Last month the El Paso Court of Appeals issued its opinion in a long-running dispute over royalties on a section of land in Upton County. Davis et al. v. COG Operating, LLC, et al., No. 08-20-00205-CV. The court addressed several issues, one of which was the construction of a 1939 deed that reserved a royalty interest described as “one-fourth of the 1/8 royalty usually reserved by and to be paid to the land owner in event of execution of oil and gas leases, so that 1/4 of the 1/8 royalty to be paid to us, our heirs or assigns, if, as and when produced from the above described land ….” The court concluded that this was a “floating” royalty equal to 1/4th of the royalty reserved in the lease, not a fixed 1/4 of 1/8 royalty. This appears to be the correct result based on other recent cases construing similar language.
I have a bone to pick, however, with the language in the opinion describing the royalty reserved. To be fair, other courts have made the same error, and the same error was made by the appellants in their brief. The court concluded that the grantors reserved “a floating, 1/4 NPRI in Section 45.” A 1/4 NPRI is a 1/4th royalty interest, not 1/4th of the royalty reserved in the lease. A 1/4th royalty is equivalent to one out of every four barrels produced. One-fourth of the royalty under a lease reserving a 1/4th royalty is 1/4 of 1/4, or 1/16 royalty interest, not a 1/4th NPRI. Clearly, in using the term “floating, 1/4 NPRI” the court meant to conclude that the deed reserved 1/4th of the royalty reserved in any future lease. But referring to it as a 1/4 NPRI is confusing.