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.
Detailed Definition
A royalty interest is a share of production, or of its value, that is paid to the lessor or another royalty owner free of the costs of exploring, drilling, and producing. The Office of Natural Resources Revenue (ONRR) glossary defines royalty as "Any part of oil, gas, solid minerals, and geothermal resources or their cash value paid by a lessee to a lessor and/or parties acquiring possession of royalty rights based on a certain percentage of production from the property." The U.S. Bureau of Mines Dictionary of Mining, Mineral, and Related Terms (1968) gives the oil and gas sense as "a share of the product or profit reserved by the owner for permitting another to use the property."
Royalty is not the same as a mineral interest
A lessor, in the dictionary's words, grants a lease "upon payment of an agreed rental, bonus, and/or royalty" (see Mineral Rights and Lease Bonus). A royalty interest carries only the share of production. The same dictionary describes a severance as "Separation of a mineral or royalty interest from other interests in the land by grant or reservation," so a royalty can be conveyed or reserved on its own and then follows its own chain of title.
Federal royalty rates
The rate on a federal onshore oil and gas lease is set by statute and regulation.
- 30 U.S.C. 226(b)(1)(A), as currently published, provides that a competitive lease "shall be conditioned upon the payment of a royalty at a rate of not less than 12.5 percent in amount or value of the production removed or sold from the lease." The statutory notes state that the 2022 change to 16 2/3 percent was repealed by Public Law 119-21 (July 4, 2025).
- 43 CFR 3103.31(a)(1): "The royalty rate prescribed in the lease will be not less than 12.5 percent." For reinstated leases the rate is higher, and "In no cases will the royalty rate on the reinstated lease be less than 16.67 percent" (43 CFR 3103.31(a)(4)).
State examples
Rates on state and private land are set by statute, lease form, or agreement, and they differ.
- Texas: for leases of public school and Gulf land, "The royalty rate set must be at least one-eighth of the gross production or the market value of the oil and gas produced" (Tex. Nat. Res. Code 52.022).
- North Dakota: an unleased mineral interest force-pooled after July 31, 2009 "is entitled to a cost-free royalty interest equal to the acreage weighted average royalty interest of the leased tracts within the spacing unit or, at the operator's election, a cost-free royalty interest of sixteen percent" (N.D.C.C. 38-08-08).
Why it matters in mineral title research
- Royalty interests can be conveyed separately from the minerals, so each has to be traced from the instrument that created it (see Fractional Interest).
- The wording of the grant or reservation decides whether a party holds minerals or only royalty, and whether a fraction is a fraction of the royalty or of production.
Related Terms
Fractional Interest
Ownership of a share of an interest in land or minerals rather than the whole of it, such as an undivided one-half of the minerals or a one-quarter interest in a mining claim.
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.
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.
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.
Division Order
An instrument signed by an owner that states the owner's interest in production from a property and directs the payor to distribute the proceeds accordingly.
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.