Do overriding royalty interests expire when oil leases change hands?

Full question:

I live in Tennessee and I purchased several oil leases in Lee County, Kentucky. These leases have not been in production for over 15 years. Do the overriding royalty holders drop off of the list once the lease has changed hands? Or, Is the overriding royalty expired because production was stopped for so long and the lease has changed hands? (Were talking overriding royalty, not royalty interest.)

• Category: Oil Gas and Minerals
• Date: 04/07/2025
• State: Tennessee

Answer:

An overriding royalty interest is a type of royalty interest derived from the working interest of an oil and gas lease. Its existence is tied to the duration of the underlying lease. Generally, if the lease is no longer in effect due to lack of production, the overriding royalty interest may also expire.

However, exceptions exist. If the original documents specify that the overriding royalty interest applies to any extensions or renewals of the lease, it may still be valid. Additionally, if there is evidence of a fiduciary or contractual duty between the parties involved, that could also affect the status of the overriding royalty interest.

When a lease changes hands, the assignment of interests must be evaluated based on the terms of the contracts involved. Whether the overriding royalty interest transferred to the new leaseholder depends on those terms. Courts may consider implied covenants regarding the development and management of the property, but a violation of such covenants does not automatically terminate the lease.

In Kentucky, if a well has not produced in paying quantities for fifteen consecutive months, it may be deemed abandoned, and the operator must notify overriding royalty interest holders before plugging the well (KRS 349.025). Given the complexity of these issues, it is advisable to consult an attorney who can review your specific documents and circumstances.