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Simple English definitions for legal terms
royalty interest
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A quick definition of royalty interest:
Royalty interest is a share of the money made from selling oil or gas that comes from a piece of land. The person who owns the royalty interest gets a part of the money, but they don't have the right to operate the land or lease it to someone else. They also don't have to pay for the costs of producing the oil or gas. It's like getting a small piece of the pie without having to do any work for it.
A more thorough explanation:
Definition: A royalty interest is a share of production or the value of production, free of production costs, when and if there is production. It is commonly used in the oil and gas industry and is usually expressed as a fraction, such as 1/6. A royalty-interest owner has no right to operate the property and therefore cannot lease the property or share in bonuses or delay rentals. In some states, a royalty owner has the right to take the royalty production.
Example: If a landowner owns a royalty interest of 1/8 in an oil well, they will receive 1/8 of the revenue generated from the sale of oil produced from that well, free of production costs.
Explanation: This example illustrates how a royalty interest works in the oil and gas industry. The landowner does not have the right to operate the well or lease the property, but they are entitled to a share of the revenue generated from the sale of oil produced from the well.
Related Terms: Established Royalty, Reasonable Royalty, Royalty