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.