In the early 60's, my father sold a piece of land in Lavaca County and reserved half the royalties. The current owner has leased the land with a 22.5% royalty, and an oil & gas company is putting together a pooling unit. They have asked us to sign a stipulation of interest and cross-conveyance letter to clarify the old language. Problem is, they say it is a 16th interest.
I've done a good bit of research and find cases that sit on both sides of the fence. The old deed read as follows:
There is hereby excepted from this conveyance and reserved to the Grantors herein, their heirs and assigns, and undivided 1/16th interest (same being ½ of the usual 1/8th royalty) in and to all of the oil, gas and other minerals in, to and under or that may be produced from the lands above described … Said interest hereby reserved is a non-participating royalty interest …
Do we have half the royalties (11.25%) or a 1/16th royalty(6.25%)? Is there a definitive case on the issue?
On a case of first impression, it appears that your predecessor did not except 1/2 of the royalties. He excepted an undivided 1/16 non participating royalty interest. However the words of art fall a bit short in this case. That is likely the reason for the clarification requested. There are some "..." in your paraphrasing that could be real significant. Words like "except" and "reserve" actually have different meanings.
Be very cautious on signing anything at this stage. You need to find out why the stipulation and cross conveyance is needed and if you come out ahead or behind. There is more going on, in all likelihood. There are still plenty of questions that need to be asked.
Very excellent advice from Buddy, I totally agree. You probably have a 1/16 NPRI, but a single word or punctuation mark could change that, depending upon the exact wording of the reservation.
I think that it is very obvious that you come out behind if you sign the stipulation. You certainly wouldn't come out ahead if you agreed that it was a 1/16th. I think that you realize that. That is made clear when you referred to the proposed 1/16th as a "problem". You didn't call it a good deal or a benefit.
If It was mine, I think I would argue that the attempted clarification in the instrument is no longer the case. Royalties are not usually one - eighth in the present day. So, therefore their argument that you own 1/2 of 1/8th is based on a false or antiquated premise. I would argue that the intent was to convey 1/2 of the royalty in the lease, whatever that may be in the context of the times. Definitely not 1/8th, which is no longer "USUAL". Again, I think that you already knew the answer as to why the stipulation and cross conveyance are needed and if you come out ahead or behind. There is probably nothing more going on, in all likelihood.
The answer is that they want to interpret it for you, that is, pay you for a 1/16th, while having a signed stipulation and cross conveyance signed by you, which would support their assertion.
I can't tell you what to do or offer legal advice, but I wouldn't sign it until they are able to answer a very key and obvious question. How can they reconcile a 1/8th royalty being "usual" in 2013, the entire premise of the old deed, or what legal precedent (case law) can they supply that proves their interpretation of the reservation is legally effective?
If the stipulation was read in its entirety, I would bet $10.00 that they are probably calling it a bastardized form of mineral interest, such as a non participating mineral interest, in which case you would receive 1/16 mineral interest, or .0140625 of the unpooled production (.225 X .0625).
Just because it says royalty in the document, that does not make it necessarily so. There are plenty of court cases to back that up. The word royalty is not conclusive (in Texas) when followed by contradictory elements of a mineral estate. That pesky 4 corners doctrine, merger of title, and rules of construction.
Likewise there are plenty of court cases that say 1/2 of the usual 1/8 royalty is still a 1/16 NPRI.
Ambiguities sometimes arise when a conveyance or reservation is made in the "of royalty" form, and the interest is restated as a fraction of gross production. Two Texas cases, decided about a year apart, reached opposite results.
In one case grantor reserved "1/2 of the 1/8 royalty (same being a 1/16 of the total production)". When a lease was later executed providing for more than a 1/8 royalty, the court held that grantor had reserved a fractional royalty of '/16th of the total production, and did not reserve a fraction of royalty determinable upon the execution of some future lease. Farmers Canal Co. v. Potthast, e Tex.Civ.App., 587 S.W.2d 805, refused n.r.e.
It still comes down to the 4 corners of the document, not an abstract of same.
This is a 4 corners situation where the title attorney is going to tackle the backfield and then throw out everybody who does not have the ball. His recourse is to advise the operator to put the disputed interest in the registry of the court when the suit is filed.
Thanks for the thoughts. The following is the stipulation language:
WHEREAS, in order to resolve any confusion concerning the intention of the Reservation, it is hereby understood by all parties hereto that the Reservation set forth in the Deed is a non-participating royalty interest equal to an undivided one-sixteenth (1/16th) royalty in and to all of the oil, gas, and other minerals in and under and that may be produced from the Subject Lands described in the Deed.
Tell them that you can appreciate their confusion, but that it is your understanding that "Dad reserved one-half."
Be aware also that you haven't received any legal advice. Maybe that should be your next step.
I wasn't offering any. However, I did say to put the ball back in their court. They admit that it is confused. Ambiguous? Maybe when it is ambiguous, parole evidence may be introduced to show your Dad's true intentions. Ask your lawyer.
Have them or their attorney provide you with the appropriate case law before you sign something which appears to go contrary to the intent of Dad in the 60s. "....reserved one-half..." (As you understood his intention.)
Herein lies the problem that the examiner is having. When the words are "in, under and that may be produced from.." the exception, with that phrase standing alone, is a mineral interest.
If it said, "in, under and that may be produced and saved.." creates a royalty interest.
Both these distinctions are Texas interpretations only. Oklahoma and Kansas for example, see things a different way. But. for the uninformed Lavaca County is in Texas.
I really believe that this is a case of a mineral-royalty distinction. You do NOT want it to be construed as a mineral interest. Then you are toast.
Now, as to ambiguity, each side will agree that the language is capable of interpretation. As to parole evidence, that is limited to the parties to the transaction, not some hearsay from a son, who might have been 10 years old at the time.
My final comment is that when an agreement has to explain what its intention is, then it was poorly crafted in the first place and the person drafting it knew it.
Buddy Cotten
Gary A said:
Thanks for the thoughts. The following is the stipulation language:
WHEREAS, in order to resolve any confusion concerning the intention of the Reservation, it is hereby understood by all parties hereto that the Reservation set forth in the Deed is a non-participating royalty interest equal to an undivided one-sixteenth (1/16th) royalty in and to all of the oil, gas, and other minerals in and under and that may be produced from the Subject Lands described in the Deed.
You still may want to consult an attorney. I would tell them that it was your understanding, based on the way you couched your question, that your father reserved one-half of the royalties. I don't think there was any intent for it to be a mineral reservation. Mineral and royalty deeds are often poorly crafted. It doesn't at all mean that there was any intent or knowledge on the part of the draftsman to make it muddled. You just had people drafting them who were unqualified to do so, and who didn't have the foresight to anticipate that fifty years later, title searchers would be wondering what the hell they were saying or intending at the time the instrument was originally drafted.
Every time that my clients' title attorneys encountered this exact wording, they interpreted it as a 1/16 NPRI, on the basis of case law (perhaps the one Buddy Cotten referenced), and on the basis that if the Grantor had intended to reserve 1/2 of whatever royalty fraction or percentage might be specified in any future OGML, he would have said so.
So I doubt that you would be successful at stonewalling the producer for more money, even though it comes out of the mineral owners' pockets, not the working-interest owners' pockets. However, unlike in your case the clients I worked for never asked me to have the NPRI owner sign a Stipulation/Cross Conveyance. So I wonder if there might not be some other language in the Deed that led them to request your signature on that document. Would it be possible for you to scan and upload the actual deed and the actual stipulation, redacting the Lessee or operator information if you choose?
Go ahead and stonewall. Fight the good fight. Send them the case law that you said you dug out which would tend to support your position, or your understanding of what your father reserved, while hiding or ignoring the cases that you found which tend to support the other side. It's the way everyone works the American system of jurisprudence.
See what they come back with. You're entitled to more information. He very well could have reserved a 1/16th NPRI, but apparently, based on the way your original question was couched, you thought otherwise.
Oh, my goodness! The Stipulation of Interest is carrying forward the very problem it's trying to solve! It is mixing "royalty conveyance" language ("that may be produced from the Subject Lands") with "mineral conveyance" language ("oil, gas, and other minerals in and under"). The courts in Texas are a totally mixed-bag on their interpretations of a clause like this. If the Lavaca Court were to decide it was a mineral conveyance, the deed would have reserved either 1/2 of the minerals or 1/16 of the minerals, depending on what the court decides. If the Lavaca Court were to decide it was a royalty conveyance, the deed would have reserved a 1/16th of 100% of the production revenues that ever come from the land. (This is based, of course, on the Grantor in the deed owning 100% of the mineral rights when the deed was signed.)
But here is another red flag: Is your tract of land part of the drillsite? This is a critical question, because if you are an NPRI owner, you are not bound by the pooling clause in the 22.5% royalty lease, and if your land is part of the drillsite, they have to pay you 1/16th of 100% of the production revenues out of the well--period. If you are OUTSIDE the drillsite, but inside the unit boundary, the law views your royalty share of oil or gas to still be in the ground--even though the well is pumping. In other words, you must sign a ratification agreeing to be pooled, and then your 1/16th NPRI will be proportionately reduced by the number of your acres divided by the total number of acres in the pooled unit. They cannot "pool" your NPRI interest without your written permission.
The stipulation of interest & cross conveyance most likely has language in it specifically ratifying the 22.5% lease, including its pooling clause.
You need a good oil & gas attorney, or real estate attorney, to help you with this. Until you get one and get it straightened out, the reality of what will happen is that the oil company will credit you with a 1/16th NPRI at best, withhold paying you anything on it because of the outstanding title requirement, and after they've held your money for the amount of time allowed by the state in which you currently reside, they will pay it over to that state as "unclaimed property". In the worst case scenario, the company won't even put your name on the decimal or the money, and THEN pay it over to the state--making it almost impossible for you to get back from the state. I know, because I work as a Division Order Analyst in the oil and gas industry--this is part of what we do.
Gary A said:
Thanks for the thoughts. The following is the stipulation language:
WHEREAS, in order to resolve any confusion concerning the intention of the Reservation, it is hereby understood by all parties hereto that the Reservation set forth in the Deed is a non-participating royalty interest equal to an undivided one-sixteenth (1/16th) royalty in and to all of the oil, gas, and other minerals in and under and that may be produced from the Subject Lands described in the Deed.
From my perspective, and from the information provided so far in this thread, I am convinced that you do in fact have a 1/16 NPRI. However, as I stated previously, in ten years as a landman, I never was asked by a client to have an NPRI owner sign a Stipulation/Cross Conveyance of Interest, just a Ratification. So there must be a special reason that they need you to sign this other document. I don't think it's to "clarify the old language," because from my experience the oil-and-gas company would just rely on their lawyer's Title Opinion and move on. I think that there is another reason. Marsha might have hit on it. Find out if the tract underneath which you have this royalty interest is a drill-site tract, and please keep us updated!
Thank you for your input. I pursued the issue with a couple of landmen and a couple of attoneys. The answer is that we hold a 1/16th NPRI. This according to the way such language is interpreted in Texas these days. We signed the stipulaton of interest and moved on.
The reason I pursued it so hard is that my father has stated with certainty that his intent was to keep half the royalties. This all really ticked him off.
If your father had meant to keep half of any lease royalties for the rest of time, whoever crafted that instrument for him should have said so. Instead, they probably said something like "I hereby reserve one-half of the usual one-eighth (1/8) lease royalty," which means that he reserves 1/16 for the rest of time, regardless of the lease royalty, and if a lease is ever signed for more than 1/8 royalty then he still gets 1/16, not 1/2 of whatever the lease royalty was.
Anyway, did you find out whether or not the 1/16 NPRI is on a drill-site tract, a tract on which a well was actually drilled? If that is the case, you might have signed away a large amount of money if you authorized pooling in something called a Ratification, or similar pooling language was included in the Stipulation.