Can royalties from the same Section and the same company be set at different levels for each well?

Regulation
1

Hello Everyone,

I am new to this whole thing of mineral rights. My grandfather gave me his rights in 1983.

I have partial rights for the NE/4 of 4-19N-3W and Kirkpatrick Oil Company has 4 wells in this section. I am getting 3/16 for the one well that is on my property and 1/8 for the other 3 wells in the south end of the Section. Does this sound right? (I have not signed the Division Orders yet)

I was told that this was based on the 1940 Warranty Deed that explains that the 1/4 royalty rights kept by my Great Grandmother is:

"...and assigns forever an undivided one-fourth interest in and to the royalty (the ordinary one-eighth ordinarily left the grantor in oil and gas leases being the royalty above referred to) produced under any oil and gas lease now on said premises..."

I was told that the "Title Review" document stated that this is being interpreted "literally" meaning that It was agree back in 1940 that the fraction would be 1/8 forever. Does this sound right? (I have not signed the Division Orders yet)

Looking towards the future with you,

Rob

2

Does it sound right that you have two different royalty fractions for two different parts of the section? It's certain plausible, yes. You didn't mention when the wells from which you receive royalties went into production or who signed that Lease or Leases. I am going to guess that these wells were in production before you got the minerals in 1983. In fact, I am going to guess that these wells have been in production from before 1940, and have been producing since then (I did some time in Venango County, so I know that there are some very old wells in that area, one that I researched had been producing since 1890).

Regarding the 1940 Warranty Deed, it appears just from reading this language that you quoted that if your great-grandmother was the Grantor (seller) in that instrument that she did not "keep" anythng from that exact wording, she conveyed (sold) an undivided 1/4 of 1/8 (or a 1/32) Non-Participating Royalty Interest (NPRI) to the Grantee (buyer) for as long as the then current Lease was in effect, probably with some surface as well. An NPRI is an interest in future royalties (production) from any well on the specified acreage, which is taken out of the royalties that the mineral owner would receive. And my guess is that this Warranty Deed covered the part of the section on which you are receiving the reduced royalty fraction (1/8 instead of 3/16).

My guess based upon the limited information that I have is that your great-grandparents owned the entire section in fee simple, they signed a Lease for 3/16 royalty on the entire section, your great-grandmother sold the surface and a 1/32 NPRI corresponding to the "south end of the Section" but kept the minerals thereunder, and the Lease they signed is still HBP (held by production). If this is all true, that would explain how you get 3/16 on your property and a lesser royalty on the "south end of the Section," because the 1/32 NPRI is deducted from the 3/16 royalty. "But wait," you say, "3/16 - 1/32 is not 1/8, it's 5/32." And that would be true, so what accounts for the other 1/32 (the difference between 3/16 and 5/32)? Your great-grandmother, or somebody else in the chain of title either before or after her, probably conveyed ANOTHER 1/32 NPRI at some point. If that is true, then we have arrived at 3/16 - 1/32 - 1/32 = 1/8 royalty on the "south end of the Section."

How can you find out? You would have to do some pretty extensive research at the County Recorder's Office in the County where these minerals are located. One other possibility is that you might ask the Operator to see the Title Runsheet to satisfy your concerns about the lower royalty on the "south end of the Section." They might very well not have one if this well is as old as I think it is, and they don't like giving out this type of information alot, but every time I had a mineral owner ask for it, if they had it my clients agreed. If you get your hands on one, look for the conveyance of the other 1/32 NPRI, that would justify the 1/8 royalty on the "south end of the Section."

3

Hello Pete and All,

As far as I know there was no well back in the 40's. One in the mid 80's (which I have no Idea what the royalties determined to be 1/8 or 3/16). The four wells put in the last two years are from the same company and under the same lease.

As stated originally is it possible for the same company and with the same lease to determine the deed has two different royalty fractions? One fraction being the leased amount and the other being what the Title Review says interpreted "literally" meaning that It was agree back in 1940 that the fraction would be 1/8 forever even if the lease now grants a 3/16 royalty. On one well the first I was granted 3/16 then on the other three they are saying that I should have only been given the 1/8 since I was locked into that back in the 40's.

They are saying that in the deed the section in parentheses is the forever granted royalty and not just an example of the standard royalty back then. I, in my layman interpretation, read the section in the parentheses as being the current example not the limit of any royalty forever in the future.

"...and assigns forever an undivided one-fourth interest in and to the royalty (the ordinary one-eighth ordinarily left the grantor in oil and gas leases being the royalty above referred to) produced under any oil and gas lease now on said premises..."

I have attached a copy of the entire deed.

Looking towards the future with you,

Rob

2562-51MEWarrantyDeedEmmaKRadnichtoRLLane.pdf (3.47 MB)
4

Rob,

In this deed, Emma Radnich conveys whatever she owns in the tract, surface, minerals, royalties, etc., but SAVES AND EXCEPTS a 1/32 non-participating royalty interest (NPRI), the 1/32 being 1/4 of the "ordinary" (at the time) 1/8 lease royalty. I am positive of that. It's non-participating because it is a royalty interest only, not a mineral interest, and therefore is not entitled to sign a lease or receive bonus, shut-in payments, or delay rentals.

"They" say the words in parentheses are the "forever granted royalty," you say it is the "current example not the limit of any royalty forever in the future." You are both wrong. First of all, nothing is granted in these words, it is RESERVED, to the Seller, and her heirs and assigns. Secondly, the words in parentheses define the word "royalty" right before the first parenthesis to be what was then "ordinary," 1/8. So the words BEFORE the parentheses, when combined with the words INSIDE the parentheses, say that what is RESERVED...FOREVER...is 1/4 of 1/8, or 1/32 forever.

The existence of this NPRI could explain why you are getting "two different royalty fractions," one fraction for the 1/32 NPRI and another fraction for your pro-rated share of royalties payable under the lease, less your pro-rated share of the NPRI. In other words, if you somehow now own the 1/32 NPRI that Emma Radnich kept in this deed, and you somehow also now own a mineral interest under this same tract, that would explain why you have "two different royalty fractions." These two fractions are not in conflict, it's not like you can have only one and not the other, they are complementary, meaning that you get them both!

What I am not positive about is the phraseology at the bottom of the page, it appears to me that the Seller, Emma Radnich, is also putting the Buyer, Mr. Lane, on notice that either she or an owner previous to her in the chain of title conveyed 1/4 of the minerals to somebody else. So Mr. Lane probably got 3/4 of the minerals, somebody else had the last 1/4 of the minerals, and Mrs. Radnich had the 1/32 NPRI. The royalties payable under the NPRI are reduced from whoever owns the minerals on that same tract, so if you own a mineral interest AND the NPRI, then the royalties payable to you as the mineral owner will be reduced slightly to help pay you as the NPRI owner for THOSE royalties. Confusing, but maybe it helps.

P. W.

5

Here are a few scenarios that might be of interest:

A owns 1/32 NPRI and 100% of the minerals and mineral rights. A signs a lease for 20% royalty, and A's tract is the only one in the drilling unit. A's decimal interest is 0.20 - 1/32 + 1/32 = 0.20000000.

B owns 1/32 NPRI and 75% of the minerals and mineral rights, C owns 25% of the minerals and mineral rights. B and C each sign a lease for 20% royalty, and their tract is the only one in the drilling unit. B's decimal interest is 0.75 (0.20 - 1/32) + 1/32 = 0.1578125. C's decimal interest is 0.25 (0.20 - 1/32) = 0.0421875.

D owns 1/32 NPRI only, E owns 50% of the minerals and mineral rights, and F owns 50% of the minerals and mineral rights. E and F each sign a lease for 20% royalty, and their tract is the only one in the drilling unit. D's decimal interest is 1/32 = 0.03125000. E's decimal interest is 0.50 (0.20 - 1/32) = 0.08437500. F's decimal interest is 0.50 (0.20 - 1/32) = 0.08437500.

Notice how in all three cases all the decimal interests add up to 0.20, the royalty amount specified on the lease or leases. These scenarios show how the NPRI is always deducted, on a pro rata basis, from the mineral owner's or owners' royalties. Things get more complicated with two or more mineral owners sign leases for differing royalty percentages, or when the tract of land we are discussing is pooled with OTHER lands to create the drilling unit.

6

Hello Pete,

Thank you very much for all your help in getting my head around things. Based on your statement:

“Secondly, the words in parentheses define the word “royalty” right before the first parenthesis to be what was then “ordinary,” 1/8. So the words BEFORE the parentheses, when combined with the words INSIDE the parentheses, say that what is RESERVED…FOREVER…is 1/4 of 1/8, or 1/32 forever.”

I think I am understanding that forever she limited her NPRI to always be 1/32 whether the current lease royalty is 3/16 or the then “ordinary” 1/8. In other words we will only get our interest based on 1/8 even if the lease for the entire section is 3/16.

We have our 1/4 interest of the NE quarter of the section (160 acres of the 640 acres). The lease for the entire section is 3/16 but they are saying that our part interest in the NE quarter is only based on 1/8 royalty not the 3/16 that the rest of the section is leased for. I would also guess that the other 3/4 interest (RL Lane-originally) is also basing pay out based on the lease’s 3/16 royalty not the 1/8 that our part is being judged to being forever held to no matter what the lease royalty is. The first well they “mistakenly” based our decimal interest on the lease’s stated 3/16 and the other 3 wells based our decimal interest on the 1/8 that they say the deed limits us to forever.

I really cannot believe that the deed does limit us to only a 1/8 part of the royalty no matter what the current lease royalty is for the section. I also wonder if their “mistake” of using the 3/16 for the first well conveys any kind of precedent for the other 3 in the section.

In my section my calculated acreage is 15 acres are either 15/160 for my direct NW 1/4 or 15/640 for the entire section. I am in total agreement with this. I have worked hard looking up deeds of my other relatives to make sure that it works out to 1/4 of the NW 1/4.

Looking towards the future with you, Rob

7

"I really cannot believe that the deed does limit us to only a 1/8 part of the royalty no matter what the current lease royalty is for the section."

Based upon the information that you have provided here, it DOES limit you to 1/8, I am 100% positive about that, at least as to the royalties pertaining to that tract of land described in the Deed that you uploaded (Lots 1 and 2 and the S/2 of the NE/4). However, it would be more accurate to state that it limits you to a 1/4 part of a 1/8 royalty. It does NOT say "1/4 of whatever the lease royalties are," it says "1/4 of the 'ordinary' royalty, and it then defines 'ordinary' as equal to 1/8." So that's 1/4 OF 1/8, or 1/32, carved in stone for the rest of time, regardless of what any lease says. Who gets the difference between 1/4 of 1/8 and 1/4 of 3/16? Whoever owns the rest of the royalties on that tract (probably the mineral owner or owners).

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"I also wonder if their 'mistake' of using the 3/16 for the first well conveys any kind of precedent for the other 3 in the section."

It does NOT, I am 100% positive about that. If you rent four apartments to somebody and they overpay you for one of them does that mean that they are required to overpay you for the others as well? Or if you go to Wal-Mart and buy a widget, then you get home and notice on the receipt that you were overcharged for your widget, does that require you to continue being overcharged for widgets at Wal-Mart? Of course not. Just be glad that they have not asked you to reimburse them for the overpayment.

8

Hello Pete,

Thank you very much for helping to verify my royalty interests. I guess I wish I was able to go back in time and knock my great grandmother in the head for making this mistake. LOL. I was told by someone else that it might have been worded that way to stop from being getting ripped off like others back then in getting less than the "ordinary 1/8."

I am extremely grateful for her legacy. In the mid 80's there was a couple of vertical wells that gave me a few thousand dollars and I thought that was all done. And now almost 30 years later I'm getting over 20 times that. What a double blessing. Maybe in another 30 years it will be even bigger. LOL

Looking towards the future with you,

Rob


Pete Wrench said:

"I really cannot believe that the deed does limit us to only a 1/8 part of the royalty no matter what the current lease royalty is for the section."

Based upon the information that you have provided here, it DOES limit you to 1/8, I am 100% positive about that, at least as to the royalties pertaining to that tract of land described in the Deed that you uploaded (Lots 1 and 2 and the S/2 of the NE/4). However, it would be more accurate to state that it limits you to a 1/4 part of a 1/8 royalty. It does NOT say "1/4 of whatever the lease royalties are," it says "1/4 of the 'ordinary' royalty, and it then defines 'ordinary' as equal to 1/8." So that's 1/4 OF 1/8, or 1/32, carved in stone for the rest of time, regardless of what any lease says. Who gets the difference between 1/4 of 1/8 and 1/4 of 3/16? Whoever owns the rest of the royalties on that tract (probably the mineral owner or owners).

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"I also wonder if their 'mistake' of using the 3/16 for the first well conveys any kind of precedent for the other 3 in the section."

It does NOT, I am 100% positive about that. If you rent four apartments to somebody and they overpay you for one of them does that mean that they are required to overpay you for the others as well? Or if you go to Wal-Mart and buy a widget, then you get home and notice on the receipt that you were overcharged for your widget, does that require you to continue being overcharged for widgets at Wal-Mart? Of course not. Just be glad that they have not asked you to reimburse them for the overpayment.