395 Sundance Minerals, L.P. v. Moore

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
Sundance Minerals, L.P. v. Moore, 354 S.W.3d 507 (Tex. App.—Fort Worth, 2011, pet. denied) is a deed construction case which held that the Grantor reserved a fraction of royalty and not a fractional royalty.  In a 1958 deed, Grantor conveyed 515 acres of real property to Grantee reserving “an undivided and non-participating one-half interest in the oil, gas and other mineral rights.”  The deed also stated that Grantor “shall be entitled to one-half of the usual one-eighth royalty received for such [sic] oil, gas and other minerals produced from said land.”  Although not quoted in the opinion, apparently the latter part of the deed stated that the rights to receive bonuses and lease money and to develop the mineral estate are the exclusive rights of the Grantee.  The land was later leased for a one-fifth royalty.  The parties to the litigation were aligned as successors to Grantor and Grantee.  Grantor argued that the reservation entitled Grantor to one-half of the one-fifth royalty payable under the lease (one-tenth of production).  Grantee asserted that Grantor was entitled to only a fixed, nonparticipating one-half of one-eighth royalty (one-sixteenth of production).
 
“It is well-settled that a mineral estate is comprised of five separate and distinct interests: 1) the right to develop, 2) the right to lease, 3) the right to receive bonus payments, 4) the right to receive delay rentals, and 5) the right to receive royalty payments.”  “When a mineral estate is conveyed, all interests are transferred unless they are specifically reserved to the grantor.”
 
The Fort Worth Court of Appeals reasoned that the deed first purports to reserve one-half of the mineral estate to Grantor, which if not qualified, would have entitled Grantor to one-half of any royalty paid under a lease, as well as a one-half interest in any bonuses and rentals.  However, the deed later states that the right to receive bonuses, lease money, and develop the mineral estate, is the exclusive right of Grantee.  Thus, the language shows that Grantor intended to reserve only a part of the royalty interest to themselves.  “It is obvious, it seems to us, that this does not include a reservation of bonuses or rentals, but only of an interest in oil, gas, or minerals paid, received, or realized as ‘royalty’ under any lease existing on the land at the time of the reservation, or thereafter executed by the grantee, his heirs or assigns.”
 
A “fractional royalty” interest entitles the owner to the specified fractional amount stated in the mineral deed and remains constant regardless of the amount of royalty contained in a subsequently-negotiated oil and gas lease.  “The amount to be paid to the owner is determinable upon the execution of some future lease and is calculated by multiplying the fraction in the royalty reservation by the royalty provided in a lease.”
 
The court, reading the document as a whole, explained that Grantor intended to reserve one-half of “such royalty as may be reserved in any oil, gas or mineral lease,” and that the “one-half of the usual one-eighth” language was merely an example showing the type of interest Grantor intended to reserve, not a further limitation.  Grantor was entitled to one-half of the one-fifth royalty payable under the lease.
 
The deed did not have an existing lease and future lease clause and apparently was not the usual form conveyance which has created so many problems.  This was simply a deed construction case that found the intent of the parties to be a reservation of a nonparticipating royalty calculated as a fraction “of royalty.”  It followed existing precedent in concluding that the additional language-“one-half of the usual one-eighth”-was an example, not a limitation.