Legal Definitions - term interest

A term interest, in the context of oil and gas law, refers to a right to a share of minerals or royalties that is not permanent. Unlike a perpetual interest, which lasts indefinitely, a term interest is limited in duration. This limitation can be for a specific, fixed period of time, or it can be for a specific period and then continue only as long as certain conditions are met.

Here are some examples illustrating a term interest:

• Example 1: Fixed Term Mineral Interest
  A landowner, Ms. Rodriguez, decides to sell a portion of her underground mineral rights to an investment firm, but only for a limited time. She grants the firm a term mineral interest for 15 years. This means the investment firm has the right to explore for and extract minerals from her property for exactly 15 years. Once that period expires, regardless of whether production is ongoing, the mineral rights automatically revert back to Ms. Rodriguez.

  Explanation: This scenario demonstrates a term interest because the investment firm's right to the minerals is explicitly limited to a fixed duration of 15 years, rather than being a permanent or perpetual ownership.

• Example 2: Defeasible Term Royalty Interest
  Mr. Henderson, who owns land with potential for natural gas, negotiates a deal with an energy company. He grants the company the right to drill, and in return, he receives a term royalty interest. The agreement states he will receive a percentage of the revenue from any gas produced for an initial period of 7 years, and "as long thereafter as natural gas is produced in commercial quantities from the property." If, after the initial 7 years, the gas well stops producing enough gas to be profitable, Mr. Henderson's royalty interest would terminate.

  Explanation: This is a defeasible term interest because Mr. Henderson's right to royalties is initially for a fixed period (7 years) but can extend beyond that only if a specific condition (commercial production) continues to be met. If that condition fails, the interest ends, making it non-perpetual.