest (the lessee/operator). For example, a lease might grant the mineral owner a 12.5% royalty, meaning the owner gets 12.5% of production revenue while paying none of the well’s expenses. Historically, a one-eighth (12.5%) royalty was common, but modern leases often negotiate higher rates (such as 3/16, 1/5, or even 1/4, i.e. 18.75%–25%) especially in competitive areas. The remaining share of production (75%–87.5%) goes to the operator as revenue.

Regular royalty interests “run with the land,” tied to ownership of the mineral estate. The mineral owner has the executive right (the right to lease the minerals) and typically received an upfront lease bonus and possibly delay rentals when the lease was signed. Because the royalty interest is part of the mineral owner’s retained rights, the mineral owner retains ownership even if the lease expires and retains has the ability to re-lease his interest at a different royalty. They can lease the minerals again in the future and negotiate a new royalty. In other words, ownership of a mineral/royalty interest continues even if production ceases, allowing the owner to benefit from future development. In Texas and Oklahoma, this lessor’s royalty is a form of real property interest tied to the land’s mineral estate, and it remains intact across successive leases. Louisiana law similarly recognizes the landowner’s royalty; under the Louisiana Mineral Code, a “royalty” interest is defined broadly as any interest in production (or its value) payable to the lessor or others as a result of a lease. In all states, the regular royalty interest gives the mineral owner a continuing stake in production revenue without any operational responsibilities.

Overriding Royalty Interest (ORRI)

An overriding royalty interest (ORRI) is also a share of production revenue free of production costs, but it is fundamentally different in origin and duration from a lessor’s royalty. An ORRI is carved out of the lessee’s working interest in a lease rather than out of the mineral owner’s estate. In practice, this means an ORRI is an interest in the proceeds from oil or gas production granted on top of the landowner’s royalty. It does not involve ownership of the minerals themselves – it is a contractual interest in the production from a specific lease. ORRIs have been used to compensate a broker or 3rd party. For example, an oil company might assign a geologist a 2% ORRI in a lease as part of their compensation for identifying a drilling prospect. The geologist then receives 2% of the gross production revenue from that lease without paying any costs, while the oil company’s effective working interest revenue is reduced by that amount.

Illustration: A typical distribution of production revenue in a lease. In this example, the mineral owner has a 25% royalty and the operator initially holds a 75% working interest. If a 2% ORRI is granted to a third party (e.g. a geologist), the ORRI holder receives 2% of production revenue. The mineral owner’s 25% royalty is unaffected, and the operator’s net share is reduced to 73%. This pie chart depicts how the ORRI is carved out of the lessee’s share.

An overriding royalty interest is “cost-free” to the holder just like a regular royalty – the ORRI owner is not responsible for drilling, operating, or any production expenses. However, the ORRI owner also has no say in operations or leasing decisions (they have no executive rights or control; they simply receive a check if production occurs). Crucially, an ORRI is tied to the specific oil and gas lease under which it was created, and it expires when that lease ends or is terminated. It does not “run with the land” beyond the lease – if the lease is not renewed or production stops and the lease is released, the ORRI vanishes. The ORRI holder has no residual interest in the minerals themselves. This limited term is why ORRIs can be riskier than mineral or regular royalty interests: as one source explains, when the lease expires and production stops, the ORRI “ceases to exist”, whereas a mineral/royalty owner would still own the minerals and could lease them again in the future. In essence, the ORRI is a temporary right to share in production for the life of a lease, making it a riskier asset – its value is entirely dependent on the current lease’s productivity.

State perspectives: ORRIs are recognized in all major oil-producing states and are especially common in places like Texas, Oklahoma, and Louisiana for industry dealings. In Texas and Oklahoma, ORRIs are frequently created in assignments of leases – for instance, if one company sells a lease to another, the assignor might retain an ORRI as part of the deal. The terms of the ORRI (fraction and applicable acreage or depths) are defined in the assignment document. Since ORRIs have no rights in the underlying mineral estate, they do not affect the mineral owner’s royalty; they are an additional burden on the working interest. Louisiana also permits ORRIs on mineral leases; although Louisiana’s civil law terminology differs, an ORRI in Louisiana is treated as an interest in production from the lease. Notably, Louisiana’s forced pooling statute even addresses how ORRI owners are paid by operators in certain situations, reinforcing that ORRIs are a recognized interest. In all states, the key point is that an ORRI lasts only as long as the lease produces or remains in effect – it does not continue once the lease terminates. Any new lease on the property would not include the old ORRI, unless a new agreement recreates it.

Non-Participating Royalty Interest (NPRI)

A non-participating royalty interest (NPRI) is a royalty interest carved out of the mineral estate, but with one critical limitation: the NPRI owner holds no “executive” rights to lease or participate in bonuses or rental payments. In other words, the NPRI owner is entitled to a portion of production revenue (a royalty) without the ability to make leasing decisions or share in upfront lease bonuses. The term “non-participating” refers to the fact that the NPRI owner does not participate in the negotiation or benefits of the lease beyond the royalty itself. An NPRI is typically created when a mineral owner sells or transfers rights but wishes to retain a royalty interest, or when an owner gifts or carves out a royalty share to someone (for example, reserving a 1/16th royalty interest in a deed). The NPRI is expressed as a fraction of production (or of the royalty) from the property. Like other royalty interests, an NPRI is cost-free – the NPRI holder does not pay for drilling or operating the well, only typically their share of production taxes, if applicable.

What distinguishes an NPRI is that the NPRI holder cannot execute leases or collect lease bonuses or delay rentals – those rights remain with the executive mineral owner who holds the leasing rights. If an NPRI is carved out of a royalty, the fractional interest is carried on to future leases, because the NPRI owner doesn’t have executive rights.

Legally, an NPRI is often considered a real property interest in many states (like Texas and Oklahoma), just like a mineral interest, but stripped of the executive rights. In Texas, NPRIs are common; they are typically created by a reservation in a deed (e.g., a landowner selling property might reserve a perpetual 1/8 royalty interest in all oil and gas). Texas courts recognize NPRIs and have developed doctrines (such as “fixed vs. floating” NPRIs) to interpret them in deeds. Oklahoma also allows NPRIs under similar principles – the NPRI holder in Oklahoma has no leasing rights or bonus rights, but will receive their share of production if a well is brought in. Both states treat NPRIs as enduring interests that remain with the holder (or their heirs/assigns) until production occurs (they do not expire on a time clock, although they can be conveyed or inherited like other real property). Louisiana, by contrast, does not use the term “NPRI” in its Mineral Code, but it has an analogous concept called a “mineral royalty.” A mineral royalty in Louisiana is the right to receive a share of production (free of cost) from property, without having executive leasing rights – essentially the same as an NPRI. One key difference in Louisiana is that a mineral royalty (or any non-participating interest in minerals) is subject to prescription, meaning it will expire after 10 years of non-use (no production) unless there is production or certain operations during that period (this is similar to Louisiana’s rule that mineral servitudes terminate after 10 years of non-production). This means in Louisiana an NPRI-like interest will not last indefinitely if the land stays undeveloped. In Texas and Oklahoma, by contrast, an NPRI can theoretically last forever (or until production is found) since there is no automatic time limit, though it remains dormant until a lease produces.

Financial Implications and Key Differences

Understanding these royalty interest types helps mineral owners and investors gauge their income potential and rights in oil and gas development. Here we summarize key differences and their practical implications:

Source of the Interest: A regular royalty interest is reserved from the mineral owner’s rights under a lease (part of the mineral estate), whereas an ORRI is carved out of the working interest of a lease (given by the lessee). An NPRI is carved out of the mineral estate like a royalty, but by a separate conveyance – it’s essentially a slice of the landowner’s royalty given to a third party.
Cost Obligations: None of these interests bear drilling or operating costs. All three types – regular royalties, ORRIs, and NPRIs – are non-cost-bearing. The well’s expenses are paid by the working interest owners (the operators), so royalty and overriding royalty holders receive their share of gross production revenue without deductions for drilling or ongoing operations. (They may still bear post-production costs like processing or transportation if the lease allows, and are subject to production taxes, but not the cost of getting the oil/gas out of the ground.)
Right to Lease & Bonuses: Regular royalty interest owners (mineral owners) hold the executive rights, meaning they control leasing and earn bonuses/rentals. In contrast, NPRI owners have no leasing authority or bonus rights – they do not participate in lease negotiations or receive bonus payments. ORRI owners also lack any leasing rights (an ORRI holder is not a party to the lease; they’re simply an assignee of a leasehold or contractual interest). The executive right remains with the mineral owner (or whoever they’ve delegated it to). This means NPRI and ORRI holders are passive: their financial fate (i.e., whether a well is drilled) depends entirely on the decisions of others (the executive leasing the minerals, and the operator developing the lease).
Duration and Expiration: A regular royalty interest (tied to the mineral ownership) is owned until sold, and the owner can sign multiple leases over time. An NPRI likewise continues as an interest in the property (in TX/OK), though it only produces income if and when production happens. In contrast, an ORRI exists only for the life of a specific lease. Once that lease expires (or the well stops producing and the lease is released), the ORRI terminates automatically. The ORRI holder has no future claim on production under a new lease unless a new ORRI is granted. Because of this, ORRIs are often viewed as more speculative. As one expert notes, when a lease ends, an ORRI owner “no longer own[s] anything,” whereas a mineral or NPRI owner still owns an interest in the property and can benefit from the next lease. In Louisiana, as noted, NPRI-like interests (mineral royalties) can also expire after a statutory period of non-production, adding another consideration for duration in that state.
Typical Size and Income Potential: Lessor’s royalties are often a significant fraction of production – commonly in the 12.5% to 25% range of gross revenue, depending on the lease terms. This is the primary income stream for mineral owners. Overriding royalties are usually much smaller fractions (since they come out of the working interest’s share) – often on the order of a few percent or less (for example, a 1% ORRI or 2% ORRI is common), though they can vary. Because they’re small slices of production, their dollar value depends on how productive the well is; a modest ORRI on a very prolific well can still generate substantial income, but if the well or lease isn’t productive, the ORRI might be of little value. NPRIs can range widely – and can be fixed or floating NPRI. The NPRI’s value similarly hinges on production occurring. One advantage for NPRI holders is that, unlike an ORRI, their interest persists across all future leases on the property (again with the Louisiana caveat) – so if the first lease doesn’t produce but a later one does, the NPRI holder will benefit at that time. In Texas and Oklahoma, NPRI owners sometimes must ensure their interest is “ratified” or acknowledged in new leases to clarify how their share is calculated (especially if the lease royalty changes), but they are entitled to their stated fraction of production regardless of the lease royalty negotiated by the executive.
Value to Owners: For mineral owners, knowing these distinctions helps in evaluating offers and decisions. Selling or reserving an NPRI means giving up control (no bonus or say in leasing) in exchange for a passive royalty interest – this might appeal to those who want to retain some income without involvement in leasing. Accepting an ORRI as part of a deal (if you’re a geologist or broker) can be lucrative if the well hits, but remember it expires with the lease, so its long-term value is uncertain. Mineral owners offered an ORRI in someone else’s lease should realize it’s a temporary income stream, however an ORRI can last a long time if there is steady production in paying quantities that acts to hold the lease. Overall, regular royalties (as part of mineral ownership) are the most secure long-term interests, since they are tied to owning the resource. NPRIs provide a middle ground: a share of production without costs or duties, but dependent on someone else’s actions to realize value. ORRIs are more like a short-term royalty tied to a specific venture. Each type can provide significant income, but the rights and risks differ: e.g., an ORRI might yield fast cash if a well comes in, yet becomes worthless if the lease terminates, whereas an NPRI might lie dormant for years until production finally occurs.

Regular royalty interests, overriding royalty interests, and non-participating royalty interests all allow one to earn revenue from oil and gas production without paying the costs to drill or operate wells. The regular royalty (lessor’s royalty) is part of the mineral owner’s bundle of rights – it ensures the landowner a share of production (often 1/8 to 1/4) and comes with the ability to lease and negotiate terms. The ORRI is an “add-on” royalty granted out of the operator’s share, often smaller in percentage and ending when the lease ends. The NPRI is a royalty carved out of the mineral estate that grants production income but no executive rights. By understanding these distinctions, mineral owners and investors in Texas, Oklahoma, Louisiana, and elsewhere can better assess the value and limitations of the interests they own or are considering. Whether one is negotiating a lease, buying an interest, or reviewing an estate, knowing the differences between a royalty interest, an overriding royalty, and a non-participating royalty ensures clarity about who gets paid, how much, and for how long. Such knowledge empowers owners to make informed decisions and to appreciate the potential income streams and rights (or lack thereof) associated with each type of interest.

Sources: The distinctions and examples above are based on industry-standard definitions and legal principles from multiple jurisdictions, including explanatory resources on mineral and royalty interests and state-specific guidance from Texas, Oklahoma, and Louisiana oil & gas law. These provide a foundation for understanding how each interest operates and their financial implications for the interest holders, however it is always recommended to speak with an oil and gas attorney related to these matters.