Non-Participating Royalty Interest (NPRI) Explained

A non-participating royalty interest — commonly called an NPRI — is one of the most frequently misunderstood concepts in oil and gas ownership. If you own an NPRI, or if you are considering buying or selling one, this guide explains exactly what it is, how it works, and what it means for your income.

What "Non-Participating" Actually Means

The word "non-participating" does not mean you do not participate in revenue. It means you do not participate in executive rights — the right to sign leases, negotiate terms, and receive bonus and rental payments.

An NPRI owner has:

• The right to receive a share of production royalties when oil or gas is produced

• The right to sell, gift, or bequeath the NPRI as real property

• The right to receive information about production from the operator (in most states)

An NPRI owner does NOT have:

• The right to sign leases — only the mineral interest owner with executive rights can do this

• The right to receive lease bonus payments — these go to the executive rights holder

• The right to receive delay rental payments — these also go to the executive rights holder

• The right to block or approve drilling — the executive rights holder makes these decisions

How NPRIs Are Created

NPRIs are typically created in one of three ways:

1. Reservation in a Deed

The most common scenario: a mineral owner sells their mineral interest but reserves an NPRI. For example, a deed might read: "Grantor conveys all mineral interest, reserving unto Grantor a 1/16th non-participating royalty interest in all oil, gas, and other minerals."

This means the buyer gets the minerals (including executive rights), but the seller retains a 1/16th royalty on any future production.

2. Direct Grant

A mineral owner can also create an NPRI by granting it directly through a mineral deed. This is common in estate planning — for example, a parent might give their children NPRIs while retaining the executive rights themselves.

3. Court Order

In some cases, NPRIs are created through divorce decrees, partition actions, or other court proceedings that divide mineral interests among parties.

Fixed vs. Floating NPRI

This is where NPRIs get complicated. There are two types, and the difference significantly affects how much you receive:

Fixed NPRI

A fixed NPRI is a set fraction of production, regardless of the lease royalty rate. If you own a 1/16th fixed NPRI and the lease provides a 1/4th royalty, your NPRI comes "off the top" — you get 1/16th of production, and the mineral owner gets the remaining royalty (1/4 minus 1/16 = 3/16).

Floating NPRI

A floating NPRI is calculated as a fraction of the lease royalty, not a fraction of production. If you own a 1/2 floating NPRI and the lease provides a 1/4th royalty, you receive 1/2 of 1/4 = 1/8th of production. If the mineral owner negotiates a higher royalty rate on the next lease, your share increases proportionally.

Whether an NPRI is fixed or floating depends on the language in the creating document. This distinction is a frequent source of disputes, and the courts in major oil and gas states have developed extensive case law interpreting ambiguous NPRI language. If you are unsure whether your NPRI is fixed or floating, consult an oil and gas attorney.

How NPRIs Affect the Mineral Owner

If you are a mineral owner with executive rights, the existence of an NPRI on your tract affects you in several important ways:

• Your royalty share is reduced: The NPRI comes out of the royalty that would otherwise be payable entirely to you. In a fixed NPRI scenario, this means the NPRI burden stays the same regardless of what royalty rate you negotiate. In a floating scenario, negotiating a higher royalty rate increases both your share and the NPRI owner's share.

• You owe a duty of fair dealing: In most states, the executive rights holder owes a duty to the NPRI owner to lease the minerals on commercially reasonable terms. You cannot refuse to lease solely to deprive the NPRI owner of income.

• Lease bonus belongs entirely to you: Despite the duty of fair dealing, the NPRI owner has no claim to bonus payments — only production royalties.

Valuing an NPRI

NPRIs are valued using the same fundamental approach as mineral interests:

1. 1Current production: What royalty income is the NPRI generating today?

1. 1Decline curve analysis: How will that income change over time as wells decline?

1. 1Net present value: What is the total projected income worth in today's dollars?

1. 1Upside potential: Are there additional wells that could be drilled on the tract?

NPRIs often trade at a modest discount to full mineral interests because the NPRI owner has no control over leasing decisions and receives no bonus payments. However, in areas with active production and strong operators, the discount may be small because the executive rights (leasing, bonus) are less important than the ongoing royalty stream.

Should You Sell Your NPRI?

The decision to sell an NPRI depends on the same factors as selling any mineral interest:

• Current and projected production: If production is declining, selling now captures the present value of the remaining income stream

• Personal financial needs: A lump sum may be more useful than a small monthly royalty check

• Concentration risk: If a large percentage of your net worth is tied to a single NPRI, selling diversifies your holdings

• Lack of control: Since you cannot influence leasing or development decisions, you are relying entirely on the executive rights holder and the operator to manage the asset

Values depend on many factors and can go up or down. If you are considering selling an NPRI, a direct buyer like Sagebrush MG can evaluate your specific interest and provide a free, no-obligation offer based on engineering analysis and comparable transactions.

The Bottom Line

An NPRI is a valuable but limited form of mineral ownership. Understanding exactly what you own — whether it is fixed or floating, what fraction of production it represents, and how it interacts with the mineral owner's executive rights — is essential for making informed decisions about holding, selling, or planning for the future. We recommend consulting an oil and gas attorney to review the specific language of your NPRI, especially if there is any ambiguity about whether it is fixed or floating.