Understanding Overriding Royalty Interests (ORRI)

An Overriding Royalty Interest (ORRI) is a type of royalty interest tied to oil and gas production, but it is not connected to mineral ownership.

It gives the owner a percentage of revenue from production, without paying any drilling or operating costs. ORRIs are considered non-cost-bearing interests.

What makes them different from traditional royalty interests is that they are linked to the lease, not the land itself. When the lease ends, the ORRI usually ends as well.

If you are receiving payments labeled “overriding royalty,” it means your interest comes from the lease agreement, not from owning the minerals underground.

It is a valuable interest, but it is not permanent. To fully understand what you own, it helps to know how these interests are created.

How Are Overriding Royalty Interests Created?

ORRIs are typically created when an oil and gas lease is assigned from one party to another.

For example, a mineral owner might lease their mineral rights at a 20% royalty.  The company who leased the mineral rights may then assign that lease to an oil company at a 25% royalty. The extra 5% is carved out as an overriding royalty interest.

This added royalty comes from the leasing side, not the mineral owner’s side. It reduces the working interest’s share, not the mineral owner’s royalty.

ORRIs are common in competitive leasing areas. They allow the original leaseholder to keep a share of the income without taking on the cost or risk of drilling.

Because ORRIs are tied to the lease, they are not recorded in the same way as mineral ownership. They often show up in lease assignments or internal company records. Once the lease expires, the ORRI typically ends unless steps are taken to extend or renew it.

For this reason, ORRI owners should always keep a copy of the lease and any documents that created the interest. If the lease changes, the ORRI may not carry forward.

It is easy to confuse an overriding royalty interest with a royalty interest. Both provide income from oil and gas production. Both are non-cost-bearing interests. However, they are very different in terms of what you actually own.

A royalty interest (RI) means you own the actual oil and gas located underground. This is considered real property. It is a legal form of ownership, just like owning land, except in this case, you own the oil and gas minerals beneath the surface.

This type of ownership is permanent. Royalty interests do not expire.

If a lease ends or a well stops producing, your ownership remains. You have the right to lease those minerals again in the future. You can also pass them on to your heirs or sell a royalty interest just like any other form of property.

An overriding royalty interest (ORRI) is different from a Royalty Interest (RI).

It does not represent ownership of any physical oil and gas beneath the ground. It is created through a lease or lease assignment and only lasts for the life of that lease.

An ORRI gives you a small percentage of the income from production. However, you do not own the oil or gas underground. You simply have the right to a share of the revenue while that specific lease is active.

When the lease ends, the ORRI usually expires with it. You cannot lease the minerals again because you do not own them. You only owned a temporary financial interest tied to that specific lease.

Here is a simple way to think about it:

• A royalty interest is a long-term asset backed by actual ownership of oil and gas.

• An overriding royalty interest is a temporary income right based on a lease agreement.

This difference matters when you are making decisions about selling, estate planning, or evaluating offers. Royalty interests tend to hold long-term value. Overriding royalty interests can produce income but often have a limited lifespan.

The easiest way to figure out what type of interest you own is to look at your check stubs / royalty statements.

Each time you receive a royalty payment, the check stub will include detailed information about your interest. On most check stubs, there is an “Interest Type” column, usually located on the left-hand side of the page.

This column uses abbreviations to identify the kind of interest tied to each well or property. Here is what to look for:

• RI usually stands for Royalty Interest

• OR or ORRI indicates an Overriding Royalty Interest

If you are not sure what the abbreviation means, many check stubs include a key or legend at the bottom of the page. This section explains what each code stands for.

Keep in mind that some owners may have both types of interests. For example, you might own mineral rights in one area and hold an overriding royalty in another. Each line item on your check stub will tell you what kind of interest is tied to that specific well.

If your check stub is unclear or missing this information, you can always contact the operator’s owner relations department. They can confirm your interest type and may be able to send updated or clearer documentation.

The value of an Overriding Royalty Interest (ORRI) is usually based on the income it produces. Buyers typically look at how much your interest has paid over the last few months and use that number to estimate what it is worth.

A common approach is to take the average of your last three royalty checks and multiply that by three to six years of income. This gives a basic range for what your ORRI might sell for today.

For example, if your last three checks averaged $500 per month, and a buyer is using a 4.5-year estimate, your offer would be around $27,000.

The value is often similar to a royalty interest because both types of interests are paid from production and are not responsible for costs.

However, there is one key difference that affects the price.  An ORRI can expire.

It only lasts as long as the lease agreement it is tied to. If that lease ends and is not renewed, your interest disappears. This creates risk for a buyer, and for you! If they pay too much and the lease expires in a year, the interest becomes worthless.

That is why location and current production levels matter.

If your ORRI is in an area with little activity and small checks, there is a much greater chance the lease could end. In these situations, mineral buyers are going to offer less because they are taking on more risk.

On the other hand, if your interest is in a high-value area like the Permian Basin, that lease is likely to stay active for years to come. In places with strong ongoing development, buyers feel more confident that the income will continue. That helps hold up the value of the ORRI.

When estimating the value of your mineral rights, start with your last three checks. Find the average, then consider whether you are in an area with long-term potential or one where production might not last. That will give you a good idea of where your value falls within the three to six year range.

Selling an Overriding Royalty Interest (ORRI) is a straightforward process, but getting the best price requires knowing what you have and working with the right people.

The first step is to gather your documentation.

This includes your most recent check stubs, any lease agreements tied to the interest, and the original assignment paperwork that created the ORRI. These records help verify ownership and show the income history that buyers want to see.

Note:  A lot of mineral owners may not have the underlying lease agreement.  At a minimum, you need your last 3 months of royalty statements.

When it comes time to sell, it is strongly recommended that you work with a broker who knows your area.  A google search will help you find the best mineral rights broker.

ORRIs are not always well understood, and values can vary widely based on location, lease terms, and production history. A good mineral broker will help you understand your position, market your interest to the right buyers, and negotiate the best possible price.

This is especially important with ORRI ownership. Unlike mineral rights, an ORRI can expire. That means buyers will be cautious, and pricing can shift depending on how long the lease is expected to last.

A broker familiar with your region will know how to position your interest in the market and explain the value to serious buyers.

Buyers typically want to see the average of your last three checks. Offers are usually based on three to six years of projected income, depending on the risk involved.

Once a buyer is found, they will present a purchase and sale agreement. After both sides agree to terms, the sale moves to closing. You sign the paperwork, the buyer sends funds, and the interest is officially transferred.

Selling an ORRI can be a smart way to turn future income into cash today. Just make sure you work with someone who understands the details of your specific area and the nature of overriding royalty interests. That support can make a significant difference in what you walk away with.

Yes, an Overriding Royalty Interest (ORRI) can be inherited. It is considered personal property and can be passed down through a will, trust, or estate plan.

However, ORRIs are different from mineral rights or traditional royalty interests. An ORRI only lasts as long as the lease it is tied to. When the lease ends, the ORRI typically ends as well.

This means you can leave an ORRI to your heirs, but the value depends entirely on how long the lease continues. If the lease is still active and producing, the ORRI may continue to generate income. If the lease ends shortly after your heirs inherited mineral rights, the interest could expire and stop paying altogether.

If you currently own an ORRI and plan to pass it down, it is important to keep all related documents in order. This includes:

• The lease that created the ORRI

• The assignment paperwork

• Recent revenue check stubs

Clear documentation will make it easier for your heirs to understand what they are inheriting. ORRIs are not always recorded in county deed records, so having this paperwork is especially important.

If you are inheriting an ORRI, or managing one on behalf of a family member, it may be helpful to consult with a mineral rights attorney. They can help determine what the interest is worth, whether it is still active, and what steps need to be taken to update ownership.

In summary, yes, you can inherit an ORRI. However, it is important to know that its value depends on the continued life of the lease, not on mineral ownership itself.

If you own an Overriding Royalty Interest (ORRI) or are reviewing check stubs tied to one, it helps to understand how your share is calculated.

An ORRI is a percentage of revenue from oil and gas production. It is typically stated as a decimal interest and is calculated based on two main factors:

1. Your override percentage

2. The total production revenue from the well

For example, if your ORRI is 1 percent, and the well generates $100,000 in revenue for the month, your share before taxes or deductions would be $1,000.

The decimal interest on your check stub usually looks something like 0.01000000, which equals 1 percent. This number reflects your percentage of the well’s revenue after the royalty burden and other interests have been factored in.

Here is a simple way to estimate your income:

Monthly revenue from the well × your ORRI decimal = your gross income

Let’s say the well pays $80,000 this month, and your ORRI is 0.00500000. Multiply $80,000 by 0.005. Your gross income would be $400.

Keep in mind that oil and gas production varies from month to month. Your income will go up or down depending on how much is produced and the current price of oil or gas.

You may also see deductions on your check for taxes or post-production costs. These vary by operator and location, so it is a good idea to review your check stubs regularly and keep track of what you are actually receiving.

If your ORRI covers multiple wells, your check stub will list each one separately with its own decimal and payment amount. Add them together to get your total monthly income.

Understanding how your ORRI is calculated can help you keep better records, spot issues early, and estimate future income. It also gives you the tools to make more informed decisions if you ever choose to sell.

An Overriding Royalty Interest (ORRI) can be a valuable source of income, especially if it is tied to a well in a strong producing area. However, it is important to understand that ORRIs are different from traditional royalty interests. They do not come with ownership of the minerals and usually expire when the lease ends.

Knowing the type of interest you have, how long it is likely to last, and how it is valued will help you make better financial decisions.

Whether you are inheriting an ORRI, thinking about selling, or just trying to understand your check stubs, the key is staying informed and organized.

Always keep your documents in order, work with professionals who understand your area, and be cautious with offers that sound too good to be true.

ORRIs can provide real value, but only when you fully understand what you own.

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