Classifying Non-operating Interests in Oil and Gas

Abstract

This paper focuses on the use and judicial characterization of non-operating interests that exist in the oil and gas industry. Specifically, the first part of the paper explains the need for non-operating interests, their development, and their uses. The second part of the paper briefly describes the types of non-operating interests: royalty interest, overriding royalty interest, production payment, net profits interest, and carried interest. The third part of the paper explains the need for the classification of these interests and the methods of classification (traditional and incidents of ownership). The remainder of the paper examines judicial classification of non-operating interests in the United States and Canada.