Key Difference – Mineral Interest vs Royalty Interest
Mineral interest and royalty interest are commonly used types of deeds in relation to lands that contain energy sources. Extracting mineral wealth requires specialized technical and financial resources that are not owned by many landowners. Due to this reason, many landowners lease their property to a mining firm who has the necessary skills and capacity to mine resources. The key difference between mineral interest and royalty is that while mineral interest provides the right to exploit, mine or produce all minerals lying beneath the surface of a property, royalty interest refers to the share of production income paid to the landowner to reimburse for the use of property.
CONTENTS
1. Overview and Key Difference
2. What is Mineral Interest
3. What is Royalty Interest
4. Side by Side Comparison – Mineral Interest vs Royalty Interest
5. Summary
What is Mineral Interest
Mineral interest is obtained through a ‘mineral deed’, a legal document transferring the rights intended by the landowner to the mining firm. The deed does not contain title to the surface land or any other buildings located on the property, only for the resources beneath the land. Mineral rights may have the authority over all minerals or over selected ones. Mineral deeds can cover rights to exploit resources such as,
- Oil and natural gas
- Coal
- Precious metals like gold and silver
- Non-precious or semi-precious metals like copper and iron
- Rare earth elements and minerals like uranium and scandium
Characteristics of Mineral Interest
- The mineral owners have the right to enter, occupy and make use of the surface of the land to explore, drill, mine, remove and market minerals.
- Mineral interest is not free of the costs associated with exploring, drilling, mining, removing and marketing of the minerals.
- The mineral owner has the right to receive bonus and delay rentals associated with executing oil, gas and mineral leases.
What is Royalty Interest
This refers to the agreement where mineral rights are leased. In this arrangement, the rights are retained by the landowner when entering into the lease agreement with the energy company. In royalty interest, the owner is entitled to receive a share of production since the property is leased to the mineral firm. In this agreement, the landowner only bears the cost of the initial investment and isn’t liable for ongoing operating costs.
Characteristics of a Royalty Interest
- The royalty owner (landowner) does not have the right of exploring, mining, removing and marketing of the minerals
- The royalty owner does not have the rights to receive bonus and delay rentals associated with executing oil, gas and mineral leases
- Royalty interest does not grant the owner the right to grant leases to third parties
Interpretation of a right as to whether it is a mineral interest or a royalty interest can be confusing at times, thus particular terms and phrases are being introduced by law as to how they should be interpreted.
Terminology
- Use of terms ‘minerals’, ‘mineral interests’ and ‘mineral acres’
The above terms in a deed provide indication towards a conclusion that the deed is for Mineral rights. However such terminology cannot be used to conclude the exact type of the deed; if the instrument references other characteristics pertaining to Royalty Interest, then the deed has to be recognized as a Royalty deed.
- Use of terms ‘in’, ‘on’ and ‘under’
If other characteristics relating to Royalty Interest is not specified, the use of above terms are used in reference to Mineral Interest.
- Use of terms ‘royalty’, ‘royalty interest’ and ‘royalty acres’
These words, in general, confirm a royalty interest; however, the characteristics of the deed should clearly be reflected as for a Royalty deed.
- Use of terms ‘produced’ and ‘saved’
These terms are constantly used in relation to Royalty Interests
- Use of the term ‘share of profits’
‘Share of profits’, including royalties, income and rentals are classified under Mineral Interest
Figure 1- Some countries export minerals and earn significant revenues
What is the difference between Mineral Interest and Royalty Interest?
Mineral Interest vs Royalty Interest |
|
| Mineral Interest provides the right to exploit, mine or produce all minerals lying beneath the surface of a property. | Royalty Interest is the share of production income paid to the landowner for the use of the property. |
| Rights over Resources | |
| Rights such as exploring and mining is granted for the owner in Mineral Interest. | Royalty Interest does not grant the rights of exploration, mining and removing of resources for the owner. |
| Bonus Payments | |
| Mineral Interest has the right to collect upfront bonus payments. | Upfront bonus payments cannot be collected by Royalty Interest. |
Summary – Mineral Interest vs Royalty Interest
The difference between mineral interest and royalty interest is mainly attributed to the transferring of rights to explore and mine resources beneath the surface of a property without selling the property to a third party, commonly a mining company. In return for providing the land, the landowner receives a share of income generated by the mining firm.
Reference:
1. Kegler Brown Hill Ritter -Margeaux Kimbrough. “Oil gas law for beginners: understanding the Mineral vs. Royalty Distinction.” Lexology. N.p., n.d. Web. 27 Feb. 2017.
2. Staff, Investopedia. “Royalty Interest.” Investopedia. N.p., 08 July 2009. Web. 27 Feb. 2017.
3. “Mineral Rights.” Geology. N.p., n.d. Web. 27 Feb. 2017.
4. “Types of Ownership.” Mineral Rights Coach. N.p., 21 Dec. 2012. Web. 27 Feb. 2017.
Image Courtesy:
1. “Portugal mineral resources exports”By Dr Peter Tzeferis – Own work (CC BY-SA 4.0) via Commons Wikimedia