Legal Definitions - royalty interest

Definition: A royalty interest is a share of production or the value of production, free of production costs, when and if there is production. It is commonly used in the oil and gas industry and is usually expressed as a fraction, such as 1/6. A royalty-interest owner has no right to operate the property and therefore cannot lease the property or share in bonuses or delay rentals. In some states, a royalty owner has the right to take the royalty production.

Example: If a landowner owns a royalty interest of 1/8 in an oil well, they will receive 1/8 of the revenue generated from the sale of oil produced from that well, free of production costs.

Explanation: This example illustrates how a royalty interest works in the oil and gas industry. The landowner does not have the right to operate the well or lease the property, but they are entitled to a share of the revenue generated from the sale of oil produced from the well.

Related Terms:Established Royalty, Reasonable Royalty, Royalty