… THE DIFFERENCE BETWEEN LEASEHOLD ROYALTY AND MINERAL ROYALTY?
The person who owns the mineral rights under a piece of land generally is called a “landowner.” The original mineral rights always include the right to explore, drill and produce those minerals and the right to receive a royalty. The landowner owns these rights regardless of whether or not there is a lease currently outstanding against the mineral rights. The mineral estate royalty right simply remains dormant until a lease it signed. When an oil and gas lease is signed by the landowner having the authority to temporarily transfer to another person his right to explore, drill and produce his property (which he does by signing a lease), the lease states exactly how much royalty the Lessor (landowner) has bargained to receive from the Lessee (person or company taking the lease) if the land begins to produce.
This means that the mineral royalty “runs with the land” and is owned by the landowner even when there is no oil and gas lease outstanding covering the land. A leasehold royalty, however, exists only after the lease has been signed and delivered, and it serves to quantify the amount of royalty the landowner will receive throughout the life of the lease if it should begin to produce.
An oil company can own mineral rights just like any other person. This is where a well-trained lease analyst is indispensable.
Companies call this a “fee minerals interest” which is a perpetual ownership. The company’s lease analyst will maintain a permanent record of their deed ownership in the mineral rights in that land, usually classified as a “Company Fee” interest. If the company owns “executory rights” (right to negotiate and sign a lease covering their mineral rights) they can sign a lease over to another company and retain a royalty share stated in the lease (such as 1/8). That lease will then be set up by the Lessor company’s lease analyst as a separate record, because it has (1) created a lease royalty interest, (2) a specific starting date and termination date, and (3) many covenants and conditions that must be tracked by the Lessor company. All of this must be maintained by the Lessor company lease analyst to properly protect and maintain the company’s valuable assets: mineral royalty and lease royalty.
