In Myers-Woodward, LLC v. Underground Services Markham, LLC et al, (discussed previously) the parties disagreed on how to calculate Myers’ royalty on salt produced by Underground.
The facts
The 1947 mineral deed reserved to Myers “a perpetual one eighth (1/8th) royalty on all oil that may be produced and saved from” the property “the same to be delivered at the wells or to the credit of Grantor into pipe line to which the wells may be connected.” The parties later executed a correction deed providing that the royalty would be “1/8th of all of the gas and other minerals … .”
The contentions
Myers’ contention: The language reserved an in-kind royalty under which Myers is entitled either to physical possession of 1/8th of the salt produced from the land or to 1/18h of the net proceeds from the sale of that very salt.
Underground’s contention: The royalty entitles Myers not to 1/8th of the net proceeds from the sale of any particular salt but instead to 1/8th of the market value of the amount of salt produced from the land.
Myers conceded that it is entitled to a share of net proceeds, which means it must bear its proportional share of postproduction costs incurred to make the salt marketable.
Underground calculated that 1/8th of the market value was roughly $260,000. Myers calculated that value to be over $2 million. The court acknowledged the economic reality that a mineral’s market value and the price paid for it in a given transaction can diverge, but there is generally some connection between the two measures such that one can often yield a useful approximation of the other, referring to the “workback method” to estimate wellhead market value for gas cited in Bluestone Natural Resources v. Randle.
The result
The parties gave the court no Texas case confirming this precise question in the context of a similarly worded conveyance. The court said it was not necessary to develop new generally applicable rules to resolve the dispute. The court saw its job as to ascertain the parties’ intentions as expressed in the words of the document.
Myers’ salt royalty was payable in-kind. The language indicated that Myers has an ownership interest in and to a portion of the actual, physical salt removed from the property. There was no “delivery” language in the correction deed to signal an in-kind royalty. But the oil royalty was, “to be delivered at the wells to the credit of Grantor … “. (emphasis added) The parties agreed that the original royalty language reserved an in-kind oil royalty because of the delivery language.
The correction deed contained neither delivery language nor express mention of an in-kind royalty. But the entire correction deed in its context indicated that the parties intended to create identical royalties for all three categories (oil, gas and other minerals) and executed the correction because they had inadvertently neglected to include gas and other minerals in the in-kind oil royalty created by the original deed. The oil royalty was clearly in-kind. The correction deed added gas and other minerals in the pre-existing in-kind oil royalty.
The case was remanded to the trial court to sort out the damages.