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Understanding Term Overriding Royalty (Bankruptcy): A Comprehensive Guide
Definition & Meaning
A term overriding royalty is a specific type of interest in oil and gas production. It grants the owner a right to receive a portion of the production or its value from a designated property. This right is limited by time, quantity, or the total value realized from the production. Essentially, it allows the owner to benefit financially from the extraction of hydrocarbons without bearing the costs associated with production.
Table of content
Legal Use & context
Term overriding royalties are commonly used in the oil and gas industry. They are relevant in legal contexts involving property rights, contracts, and bankruptcy proceedings. In bankruptcy cases, these royalties may be treated as assets that can be sold or leveraged. Users can manage related legal documents, such as contracts or royalty agreements, using templates from US Legal Forms, which are designed by licensed attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
For instance, if a landowner grants a term overriding royalty to a company for a period of five years, the company would pay the landowner a percentage of the profits from oil extracted during that time. (hypothetical example)
Another example could involve a bankruptcy case where an oil company sells its term overriding royalties to pay off creditors, allowing the creditors to receive a share of future production profits.
State-by-state differences
State
Key Differences
Texas
Term overriding royalties are often treated as separate from the mineral estate.
California
Specific regulations govern the disclosure of overriding royalties in contracts.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Royalty Interest
A share of production or revenue from oil and gas extraction.
Royalty interest is typically not limited by time or quantity.
Working Interest
The right to explore and produce oil and gas from a property.
Working interest owners bear the costs of production, unlike overriding royalty owners.
Common misunderstandings
What to do if this term applies to you
If you believe you have a term overriding royalty interest, it is important to review the specific terms of your agreement. You may want to consult with a legal professional to understand your rights and obligations. Additionally, you can explore US Legal Forms for templates that can help you draft or manage related documents effectively.
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