Fractions


“Blood may be thicker than water, but oil is thicker than both.”  J. R. Ewing.

This family dispute among Ethel’s descendants arose when Ethel’s will employed double fractions in bequeathing royalty interests to her children. Did the instrument create a fixed fractional royalty or a floating fraction of royalty?

Straight to the takeaway

Don’t like math? Avoid a pop quiz by remembering, when describing a royalty conveyance:

  • Do not convey a fraction of a fraction unless that is what you intend to do. Why let ambiguity and confusion ruin your carefully crafted document?
  • Use language appropriate for the time and circumstances, but think ahead. Is change foreseeable in a way you can plan for?

If you don’t believe me read Hisaw v. Dawkins, from the Texas Supreme Court.

Times were different then

When Ethel’s will was written in 1947 Jackie Robinson was a rookie, LSU beat Texas A&M 19-13 (some things never change), and the standard royalty was 1/8th. Was that figure in Ethel’s will a synonym for the lessor’s royalty, or was the royalty interest fixed without regard for the possibility of a higher royalty in the future?

There were three separate parcels of land and each child received the surface and executive rights to one. Ethel’s will contemplated three scenarios for the royalty under all the tracts. Each child would receive:

  • an NPRI of an undivided 1/3rd of an undivided 1/8th of all oil, gas ….
  • 1/3rd of 1/8th royalty  …
  • 1/3rd of the remainder of the unsold royalty, if a conveyance occurred while she was alive.

Clarity from the Supreme Court

The court said it would not embrace a “mechanical approach” to a royalty conveyance that would require “rote multiplication of double fractions”. Bright line rules are arbitrary and will not always give effect to what the conveyance provides as a whole. The court of appeals erred in construing each royalty provision in isolation.

In what it called an analytical approach, the court applied the four corners rule, and attempted to harmonize all provisions of the document. The court reaffirmed its commitment to a “holistic” approach to contract construction by ascertaining the parties’ intent from all words and all parts of the instrument. To harmonize would resolve apparent inconsistencies or contradictions in the document.

The third royalty clause governed. It clearly showed Ethel’s intention to equally divide the royalties among the three children. Each would receive a 1/3rd floating royalty, not a 1/24th fixed royalty (that is, 1/3rd of 1/8th).

The antiquated assumption that all future royalties would be 1/8th did not evidence Ethel’s intent. This is not to say that reference to 1/8th won’t ever mean just that. It might, if the language is clear and unambiguous.

 Prince RIP. His voice and an acoustic guitar are all you need to see what a force he was.

Head-scratchers: (1) Is a mineral reservation a fraction of royalty, or a fractional royalty? (2) Is there a difference? (3) Does it matter?

Answers: (1) It depends on how you phrase it. (2) Yes. (3) Yes, if you care about being paid on production, or you are the scrivener of deeds and assignments and want to avoid big trouble, or you pay people based on your interpretation of deeds and assignments and want to avoid big trouble. Otherwise, I guess not.

Moore v. Noble Energy is about the construction of a royalty reservation in a deed executed in 1955, and therefore about the answers to the three questions.

The Grantor reserved “a one-half non-participating royalty interest (one-half of one-eighth of production)”.

The Russells (grantee’s successors) entered into an oil and gas lease with Noble Energy that provided for the payment of a 3/16th royalty. Noble drilled four wells on the property. That’s about the  time everybody started paying attention.  

The Moores (grantor’s heirs) sued, asking the court to declare that they were entitled to one-half of the 3/16th royalty. The Russells argued that the Moores were only entitled to a fixed 1/16th royalty. The court agreed with the Russells.

The court contrasted a fraction of royalty with a fractional royalty:

“A fraction of royalty entitles the owner to a share of the mineral production equal to the stated fraction multiplied by the royalty retained in the lease.”

“A fractional royalty entitles the owner to the stated fraction of gross production, unaffected by the royalty reserved in the lease.”

The court then compared the language typically used to create these interests and concluded that the deed language was typical of that creating a fractional royalty. Given the absence any language indicating that the parties intended to create a fraction of royalty, the court held that the deed was unambiguous and the Moores were only entitled to a fixed 1/16 royalty.

The parenthetical was important in the construction of this reservation. The court observed that the “one-half non-participating royalty” without more would entitle the grantor to 50% of all production, thereby making it virtually impossible to lease in the future. The “(one-half of one-eighth of production)” cleared up any ambiguity, according to the court.

I compare this week’s  musical interlude to the passing game of this year’s LSU football Tigers. Progress is not always forward.  In 1955, the year of this deed, Bilboard’s No. 1 hit was Rock Around the Clock by Bill Haley and the Comets. My October 23rd post was about a 1963 deed. Bilboard’s chart-topper that year was Sugar Shack, by one-hit wonder Jimmy Gilmer and the Fireballs. You decide: Which has better field position?   

Thanks to Bill Drabble for his contribution to this post.