Fee interest – ownership of both the surface and mineral rights in fee simple absolute.
Surface interest – rights of land ownership that remain after mineral interest is severed.
Subject to an implied easement of surface use by the mineral interest owner.
Surface interest has rights to many substances (ground water) and to many uses (geologic formations for storage of natural gas)
Mineral interest – fee simple ownership of OG under tract; separate estate
Exclusive right to search for, develop, and produce oil and gas from the property.
Implied easement to use the surface in such ways and to such an extent as is reasonably necessary to obtain the minerals under the property
Mineral interest owner has executive RIGHT to:
a. Grant leases
b. Bonus - payments made to induce the signing of the lease
c. Delay rentals – payments for maintaining the lease without development or production
d. Royalty – share of production
e. Profits and duty to pay costs incurred in use (profit sharing and cost bearing).
Dominant Mineral interest
Servient Surface interest
Leasehold interest (working or operating)
Lease usually imposes duties upon the lessee.
Lessor typically retains a possibility of reverter and a royal interest in production
Lease conveys a fee simple determinable.
Production payment – free of costs of production that terminates when an agreed sum has been paid.
Royalty interest – share of production but free of production costs
DOES NOT have the right of surface use other than to go to onto the property to collect the share of production
FREE of costs of production and paid EVEN IF producing is a money losing venture
NO RIGHT to grant OG lease OR to share in lease benefits such as bonus or delay rentals
TYPES OF ROYALTIES
1. Landowner's royalty – interest in production retained by Lessor.
2. Overriding royalty –carved out of Lessee's leasehold interest, frequently used