Opinion ID: 8410702
Heading Depth: 2
Heading Rank: 2

Heading: Overriding Royalties

Text: So, what is an overriding royalty interest? LOWLA itself supplies no definition for the term, so we look to the term's commonly understood legal meaning. Martinez v. Mukasey , 519 F.3d 532 , 540 (5th Cir. 2008). In the words of a leading treatise, [a]n overriding royalty is, first and foremost, a royalty interest. In other words, it is an interest in oil and gas produced at the surface, free of the expense of production. Williams & Meyers , Oil and Gas Law § 418.1 (2017). Louisiana law, too, classifies an overriding royalty as the right to receive and collect a fraction or a percentage of the production of minerals ... free of drilling and production costs. Total E & P USA Inc. v. Kerr-McGee Oil and Gas Corp. , 719 F.3d 424 , 434 (5th Cir. 2013). Moreover, an overriding royalty is a real right, albeit a nonpossessory one. Id. ; see also Williams & Meyers, Oil and Gas Law § 418.1. The M& M Intervenors have a materially different understanding, arguing that ATP conveyed to OHA an interest in the proceeds or revenue derived from the hydrocarbons that were to be severed and sold by ATP in the future. (emphasis added). In so suggesting, the M& M Intervenors misapprehend the nature of an overriding royalty by focusing not on the property interest itself but on the form of subsequent royalty payments. Royalty payments can take the form of cash (out of proceeds of future hydrocarbon sales) or can be in kind from the [hydrocarbons] lifted from the wells. E.g. , Af-Cap Inc. v. Republic of Congo , 383 F.3d 361 , 364 (5th Cir. 2004). The mere fact that OHA was to be paid in one form and not the other says nothing of the nature of its underlying property interest; an overriding royalty is, again, an interest in oil and gas produced at the surface. Williams & Meyers, Oil and Gas Law § 418.1. The language of OHA's purchase agreements makes this all the more clear. The agreements conveyed an interest in Hydrocarbons produced and simultaneously vested ATP with the authority to market and sell all Subject Hydrocarbons-including OHA's share. Thus, OHA purchased much more than a mere interest in proceeds; it purchased an  interest in the to-be-produced hydrocarbons themselves.