Illinois Declaration of Election by Lessor to Convert Royalty Interest to Working Interest

State:
Multi-State
Control #:
US-OG-311
Format:
Word; 
Rich Text
Instant download

Description

This form is used when the Declarant reserved a (Fraction or Percentage) royalty interest, and the option, but not the obligation, to convert the reserved royalty interest to an undivided percentage working interest, at payout, as defined in the Lease.

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FAQ

A working interest is considered a real property interest whereas a royalty interest is not. What is the difference? It is the Exchangor's rights and obligations to access the property. A working interest is the exclusive right to enter land and extract oil, gas and minerals.

You may convey overriding royalty interest on either an Assignment of Record Title Interest (Form 3000-3), a Transfer of Operating Rights (Form 3000-3a), or on a private assignment. We only require filing of one signed copy per assignment plus a nonrefundable filing fee found at 43 CFR 3000.12.

An overriding royalty agreement is a contract that gives an entity the right to receive revenue from certain productions or sales. The specific type of occurence that royalties are required to be paid on is included in the overriding royalty agreement.

A leasehold interest is essentially working interest; therefore, the interest owner is responsible for drilling and operating the well and paying all expenses. In exchange for taking on the risk and expenses, the leasehold interest owner is entitled to significant tax benefits.

The owner of a royalty interest receives a portion of the income generated from oil and gas production. Unlike an ORRI, a royalty-interest owner does not have the right to execute leases or collect bonus payments. The RI owner does not bear any operating costs or expenses related to the well.

Calculating Overriding Royalty Interest An ORRI is a straight percentage. For example, a 2% override would appear on the royalty statement as 0.02 interest in the proceeds from the sale of the leased hydrocarbons.

A gross overriding royalty entitles the owner to a share of the market price of the mined product as at the time they are available to be taken less any costs incurred by the operator to bring the product to the point of sale.

The owner of a working interest, also called an operating interest, bears the costs of developing and operating the natural resource property. The most common form of working interest is a leasehold estate held by an operator that exploits another person's property.

In contrast to a royalty interest, a working interest refers to an investment in an oil and gas operation where the investor does bear some costs for exploration, drilling and production. An investor holding a royalty interest bears only the cost of the initial investment and isn't liable for ongoing operating costs.

What Is Working Interest? Working interest is a term for a type of investment in oil and gas drilling operations in which the investor is directly liable for a portion of the ongoing costs associated with exploration, drilling, and production.

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Illinois Declaration of Election by Lessor to Convert Royalty Interest to Working Interest