How is the royalty calculated when you own a non participating royalty and it is subject to the lease entered into by others? Seems straight forward until ownership is split amongst many who all potentially enter into different leases for different royalties with some being cost free and some being subject to certain costs.
Years ago an individual purchased a 60/320 (18.75%) non participating royalty while presumably the sellers retained 260/320. the two individuals split the 260 acres so each had 130. Then say one left his 130 acres to his ten children so each received 13 net acres. The other sold 1/2 (65 acres) and retained 65 acres which ultimately passed to his two children who now each have 32 1/2 acres.
Now lets fast forward and new leases are entered into. Of the 10 with 13 acres each, some leased for a higher bonus and a lower royalty, some leased for a lower bonus and a higher royalty and several were taken full advantage of and they leased for a low bonus, low royalty, warranted title and accepted a royalty subject to expense deductions. Then one of the 32 1/2 acre owners leased for an 1/8th royalty and the other for a 1/4 royalty.
What is the royalty owed on the non participating royalty which represents 18.75% of the tract?
The language in the original conveyance is all that counts. Patrician and conveyance of the 320 acres made after the original conveyance were made subject to the original royalty reservation assuming it was an undivided interest and properly recorded of public record. Hopefully, the original royalty conveyance defines "non-participating"
If the original reservation reserves 60/320ths OF the royalty it's as bad as I believe you are thinking it is. Break out your excel spreadsheet and start entering in lease royalties and acreages.
Dear Doug,
Gary and Texas T are giving good advice and making relevant comments.
There is a rule when the NPRI is subject to several leases with varying royalty. You apply the share of royalty to each lease. To keep things easy, let's say that you are entitled to "1/6 OF the royalty provided for on the lease."
Three leases on this example:
1. 1/4 lease royalty on 1/2 mineral interest, your share would be 1/4 x 1/6 x 1/2 or 1/48th NPRI.
2. 1/5 lease royalty on 1/3 mineral interest, your share would be 1/5 x 1/6 x 1/3, or 1/90th NPRI.
3. 3/16 lease royalty on 1/4 mineral interest, your share would be 3/16 x 1/6 x 1/4, or 3/384th NPRI.
For the purposes of this example, the balance of the mineral interest on the tract where your NPRI is located, is not burdened with your NPRI.
Add them up and you get, in a decimal interest, a share of production on that tract of 0.03975694.
What if one lease, lease 1, the 25% lease, provided for no deducts? It is my argument that no-deducts would apply to that interest under lease 1 and no other.
As you know, I try to include in my lease form that all people entitled to a NPRI under the mineral interest leased will be paid their royalty on the same terms and conditions as provided in the lease form. It is my STRONG opinion that the mineral owner MUST take are of and protect the NPRI owner as is within his power.
Best regards,
Buddy Cotten
Thank you each for your comments and suggestion.
Buddy and I have worked together for many years and his counsel has been and continues to be very helpful. Buddy, I think we are getting ready to have something fun to work on but that is for the future as i am pulling together the facts. New county but time to think about prime ground beef and no more hamburger helper.
With respect to the NPRI, the interest was purchased from two individuals, business partners, i guess. Since this was 60 years ago, these individuals are no longer with us. The party who entered the lease to which the operator made reference to my share being a 1/6 royalty, appear to be the landowner or former landowner. I have not identified the deed whereby the two individuals acquired either the interest or more than the interest that established ir created the interest to which i share a portion BUT the former landownere has apparently also died and his children stepped into his position so instead of one party entering the lease, there are now three.
I would expect that these individuals would have a fiduciary duty as they lease their portion to loom out for the NPRI owners who are subject to their lease or leases.
I would like them to release their rights to negotiate my NPRI. Any realistic way to get that?
Thanks for your thoughts.
Doug
Fun is good. I like the ground meat analogy. Řeminds me of a great quote:
"Once you get beyond a million dollars, it's still the same hamburger." ~ Bill Gates
A realistic way to reach your goal is to purchase the executive right.
Buddy Cotten
"I would expect that these individuals would have a fiduciary duty as they lease their portion to loom out for the NPRI owners who are subject to their lease or leases."
They cannot cut a deal that is more to their benefit -- such as a lease royalty of 1/8th and an overriding royalty of 1/16th.
However, it is well established that the lessor is under no obligation to obtain the highest royalty that he can negotiate. Sometimes, an oil company will make an offer such as "$100 per acre bonus and 1/5 royalty or $200 per acre bonus and 1/6 royalty." From a legal standpoint, the lessor is not forced into obtaining the 1/5 royalty.
Best,
Buddy Cotten