Focused on Royalties
What is a Royalty?
A royalty is a payment based on a percentage of the gross well production without the working interest owners’ associated responsibility for any expenses.
We own both mineral title rights (which result in 'lessor' royalties) and gross overriding royalties, but our mineral title lands is our most valuable asset, as we own them in perpetuity.
- Lessor royalties represent the mineral title owner’s share of production, free of production expenses. Mineral title lands are held in perpetuity. When a company wants to drill for oil or gas, it must negotiate for the mineral rights with the mineral title owner (the Crown or a freehold owner). When the mineral title owner leases those rights to a company to drill for oil or gas, it generally retains a percentage share of production, called a lessor royalty. Freehold's ownership in mineral titles ranges from 10% to 100%. Leases provide for a royalty payment ranging from 10% to 22.5% of production. For example, if our ownership is 50% of the mineral title and the royalty rate applicable to the lease is 20%, then we are entitled to receive the proceeds from the sale of 10% of the oil or natural gas produced (50% x 20% = 10%).
Overriding royalties arise usually as a result of: i) providing capital in exchange for granting the royalty; or ii) converting a participating interest in a joint venture relationship into a royalty. Overriding royalties are contractual obligations that expire upon the termination of the lease(s) or agreement(s).