We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is an Overriding Royalty?

Malcolm Tatum
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

An overriding royalty is an interest in an asset that provides rights of participation which allow the investor to enjoy a royalty that is above and beyond the basic royalty that he or she is entitled to as part of the compensation for the investment. Unlike the basic royalty, the investor with an overriding royalty has the right to receive payments that are not encumbered by any operational or developmental costs associated with the investment. A royalty of this type is usually limited by specific terms and conditions and is not considered a type of royalty that is ongoing.

One of the more common examples of an overriding royalty can be found with investments in oil and gas fields. In this scenario, the investor does receive basic royalties that are associated with the investments, but may also receive the additional royalty based on what is known as the working interest. For example, the investor may receive an overriding royalty that is connected with a lease on a specific field, based on the revenue that is generated by that field during the course of that lease. The royalty payments continue throughout the duration of the lease, but cease once that lease has expired.

Another characteristic that distinguishes the overriding royalty is that the compensation tendered to the investor is not based on the revenue remaining after operational costs have been calculated and extracted from the gross revenue. Instead, this type of royalty is determined based on the actual gross revenue that results from production in the field that is subsequently sold to buyers at current or better market prices. For as long as this temporary royalty remains available, the investor is able to collect both the overriding and the basic royalty payments, with the balance of each calculated based on different criteria.

It is important to keep in mind that the proceeds of the overriding royalty are very different from the royalties that result from ownership of the minerals that are located under the ground of the field. The terms of the lease on the field entitle the investor to royalties based on what is produced by the field only, and not on what remains below ground. This means that if there is no production in the field, there are no overriding royalties due. In addition, the ability to collect an overriding royalty ceases once the lease governing the agreement between the owner and the lessor has expired.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.