Last Updated on A Non-Executive Mineral Interest (NEMI) is a type of mineral interest held by an individual or entity. But it does not give them the right to drill for and produce oil or gas. Instead, these interests are usually leased to other companies that have the right to explore and exploit the minerals found on the land. Generally, owners with NEMIs do not have any direct involvement in exploration or production activities.
But they receive periodic payments (royalties) from the lessee based on production activity on their property. The terms of each lease can vary greatly depending on individual negotiations between mineral owners and the lessees.
There are different types of mineral rights, one of which is a non-executive mineral interest. What is it? What are the benefits of a non-executive mineral interest? The answers to these questions and some practical insights are provided in this comprehensive guide. So, keep on reading!
What is a non-executive mineral interest (NEMI)?
Non-executive mineral rights owners relinquish their ability to lease the interest to third parties.
However, a non-executive owner can still receive a portion of any royalty or lease bonuses paid for the mineral interest lease.
It is not uncommon for parties to an oil and gas conveyance to find it reasonable to transfer executive rights from one party to another for several reasons. With this in mind, landowners may convey the whole surface but keep one-half interest.
After all, both parties might decide it is good for the new surface owner to undertake lease negotiations. This could hinge on various factors, which include:
- The proximity of the new owner to the land.
- Land accessibility issues.
- The entire surface rights ownership.
There are two different types of non-executive interests. These are as follows:
Non-Executive Mineral Interest
Even though this can be similar to a royalty interest, it comes with a benefit; enjoying a share of the bonus and rental from oil and gas leases. This conveyance instrument excludes the owner of non-executive mineral rights from rental or bonus payments.
Depending on what the reservation or grant says, the best type of ownership rights a party wishes to adopt may not be obvious at first glance. So, it becomes essential to define the types of mineral interests. This should be stated in the document.
Royalty Interest
This includes the right to receive a fraction of the generated revenue from oil and gas production without incurring any production costs. When royalty owners enter a lease agreement with an interested company, royalties are paid to the original owner throughout the lease agreement.
The royalty payment can only stop when the agreement expires. During this period, the company can explore and exploit the subsurface minerals. At the end of the lease term, the full rights are once again retained by the owner.
What are the benefits and rights of ownership of non-executive mineral interests?
It should be stressed that certain benefits are associated with the ownership of non-executive mineral interests. This includes receiving a portion of any royalty or bonus paid for the mineral-interest lease.
However, there is a limitation to holding a non-executive mineral interest. As a non-executive mineral interest owner, you have given up your interest – by reservation or conveyance – to lease the interest (just as the name implies).
Non-Executive Mineral Interest (NEMI) vs Non-Participating Royalty Interest (NPRI)
The deeds are getting more complicated, thanks to the increasing sophistication of landowners. As mentioned above, Non-executive mineral rights ensure that owners can cede their right to lease the interest. Yet, they can still receive a portion of any royalty or bonus paid for the mineral interest lease.
On the other hand, a non-participating royalty interest refers to the legal right to be paid a stipulated portion of the generated revenue without the need to cover the production costs. It also does not permit the holder to explore or develop a lease or rental payments.
The main distinction between royalty and mineral interest is clear. Mineral interests are associated with five rights:
- To develop
- Bonus payment
- Executive right (grant leases)
- Delay rentals
- Royalties
Royalty interest involves the production share of a landowner. As mentioned above, this does not include exploration and production costs of oil and gas.
Non-participating royalty interests are non-possessory. As a result, the owner can’t extract minerals by themselves.
The idea of their differences is clear enough. However, in practice, things can become trickier.
For instance, a grant gives an undivided mineral interest of 4/16. Later, the same grant conveys executive rights alongside the ability to obtain delayed rentals.
For this reason, it is crucial for there to be clarity between a NEMI and NPRI. After all, this plays a significant role in the total amount the holder is entitled to.
Are you willing to pay out or receive royalties only?
Are there any rights you are willing to get or keep? These are essential questions that must be answered.
Conclusion
Mineral resources are hugely significant in the achievement of technological advancements. For this reason, having a mineral interest – or the freedom to explore and exploit subsurface resources – can be very profitable. These mineral interests can be sold or leased.
With non-executive mineral interests, you can’t lease interests. Yet, you can enjoy any royalty paid concerning the mineral interest lease. Some benefits and limitations are associated with holding a non-executive mineral interest.
This guide also specifies the need to differentiate between a non-executive mineral interest and a non-participating royalty interest. A better understanding of these can help you make informed decisions.
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