Non-Participating Royalty Interest
If you have a non-participating royalty interest (NPRI), you may be wondering what entitlements and control you have over the mineral rights or production. Momentum will help you determine what type of interest you have and how that affects your control.
What is an NPRI?
A non-participating royalty interest owner has a right to all or a portion of the royalty from gross production, but does not have the right to execute a lease, receive a bonus or any delay rentals. An NPRI owner also does not have the right to produce the minerals by himself, and they are not responsible for the operational costs associated with production or drilling. An NPRI has fewer rights than a ‘regular’ mineral rights owner as they do not have the right to make decisions related to the execution of leases. Other mineral rights owners generally participate in at least one of the previously mentioned activities.
Why assign an NPRI?
There are several situations when creating or assigning an NPRI may be appropriate. One such example is allocating inheritance. NPRI’s can be assigned as inheritance so that the receiver benefits from a steady stream of income from the royalties, but does not have to deal with negotiations of leases or make decisions concerning the wells.
An NPRI can also be helpful in negotiations during land transactions. A seller of the land may reserve the mineral rights but assign a portion of the royalties to the buyer by using a NPRI. This way, the buyer can also benefit from future production and drilling but not partake in decision making. Conversely, if the buyer of the land is also acquiring the mineral rights, he or she may assign an NPRI to the seller as additional compensation.
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