Overriding Royalty Interest
A share of production carved out of the lessee's interest in a lease, in addition to the royalty reserved to the lessor, and free of the costs of production.
Detailed Definition
An overriding royalty interest (ORRI) is a share of production carved out of the lessee's side of a lease, in addition to the royalty the lessor reserved. The U.S. Bureau of Mines Dictionary of Mining, Mineral, and Related Terms (1968) defines overriding royalty as "a royalty reserved in a sublease or assignment over and above that reserved in the original lease." Because it comes out of the lease, not out of the mineral estate, it depends on the lease it burdens.
How federal rules treat it
BLM treats an overriding royalty as a financial interest separate from record title and operating rights.
- 43 CFR 3100.5: "Overriding royalty and operating rights are severable from record title interests."
- The same section says a sublease "does not include a transfer of a purely financial interest, such as overriding royalty interest or payment out of production."
- 43 CFR 3106.10(i): "A transfer of production payments or overriding royalty or other similar payments, arrangements, or interests must be filed in the proper BLM office but will not require approval."
- Under 43 CFR 3106.42(a), each such transfer "must be described for each lease on the current assignment or transfer form when filed," and 43 CFR 3106.30(b) requires a processing fee for each lease to which it applies.
Overrides also come up when a federal lessee seeks royalty relief. 43 CFR 3103.41(b)(3) requires information on overriding royalties paid to others and agreements by their holders to reduce them.
Limits set by lessors
Some lessors cap overriding royalties. The Utah SITLA oil and gas lease form bars any overriding royalty "that reduces the net revenue interest under this Lease to less than eighty percent (80%)" without the lessor's written consent. That is a term of that lease form.
In state unitization law
North Dakota counts overrides separately from royalty when a statutory unit is approved. N.D.C.C. 38-08-09.5 requires approval by owners of more than fifty-five percent of "the royalty interests, excluding overriding royalties, production payments, and other interests carved out of the working interest."
How long it lasts
Whether an override survives the end of the lease, or attaches to a new lease on the same land, depends on the words of the instrument that created it. The rules above say nothing on that point, so the instrument has to be read.
Why it matters in mineral title research
- On a federal lease, overrides are filed but not approved, so they appear in the case file without a BLM decision. Each one has to be found and read.
- Overrides reduce the net revenue interest of the working interest owners (see Net Revenue Interest) and appear as separate lines on a division order.
- An override limited to certain depths or tracts has to be mapped against the lease, especially after partial assignments (see Depth Severance).
Related Terms
Mineral Lease
A contract by which the owner of minerals grants another the right to explore for and produce them for a stated term, in exchange for payments such as bonus, rental, and royalty.
Royalty Interest
A share of production, or of its value, paid to a lessor or other royalty owner without bearing the costs of drilling and producing.
Working Interest
The interest in an oil and gas lease that carries the right to explore, drill, and produce, together with the obligation to pay the costs of those operations.
Farmout Agreement
An agreement by which a lease owner (the farmor) agrees to assign all or part of its interest to another party (the farmee), which earns the assignment by drilling or meeting other conditions.
Carried Interest
A working interest whose share of drilling or operating costs is paid by another party, which recovers that money out of production before the carried party shares in it.
Net Revenue Interest
The share of production, or its proceeds, that a working interest owner actually receives after royalty, overriding royalty, and other burdens on production are deducted.