A 1% overriding, royalty interest; can someone explain what this means?

I might sign an agreement for someone to market some land.  They have this in the agreement and i want to know what other people think it means

A 1% overriding, royalty interest on production obtained pursuant to the oil and gas lease covering the land. 

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Permalink Reply by TheMap on October 16, 2012 at 10:33am

Don't do that.  You are giving the marketing company 1% of any and all royalties during the entire life of the lease.

Permalink Reply by Dave on October 16, 2012 at 11:01am

That's what i thought but i knew this website had people that know alot more than me.  Thanks

Permalink Reply by Mike C. on October 16, 2012 at 11:02am

It depends on where you are located in my opinion.  If you are in a guaranteed oil and gas producing location then I would not give an override because it is like giving away known money.  You are better off paying a little more on the front end.  If you are in a suspect or new area then I think giving the override is almost necessary since there will not be as much money on the front end and in reality most of the land may not be developed anyways.  Good question.

 

Permalink Reply by jett on October 16, 2012 at 11:41am

Maybe it just me, but why would anyone give a stranger that kind of share in your own private property? 1% is alot when you see us all fighting here for every royalty percentage point we can get. Even if there is never a lease, it's my belief a person should keep their property clean and clear of any of these kinds of encumbrances if possible. Who knows what the future may bring. Look at all the old leases that people signed never knowing that fracing would access stuff they never knew they had underneath them. Just one way to think of it.

IMHO

Permalink Reply by Robin Hood on October 16, 2012 at 12:33pm

Right on! Mike C must work for the marketing company.

Permalink Reply by Mike C. on October 16, 2012 at 1:12pm
Not every play is 1000s of dollars with a 20% royalty. Some groups need some real marketing and there may not be a lot of money up front. Since there were no additional details given my answer was for both scenarios. Feel free to go back to only selective reading.
Permalink Reply by jett on October 16, 2012 at 4:52pm

Just think that we all should be cautious and think of all the ramifications before signing away any of our ownership rights over our properties. Again, that's the way I think. But, of course, each person has to make their own final decisions.

Permalink Reply by NY Gas Rights on December 25, 2012 at 4:46am

Mike, there is NOTHING a marketing company can do to create gas or oil underground, so there is NOTHING a marketing company can do to make anyone's land more or less attractive. Only the geologist can decide if an area is worth the play.

It is never a good idea ever to pay anyone an override. Not a marketing company, not a law firm; no one. Twenty years from now you will look back at what was paid for 15 minutes of work now. The only thing that increases bonuses or royalties is competition among the lease buyers. No marketing company can entice a gas company to buy leases that they didn't want.

 

Permalink Reply by Keith Mauck (Site Publisher) on October 17, 2012 at 7:40am

Run Dave Run

Permalink Reply by craig on December 25, 2012 at 5:38am

I agree with Keith, run Dave, RUN.

Permalink Reply by rmc on December 25, 2012 at 12:09pm
Ha ha I will sign over one percent of my royalty when they agree to give me 1/10 of a percent of any royalty interest they own or will own in the future.
Ha ha Something tells me they wouldn't be interested in that one.
Permalink Reply by Schnoozie on December 26, 2012 at 4:02am

Dave, Hope this helps you.

Lets say I am a part of an industrial machine company, founded by five people. The initial investment for the company was private. Each pitching in equal ammounts to get it off the ground. Then one day we need some capital for the purchase of a modern CNC Machine. Not unusual, correct?

The supplier provides our new fancy widget, we pay for only half the cost of the item, but they ask in return for the other half, a 1% interest in the company. We could say yes.., save on the cost of the machine, and give a little bite of our profits to the machine supplier. Or say no thanks and find the extra money somehow.

Sound easy to understand so far?

Fast forward to the time when we all decide that we want to retire and possibly sell the company to another firm, hopefully for a tidy profit. If we entered into an arrangement where another entity has a percentage interest in our company, we will not be able to sell it as a whole. The 1% interest holder can stop the sale in it's tracks untill they are satisfied. They can and would certainly have the legal right to do this very thing. The party interested in buying us out would have to, if they wanted to complete the transaction. Pay to the 1% interest holder whatever they asked, or the deal would never occur.

Apply this set of circumstances to your property. There is no difference.

In order for you to be developed, your Oil and Gas title must be intact to 100%.

It belongs to your famliy, It's an asset, just like the surface, just like your home, a piece of commercial property, a car, a building.

No difference.

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