Non-Op vs. Operating Working Interest

The oil and gas industry offers various types of investment opportunities, but two of the most common forms of interest in mineral ownership are Operating Working Interest and Non-Operating Working Interest (Non-Op). Both involve a share in oil and gas production and revenue, yet they differ significantly in the roles, responsibilities, and financial implications for investors. This blog post will explore these two types of working interests, highlighting their differences, advantages, disadvantages, and tax implications.


Defining Operating Working Interest and Non-Operating Working Interest

Operating Working Interest is a form of ownership that gives the interest holder direct responsibility for managing operations. An operating working interest owner is involved in decision-making processes and oversees the exploration, drilling, and production activities associated with an oil or gas well. They take on a hands-on role in the day-to-day operations and bear the associated risks and expenses.

Non-Operating Working Interest (Non-Op) is an investment in the production of oil and gas assets without direct operational responsibilities. Non-Op owners contribute capital to the exploration and production process but do not control operational decisions. Instead, they rely on the operator to manage well activities, giving them a passive yet potentially lucrative ownership share.


Key Differences Between Operating and Non-Operating Working Interests

  1. Operational Control
    • Operating Working Interest: Owners have full control over operations, including hiring contractors, making budget decisions, and ensuring compliance with environmental and regulatory standards.
    • Non-Operating Working Interest: Owners have no control over operations and instead rely on the operator to handle all logistics and decisions related to the well.
  2. Risk and Responsibility
    • Operating Working Interest: Comes with higher risk, as owners are responsible for operating costs, liabilities, and any environmental or regulatory compliance issues. They are also responsible for covering cost overruns and managing accidents or issues arising from operations.
    • Non-Operating Working Interest: Bears fewer responsibilities in operations but still shares in production costs and risks tied to the success or failure of the well. Non-op owners typically have limited liability in operational mishaps.
  3. Revenue and Expense Structure
    • Operating Working Interest: Owners receive a larger share of production revenue but also assume a larger share of the associated costs.
    • Non-Operating Working Interest: Although they receive a smaller percentage of production revenue, non-op investors do not bear full operational expenses, making it a lower-risk, lower-involvement investment.

Advantages and Disadvantages of Each Type

CriteriaOperating Working InterestNon-Operating Working Interest (Non-Op)
AdvantagesDirect control over operations
Larger share of profits
Lower liability and operational responsibility
Lower risk
DisadvantagesHigher financial and operational risk
Time-intensive
Limited decision-making power
Relies on operator performance
Best ForExperienced industry professionals
Hands-on investors
Passive investors
Inheritors/generational

Tax Implications of Working Interest Income

Both operating and non-operating working interests generate taxable income. However, the tax structure for each type of interest can vary:

  1. Tax Treatment of Expenses
    • Operating Working Interest: Operational costs, including drilling, completion, and operational expenses, are generally deductible, providing tax savings for the owner.
    • Non-Operating Working Interest: Investors can deduct their share of expenses without the burden of ongoing operational costs, making it advantageous for tax efficiency.
  2. Depletion Allowance
    Both types of interests are eligible for a depletion allowance, a tax deduction on income from oil and gas production that offsets the diminishing value of the resource. The depletion allowance is typically 15% of gross income for oil and gas production, helping to reduce taxable income significantly for both non-op and op owners.
  3. Passive vs. Active Income
    • Operating Working Interest: Income earned through an operating working interest is usually classified as active income, which requires paying self-employment taxes and adhering to different IRS guidelines.
    • Non-Operating Working Interest: Income is often classified as passive income, meaning non-op owners may be able to offset losses against other passive income sources, subject to specific tax regulations.
  4. Tax-Advantaged Status
    Both types of working interests allow investors to benefit from tax advantages in the form of intangible drilling costs (IDCs) and tangible drilling costs (TDCs). IDCs are generally fully deductible in the year incurred, while TDCs are capitalized and depreciated over time, providing a tax-shielding effect for both non-op and op investors.

Why Understanding the Differences is Important

Choosing between an operating and non-operating working interest is a crucial decision for mineral owners/investors, as it directly impacts control, risk exposure, tax treatment, and potential returns.

  • For Active Involvement: An operating working interest offers higher control and potential revenue but demands a thorough understanding of the industry and the capacity to manage significant financial and operational risks.
  • For Passive Investment: Non-op interests offer a path to participate in the oil and gas industry without the demands of direct management. It’s a good fit for investors looking to diversify their portfolio while taking on less operational risk.

How Valor’s Mineral Management Services Benefit Non-Op Working Interests

For non-operating working interest (non-op) owners, maximizing income from their investment while minimizing the complexities of managing it can be challenging. Valor’s mineral management services are designed to support non-op owners by offering a comprehensive solution that includes everything from portfolio management to income tracking and regulatory compliance. With Valor’s proprietary mineral management software, mineral.tech®, and team expertise, non-op owners can enjoy full transparency into their assets, receive accurate and timely revenue disbursements, and benefit from detailed expense tracking without the hassle of overseeing daily operations. Valor’s services also cover essential areas like ownership verification, tax overview, and document management, which ensure that non-op owners maximize the value of their investment while staying compliant with industry and tax regulations. This hands-off, expertly managed approach allows non-op owners to enjoy the benefits of oil and gas investments with confidence and peace of mind.

Both non-operating and operating working interests provide unique advantages for investors in the oil and gas sector, from active control over projects to passive income streams. The choice between these options often depends on an investor’s risk tolerance, experience in the industry, and desire for control over operations. With the potential for tax advantages, understanding these structures can help investors optimize their financial strategies while capitalizing on opportunities in the energy market.

Contact

Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Valor | Energy Connection – Oct. 28, 2024

October 28, 2024 Edition

At Valor, our goal is to keep you informed of the latest news and updates from the oil and gas industry. We are committed to sharing the insights and knowledge that our team gathers to help you stay ahead in this dynamic sector. From mergers and acquisitions to regulatory changes and technological advancements, we cover all the key developments that impact the industry. Stay tuned for weekly updates to keep you well-informed.

  • Oil falls 5% on Reduced Risk of Wider Middle East War
  • Summary: Oil prices fell by $4 a barrel after Israel’s airstrikes on Iranian facilities did not target oil or nuclear sites, reducing geopolitical risks affecting energy supplies.
  • Read more

  1. China’s Steel Mills and Oil Refiners Bear Brunt of Tepid Economy
  2. Summary: Chinese oil refiners are facing deepening losses due to weak fuel demand and an economic slowdown, with recent stimulus measures expected to have a limited impact on boosting consumption.
  3. Read more

  1. Renewable Energy Pullback By BP Continues To Gather Pace
  2. Summary: BP has shifted focus back to high-margin oil and gas, scaling back renewable investments, including wind and solar, while aiming to maintain its net zero targets amid investor concerns and a declining share price.
  3. Read more

  1. US Oil/Gas Rig Count Steady This Week
  2. Summary: U.S. energy firms kept the rig count steady this week, though the total remains 6% lower than the same time last year, as companies focus on managing costs and shareholder returns amid lower oil and gas prices.
  3. Read more

  • New Mexico Weighs Proposed Drilling Restrictions Impact
  • Summary: A New Mexico study on proposed drilling restrictions to protect public health suggests these measures could reduce crude output by 12.5 million barrels in the first year, though environmental advocates argue health benefits outweigh the potential revenue loss.
  • Read more

  • Uncertainty Dominates Oil, Gas Prices
  • Summary: Oil prices remain uncertain amid Middle East tensions and OPEC+ production capacity, while natural gas demand may stay low in the near term due to mild weather and high storage levels.
  • Read more

Contact Valor Today

Contact us today if you need help outsourcing your oil and gas operations.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Valor | Energy Connection – Oct. 21, 2024

October 21, 2024 Edition

At Valor, our goal is to keep you informed of the latest news and updates from the oil and gas industry. We are committed to sharing the insights and knowledge that our team gathers to help you stay ahead in this dynamic sector. From mergers and acquisitions to regulatory changes and technological advancements, we cover all the key developments that impact the industry. Stay tuned for weekly updates to keep you well-informed.

  • Oil Prices Regain Some Ground After 7% Loss Last Week
  • Summary: Oil prices rebounded on Monday, recovering some of last week’s over 7% drop amid concerns about slowing demand in China and easing Middle East supply risks, with support from Saudi Aramco’s bullish outlook on China’s oil demand and geopolitical tensions.
  • Read more

  1. Texas Natural-Gas Pipeline Eases Bottlenecks, Paves Way for Higher Shale Output
  2. Summary: The new Matterhorn pipeline has eased Permian gas bottlenecks, raising prices and boosting oil production, but may reach capacity within 12 to 18 months, causing renewed constraints in 2026.
  3. Read more

  1. Supreme Court to Review Challenges to EPA Pollution Rules
  2. Summary: The U.S. Supreme Court will hear appeals from Republican-led states and energy companies contesting whether lawsuits against the EPA’s smog control and biofuel waiver policies should be heard in local or national courts.
  3. Read more

  1. Oil, Gas Companies Set To Spend More in 2025
  2. Summary: Global investments in oil and gas by the 23 largest producers are set to rise over 60% by next year, driven by a slower-than-expected energy transition, with companies focusing on upstream production and consolidation while continuing to invest in low-carbon projects.
  3. Read more

  • Another Major Oil Company Plans to Relocate from California
  • Summary: Phillips 66 is planning to relocate, following Chevron’s move, potentially as as result of California’s increased regulations that have led to higher fuel costs and operational challenges, highlighting the tension between the state’s ambitious climate goals and their economic impact on the energy sector.
  • Read more

  • JP Morgan Says Peak Oil Demand Is Nowhere In Sight
  • Summary: JP Morgan’s Christyan Malek dismissed predictions of peak oil demand, arguing that emerging market consumption will continue to drive global demand growth beyond 2024, while supply struggles to keep pace, leading to a tightening market and sustained higher oil prices throughout the decade.
  • Read more

Contact Valor Today

Contact us today if you need help outsourcing your oil and gas operations.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Understanding Property Taxes for Mineral Owners

Property taxes are a form of taxation imposed by local governments on the ownership of property, including both real estate and personal property. These taxes are essential for funding community services like schools, roads, and emergency services.

For mineral owners, property taxes apply to the mineral rights they own, which are considered real property. This means that just like a homeowner pays property taxes on their land or house, a mineral owner must pay taxes on their mineral interests.

How Property Taxes Work for Mineral Owners

When you own mineral rights, local authorities assess the value of your property, including its estimated potential revenue from oil and gas production. The assessed value is multiplied by the local tax rate to determine the amount of taxes owed.

Mineral owners typically receive property tax statements annually, reflecting taxes on their mineral interests. These statements are based on production values from the prior year, meaning it’s essential for owners to be aware of production reports and the valuation process.

The Impact of Property Taxes on Mineral Owners

Property taxes on mineral interests can significantly impact a mineral owner’s revenue, especially if the valuation is high or if production is inconsistent. A tax burden that exceeds the mineral income could result in financial strain, leading some owners to question the fairness of the assessed value.

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Understanding Property Taxes: What Are They?

Property taxes are a form of taxation imposed by local governments on the ownership of property, including both real estate and personal property. These taxes are essential for funding community services like schools, roads, and emergency services.

For mineral owners, property taxes apply to the mineral rights they own, which are considered real property. This means that just like a homeowner pays property taxes on their land or house, a mineral owner must pay taxes on their mineral interests.


How Property Taxes Work for Mineral Owners

When you own mineral rights, local authorities assess the value of your property, including its estimated potential revenue from oil and gas production. The assessed value is multiplied by the local tax rate to determine the amount of taxes owed.

Mineral owners typically receive property tax statements annually, reflecting taxes on their mineral interests. These statements are based on production values from the prior year, meaning it’s essential for owners to be aware of production reports and the valuation process.


The Impact of Property Taxes on Mineral Owners

Property taxes on mineral interests can significantly impact a mineral owner’s revenue, especially if the valuation is high or if production is inconsistent. A tax burden that exceeds the mineral income could result in financial strain, leading some owners to question the fairness of the assessed value.


Ignoring Property Tax Statement Accuracy: Why It’s Risky

Mineral owners must carefully review their property tax statements to ensure accuracy. Local authorities may over-assess the value of mineral rights or fail to account for declining production, leading to inflated tax bills.

Common issues mineral owners face include:

  • Overvalued assessments: If production has decreased, but the assessed value doesn’t reflect this, the taxes owed may be higher than they should be.
  • Incorrect ownership information: Errors in ownership data can result in tax liabilities being placed on the wrong individual.
  • Suspended or missing funds: If property taxes aren’t paid accurately, revenue can be withheld by operators or distributed incorrectly.

Ignoring these issues can lead to financial loss or even legal disputes over unpaid taxes, making proactive management essential.

How a Mineral Management Company Like Valor Can Help

A professional mineral management company like Valor can help mineral owners avoid these risks by taking a proactive approach to property tax management. Here’s how:

  • Accurate Review of Property Tax Statements: Valor ensures all property tax statements are carefully reviewed to verify the accuracy of assessed values and ownership information.
  • Appealing Incorrect Assessments: If property values seem overinflated, Valor can guide you through the process of appealing incorrect tax assessments, helping you reduce your tax burden.
  • Monitoring Production Changes: Valor can support tracking production changes and ensures that tax statements reflect the latest production data, avoiding overpayment.
  • Timely Payments and Reporting: Ensuring property tax payments stay on schedule is essential to avoid penalties or revenue suspension. Valor completes timely reviews to ensure clients have sufficient time to make their payments accurately and on schedule.

Property taxes are a critical part of owning mineral rights, and while they can be complex, staying on top of them is essential to protect your revenue. Ignoring tax statement accuracy or mismanaging payments can result in unnecessary costs and legal trouble. With the help of a mineral management company like Valor, you can be confident that your property taxes are managed accurately and proactively, ensuring the long-term success of your mineral assets.

Contact

Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Valor’s Unique Blend of AI and Expert Insight

Explore how Valor’s advanced AI solutions, paired with real-world expertise, revolutionize mineral management and oil and gas outsourcing.

In the dynamic and complex world of oil and gas, leading the charge requires more than just adaptation; it demands innovation and foresight. At Valor, we embody relentless innovation as a core value—not only adapting to industry changes but actively shaping them. By integrating advanced artificial intelligence (AI) with the deep, lived experiences of our team, we equip our clients with unmatched operational efficiencies and profound insights. This dual approach transforms the management of mineral rights and operator back-office services by making complex data both accessible and actionable. Our unique combination of cutting-edge technology and seasoned expertise ensures that our solutions are not just theoretical but are grounded in real-world applicability, keeping us and our clients at the forefront of industry advancements

What is Artificial Intelligence (AI)? 

Artificial Intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think and learn like humans. This innovative technology encompasses a range of capabilities, from processing large volumes of data at incredible speeds to recognizing patterns and making decisions. AI can automate complex and repetitive tasks, provide insightful analytics, and enhance decision-making processes. In industries like oil and gas, AI applications can drive efficiency, improve security, and optimize operations, transforming how companies operate and deliver services to their clients

At a high level, AI significantly enhances the scope and effectiveness of our services in mineral management and oil and gas outsourcing. Below are some key ways Valor is leveraging AI to bring tangible benefits to our clients.

Enhanced data analysis and insights

Many of our clients come to us with decades of accumulated data, which can be overwhelming and underutilized without the right tools. At Valor, we employ AI and our proprietary mineral management software, mineral.tech®, to digest this extensive historical data, transforming it into a manageable and useful resource. Our advanced AI systems analyze this data to uncover trends, predict outcomes, and provide new insights that were previously difficult to obtain. This process not only simplifies complex data sets but also unlocks their full potential, helping our clients to see their historical data as a valuable asset rather than an unwieldy burden.

Operational efficiencies

Our AI solutions can help automate routine tasks such as data entry, calculations, and reporting. While these efficiencies might not always be visible on the front end, they are monumental in streamlining backend operations. These automations not only speed up processes and reduces the potential for human error but also conserve vital time and resources. By alleviating the need for manual intervention in these areas, our team can redirect their focus toward more strategic initiatives that require extensive manpower and deep industry expertise. This shift not only enhances productivity but also amplifies our operational agility, providing substantial value to our clients.

Improved decision making

At Valor, we recognize that the cornerstone of effective decision-making in the oil and gas industry is both the quality of data and the depth of industry expertise. Our proprietary mineral management software, mineral.tech®, enhanced by sophisticated AI, not only improves data accuracy but also amplifies its utility, enabling more informed decisions. This AI supplementation validates and extends our team’s extensive experience, directly addressing the challenges our clients face. By combining AI-driven insights with our firsthand industry knowledge, we provide a dual advantage: reliable, high-quality data and practical, experienced-based guidance. 

Advanced security measures

At Valor, the security of our clients’ data and financial information is of utmost importance. We have demonstrated our commitment to maintaining the highest security standards by completing the SOC 1 Type I and II audits, which assess the effectiveness of our internal controls. Taking security measures one step further, we incorporate AI technologies to enhance our protective capabilities. AI plays a crucial role by continuously monitoring our systems and our proprietary software, mineral.tech®, to detect and respond to potential threats in real time. This proactive approach ensures that all client information remains secure and protected. AI in security works by analyzing data patterns to identify anomalies that may indicate a security breach. Once a potential threat is detected, the system can automatically initiate defensive protocols without human intervention, thereby reducing response times and minimizing potential damage. This not only reinforces the security of our digital environment but also builds trust with our clients, ensuring they feel confident in the safety of their sensitive information.

AI and mineral.tech®

Integrating AI with our proprietary software, mineral.tech®, revolutionizes how we manage and process data, enhancing our capabilities to quickly and efficiently digest large volumes of information. AI algorithms meticulously analyze and interpret complex datasets, uncovering patterns and insights that surpass traditional analysis methods. Through this powerful synergy, mineral.tech® not only streamlines the data processing workflow but also elevates the accuracy and reliability of the data outputs, ensuring that our clients benefit from the most advanced and effective solutions tailored to their needs.

At Valor, we enhance our mineral management and outsourcing services by integrating advanced AI technology with our team’s extensive industry experience. This strategic combination positions our clients to effectively meet today’s challenges and seize tomorrow’s opportunities. By leveraging AI, we ensure that every decision is supported by robust data and unparalleled industry expertise, providing a comprehensive advantage in the market.

Contact

Are you ready to transform your oil and gas assets? Contact Valor today to learn how our innovative solutions can elevate your business to new heights.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Valor | Energy Connection – Oct. 7, 2024

October 7, 2024 Edition

At Valor, our goal is to keep you informed of the latest news and updates from the oil and gas industry. We are committed to sharing the insights and knowledge that our team gathers to help you stay ahead in this dynamic sector. From mergers and acquisitions to regulatory changes and technological advancements, we cover all the key developments that impact the industry. Stay tuned for weekly updates to keep you well-informed.

  • Oil Prices Extend Gains, Lifting Brent Crude Towards $80 on Fears of Wider Middle East Conflict
  • Summary: Oil prices continued to rise with Brent nearing $80, fueled by increased market concerns over potential Middle East conflicts and disruptions to oil exports from the region.
  • Read more

  1. BP Abandons Goal to Cut Oil Output, Resets Strategy
  2. Summary: BP has abandoned its target to cut oil and gas output by 2030, as CEO Murray Auchincloss refocuses on profitable investments in oil and gas to restore investor confidence and reposition the company for higher returns.
  3. Read more

  1. What’s the Outlook for Oil and Gas Prices as Middle Eastern Tensions Heat Up?
  2. Summary: Despite escalating Middle East tensions and rising oil prices due to potential supply disruptions, the long-term outlook suggests oil prices might decline as global oil supply continues to exceed demand.
  3. Read more

  1. US Drillers Cut Oil and Gas Rigs for Third Week in a Row
  2. Summary: U.S. energy firms reduced operational oil and natural gas rigs for the third consecutive week, signaling a future output decline due to lower prices, higher costs, and a focus on financial health.
  3. Read more

  • Shell Sees Strong Natural-Gas Production in Third Quarter
  • Summary: Shell Plc experienced strong performance in its natural gas and upstream businesses during the third quarter, although oil-refining margins fell and the company anticipates a loss in its chemicals segment.
  • Read more

  • US Supreme Court Declines to Pause EPA Mercury, Methane Rules
  • Summary: The U.S. Supreme Court refused to block new EPA rules aimed at reducing mercury and methane emissions, despite challenges from Republican-led states and industry groups.
  • Read more

Contact Valor Today

Contact Valor Today

Contact us today if you need help outsourcing your oil and gas operations.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

October 2024 – Valor On The Move

In the month of October, our team is gearing up for some very busy schedules as we attend multiple conferences and sponsor various events within our community. These engagements not only underscore our commitment to industry excellence and community enrichment but also provide an exciting opportunity for us to connect with those involved in the oil and gas industry. We hope to see some familiar faces as we hit the road this October!

TLMA Statewide Members Meeting – October 8, 2024

We are excited to be returning as an exhibitor to the Texas Land and Mineral Owners Association Statewide Members Meeting for the third year in a row. TLMA has embarked on a mission to level the playing field in the oil and gas industry by directly advocating for land and mineral owners’ interests, focusing predominantly on the Texas Legislature. Our team will have a table set up in the exhibitor space. If you are attending the meeting, please stop by our booth and say hello!

2024 National NARO Convention – October 16 – 19, 2024

The Valor team is headed to Houston, TX where we will be sponsoring the National NARO Convention. We look forward to meeting with other mineral and royalty owners from across the country and enhancing our knowledge of the latest updates in the industry. Planning to attend? Connect with us!

Mayor Parker’s 2024 State of the City – October 24, 2024

Valor is excited to attend the 2024 State of the City address for the third consecutive year, joining fellow business and community leaders to learn more about the accomplishments, opportunities, and future vision for our hometown, Fort Worth. We look forward to hearing Mayor Parker’s insights and celebrating Fort Worth’s continued success.

D CEO 2024 Energy Awards – October 29, 2024

The D CEO Energy Awards celebrate the camaraderie, innovation, and commitment to a sustainable future within the energy sector, recognizing leaders and companies in both renewable energy and oil and gas. Valor’s president and co-founder, Joseph DeWoody, has been named a finalist in the Excellence in Technology & Innovation category, honoring his outstanding contributions to technological advancements and innovative solutions in the energy industry.

We hope to see you at one of these events!

Not able to make it but want to connect with the Valor team? Click here!

Valor | Energy Connection – Sep. 30, 2024

September 30, 2024 Edition

At Valor, our goal is to keep you informed of the latest news and updates from the oil and gas industry. We are committed to sharing the insights and knowledge that our team gathers to help you stay ahead in this dynamic sector. From mergers and acquisitions to regulatory changes and technological advancements, we cover all the key developments that impact the industry. Stay tuned for weekly updates to keep you well-informed.

  • Oil and Gas Fields Offshore U.S. Gulf of Mexico Come Back Online Following Hurricane Helene
  • Summary: The Bureau of Safety and Environmental Enforcement (BSEE) is overseeing the return of oil and gas production in the Gulf of Mexico, with minimal facility evacuations and a temporary shutdown affecting a small fraction of production following Hurricane Helene.
  • Read more

  1. Oil Prices Set to Fall for Third Month Despite Middle East Conflict
  2. Summary: Oil prices declined for the third consecutive month, influenced more by strong supply and weak demand concerns than fears of regional conflict escalation due to Israeli strikes in Lebanon and Yemen.
  3. Read more

  1. Chesapeake to Rebrand as Expand Energy Upon Close of Southwestern Merger
  2. Summary: The merger between Chesapeake Energy Corporation and Southwestern Energy, creating the largest U.S. natural gas producer named Expand Energy Corporation, is set to close in early October after clearing regulatory hurdles.
  3. Read more

  1. US Drillers Cut Oil and Gas Rigs for Second Week in a Row
  2. Summary: U.S. energy firms reduced the number of operating oil and natural gas rigs for a second consecutive week, indicating a potential slowdown in future output despite a quarterly increase in rig counts.
  3. Read more

  • Colorado Proposes Groundbreaking Ban on Oil Drilling, Sparking National Debate
  • Summary: Colorado lawmakers have introduced legislation to ban new oil drilling permits by 2028 and require existing wells to pause production annually for five months, potentially setting a precedent for other states. This initiative, part of a broader effort to address environmental and public health concerns, faces significant opposition from the oil and gas industry but could inspire similar measures nationwide as discussions about sustainable energy practices and the environmental impact of fossil fuels intensify.
  • Read more

  • California Gov. Gavin Newsom Signs Laws to Curb Oil and Gas Pollution Near Neighborhoods
  • Summary: California Governor Gavin Newsom signed new laws to curb oil and gas pollution, granting local governments more power to regulate the industry and aiming for carbon neutrality by 2045.
  • Read more

Contact Valor Today

Contact us today if you need help outsourcing your oil and gas operations.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Understanding Royalties – Interest Types

Navigating the complex landscape of oil and gas interests can be a daunting task for both newcomers and seasoned professionals in the industry. From mineral rights to royalty shares, the various types of interests represent different sets of rights, responsibilities, and financial benefits. In this blog, we will demystify these different categories, explaining each type of interest—such as Mineral Interest, Royalty Interest, Working Interest, Overriding Royalty Interest (ORRI), Non-Participating Royalty Interest (NPRI), and more. Understanding these distinctions is crucial for anyone involved in the oil and gas sector, whether you’re negotiating contracts, managing assets, or planning new explorations.

Mineral Interest

This interest pertains to the ownership of the underground minerals (such as oil and gas) beneath a tract of land. Owners of mineral interests have the right to lease, sell, or participate in the development of these minerals.

Royalty interest

A royalty interest is a share of the gross production from a well, usually expressed as a percentage. This percentage is known as the Decimal of Interest or DOI. Royalty interest owners receive a portion of the revenue generated from the sale of oil and gas, but they are not responsible for the operational costs associated with drilling, extraction, and production.

A Non-Participating Royalty Interest (NPRI) is a specific type of royalty interest in the oil and gas industry. It grants the holder the right to receive a fraction of the production revenue from the minerals extracted but does not confer any rights to participate in leasing or operational decisions regarding the mineral property. An NPRI is categorized under Royalty Interests because it is purely revenue-oriented and does not involve participating in the operational or leasing aspects of the mineral estate. However, it is distinct from other royalty interests because of its non-participatory nature, which limits the holder’s involvement beyond receiving revenue shares.

Working interest

Working interest represents both the right to a share of production and a financial responsibility for a proportionate share of the operating costs. Working interest owners have a more involved role, contributing to operational expenses but also reaping a proportionate share of the profits. The well operator divides funds among those with working interests after operating expenses have been covered. Often times this interest type is referred to as a “non-op working interest”.

Overriding Royalty Interest (ORRI):

This is similar to royalty interest but is carved out from the working interest. It does not affect the mineral ownership but grants a share of production revenue. Overriding royalties typically expire once the lease has produced or at the end of the lease term.

Net Profits Interest

An interest that provides the holder a share of the net profits from the production of oil and gas, after certain costs are deducted. It is a non-operating interest, meaning the holder is not responsible for operating expenses.

Leasehold Interest

This interest is held by a lessee under an oil and gas lease. The lessee (often an exploration company) acquires the right to explore and develop the property for oil and gas production. This interest combines elements of working interest and mineral rights but is contingent on the terms of the lease.

Carried Interest

In this arrangement, one party (often a smaller partner) agrees to carry another partner through the exploration and/or development phase. The carrying partner covers the expenses, and in return, they receive a larger share of the profits or a reimbursement from the carried partner once production starts or reaches a profitable stage.

Contact Valor Today

Contact us today if you need a mineral management company to help you manage your assets.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Valor | Energy Connection – Sep. 23, 2024

September 23, 2024 Edition

At Valor, our goal is to keep you informed of the latest news and updates from the oil and gas industry. We are committed to sharing the insights and knowledge that our team gathers to help you stay ahead in this dynamic sector. From mergers and acquisitions to regulatory changes and technological advancements, we cover all the key developments that impact the industry. Stay tuned for weekly updates to keep you well-informed.

  • Oil Settles Lower on Weak Euro Zone Business Activity
  • Summary: Oil prices fell due to disappointing business activity in the euro zone and concerns over weak demand, with additional downward pressure from economic challenges in China and a slowdown in European manufacturing.
  • Read more

  1. US Drillers Cut Oil, Gas Rigs for Fifth Time in Six Weeks
  2. Summary: U.S. energy firms reduced the number of operating oil and natural gas rigs for the fifth time in six weeks, indicating a cautious approach amid fluctuating fuel prices and economic pressures, as reported by Baker Hughes.
  3. Read more

  1. GlobalData: Oil and gas industry slows its energy transition
  2. Summary: The GlobalData report indicates that the global oil and gas industry is refocusing on fossil fuels due to heightened energy security concerns from the Ukraine war, slowing down but not abandoning the shift towards low-carbon energy transitions.
  3. Read more

  1. Oil, Gas Operators Monitor Tropical Disturbance Headed Toward Gulf of Mexico
  2. Summary: As a tropical disturbance approaches the US Gulf of Mexico, oil and gas operators like Shell and Chevron are taking precautionary measures, including evacuating personnel and pausing operations, though Chevron reports no current impact on production.
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  • Artificial Intelligence could unlock efficiency and safety gains for oil and gas sector
  • Summary: The adoption of Artifical Intelligence (AI) in the oil and gas sector, although slower due to its complex business models and digital demands, is advancing as companies partner with AI startups and Big Tech for pilot projects and adapt risk management to harness AI’s potential for enhancing process efficiency, predictive accuracy, and real-time monitoring, despite facing challenges like cybersecurity and talent competition.
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  • Texas Oil and Gas Jobs Show Three Months of Jobs Growth
  • Summary: Texas continues to lead U.S. job growth, with the oil and natural gas industry adding jobs for the third consecutive month, reflecting its crucial role in meeting both local and global energy demands.
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Contact Valor Today

Contact us today if you need help outsourcing your oil and gas operations.

The information provided by Valor in this blog is for general informational purposes only, not to provide specific recommendations or legal or tax-related advice. The blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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