Here are the key differences among mineral rights:
Non-Participating Royalty Interest
Overriding Royalty Interest
Mineral Interest
Working Interest
Generates Revenue from Well Production
Yes
Yes
Yes
Yes
Owns the Underground Minerals
Yes
Yes
No
No
Ownership Continues after Production Stops
Yes
Yes
No
No
Collects Upfront Lease Bonus Payments
Yes
No
No
No
Has Executive Interest- Leasing Rights
Yes
No
No
No
Pays to Operate or Drill the Well
No (unless participating)
No
No
Yes
Participates in the Lease Operating Expenses
No (unless participating)
No
No
Yes
Significant Tax Advantages
No (unless participating)
No
No
Yes
The drilling of oil and natural gas wells involves the risk that the well will not provide enough revenue to return the amount of your investment. The revenues are directly related to the ability to market the oil and gas and their price, which is volatile and cannot be predicted. If oil and/or gas prices decrease, then your investment return will decrease. If you choose to invest as an investor general partner, then you will have unlimited liability during the drilling of the wells for partnership obligations until you are converted to a limited partner. However, you will continue to have the responsibilities of a general partner for partnership liabilities and obligations incurred before the effective date of the conversion. There is a lack of liquidity or a market for the units. Investors have total reliance on the sponsor or managing general partner and its affiliates. Investors may owe taxes in excess of their cash distributions from a partnership. The investor’s deduction for intangible drilling costs may be limited for purposes of the alternative minimum tax. Distributions may be a return of capital. There is a risk that demand for energy, including for oil and gas, and commodity prices will be decrease. There may also be the possibility of increased opportunities due to the impact of these factors on others. The potential impacts should be considered by you in making any investment decision.
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