Replies to This Discussion

Permalink Reply by ELLIS HUGH on May 24, 2009 at 1:48

depends on the language of the reservation, but it is most likely 50% of the 25% (12.5% of whole).

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Permalink Reply by Clarence B. Harrison on May 26, 2009 at 8:06

I don't know about Lousiana, but in Texas if the grantor in the deed where the royalty was reserved owned all of the land (and minerals and royalties) and if the reservation was of a royalty interest of a specific 1/8th royalty interest then that is what it is - 1/8th, but if the reservation was a fraction of the royalty (say 1/2 of the royalty) then if the base royalty in lease is 25% the royalty interest the owner of the reserved royalty interest would be entitled to receive under the lease is 1/2 of 25%. Other factors may also apply - like prior reservations or grants of mineral and royalty interests. This would be a NPRI and unless the instrument creating the roylty interest provided otherwise, the consent of the royalty owners would be required to form a pooled unit (again in Texas).

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Permalink Reply by ALongview on May 26, 2009 at 8:57

Clarence, It is written in a warranty deed for sale in Texas of 120 acres as follows: "there is reserved by grantors, for each of them, their heirs and assigns, an undivided one-eighth royalty interest in the oil, gas, and other minerals in, under and that may be produced from the premises and lands above." There was not and is not currently any producing royalties and the royalty interest is non-participating as to the negotiation of a lease. Where does that put one-eighth royalty interest?

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Permalink Reply by The_Baron on May 26, 2009 at 9:30

This conveyed 1/8 of royalty (12.5%). If the lease is for 25%, then the lessor will have 12.5% after the roylaty owner gets his 1/8

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Permalink Reply by ALongview on May 26, 2009 at 9:31

Thanks everyone for the help.

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Permalink Reply by j garrett on May 26, 2009 at 14:37

You'd have 1/8 (royalty) interest in 120 gross acres, being 15 acres (12.5% of 120). If the lease was signed at 25%, you'd have 3.75 net mineral acres (25% of 15 acres) of interest in the production from the well or wells included in a unit or units that contain the 120 acres.

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Permalink Reply by Clarence B. Harrison on May 27, 2009 at 5:19

Garrett I beg to differ with you - I think you are mixing apples, oranges and bananas. First - the reservation quoted is a reservation of a royalty interest - the person reserving owns no mineral interest and does not have any "net mineral acres." The reservation simply resrves a 1/8th mineral interest - which would entitle the holder to 12.5% of production from the tract. The term "net royalty acres" is not often used much today, but in the era when the standard royalty was 1/8th one net royalty acre would be the right to receive a 1/8th royalty on one acre - so a 120 acre tract with a 1/8th royalty lease would contain 120 net royalty acres. If that same 120 acre tract was subject to a 25% royalty lease it would contain 240 net royalty acres. But don't get confused - this terminology is rarely used today because of nonstandard royalty percentages and the term may have differring meanings to different people.

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Permalink Reply by j garrett on May 27, 2009 at 6:35

The O&G biz always boils down to gross & net acres. The net acres always adds up to the gross. His is a Royalty Interest, but it is still ownership of 3.75 net mineral acres of production. If his land is fully unitized in a 375 acre unit (not likely, but just for this example), he would be paid 1% of the production from the well. A 10mmcf well per day (or multiple wells in the unit cumulatively producing that amount) @ $3.50 per mcf generates $35k per day, x 1% he would be getting $350 per day, assuming he has a Free Royalty provision whereby he is not burdened with any production costs.

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Permalink Reply by Clarence B. Harrison on May 27, 2009 at 7:54

I continue to differ with you - the grantor that reserved a 1/8th royalty interest in a tract of land containing 120 acres which is included in a 375 acre unit would be entitled to 1/8 of 120/375 or a decimal equivalent of 4% of the production from wells located on the lands covered by the pooled unit. He does not own any mineral interest and thus cannot by definition own any "net mineral acres."

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Permalink Reply by j garrett on May 27, 2009 at 9:23

Hmmm.... Looks like you are right. I consulted my copy of "Oil & Gas Law in a Nutshell". A non-participating royalty interest is carved out of the mineral interest and is free of the costs of production and IS NOT subject to the terms of any lease. So the lease royalty amount (1/4, 1/5 etc) does not apply to the royalty interest. Your 1/8 of 120/375 = 4 (acres or % in this example) is correct. It's a 1/8 share of the production. Of course, it is subject to any prior reservations.

Also, the term used in this case, "...for each of them...", is not common language. If, for example, there were eight sellers or "grantors", did they not mean to each reserve an 1/8th, being 100% of what they owned? Title work would need to bear this out I think.

Permalink Reply by ALongview on May 27, 2009 at 10:14

The statement "for each of them" that J garrett refers to is because there were multiple owners when the property was sold and the royalty reserved. It looks to me to be that an undivided 1/8th royalty was the total reserved royalty to be split amongst all owners. Thanks to both for the info.

Permalink Reply by ALongview on May 29, 2009 at 7:10

This thing looks like a cluster at this point. Almost everything has been reserved on sales of the land in the last 30 years including half of the bonus payments by the Veterans Land Board at the time they sold it off. There is virtually no incentive for the landowner to sign a lease. Everyone is out, CRAZY!

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