Net Royalty Acres Anyone?

When you’re talking about a “royalty” interest you’re talking about something that’s created by a piece of paper called a lease. When you’re talking about a “mineral” interest you’re talking about something that’s created by nature under the land. When you’re talking about land you’re generally talking about acres. So, what are you talking about when you’re talking about “royalty acres” or “net royalty acres” or “mineral acres” or “net mineral acres”? I’ve heard all those terms used, and I’ve seen numbers associated with them, inconsistently. One of those numbers is the number “8” or, inversely, “1/8”. I have a problem with automatically using an “8” when talking about royalty acres or mineral acres, because it assumes a lease with a 1/8 royalty. Not all leases have a 1/8 royalty; it might be 3/16 or 5/32 or even 1/4.

What I learned (which I don’t claim was right) was that “royalty acres” was the product of multiplying the number of acres (of mineral interest) by the royalty specified in the lease. If you own 80 acres and the royalty is 1/8, you have 10 royalty acres; or if the royalty is 3/16, you have 15 royalty acres. But if you only own a 1/2 interest in the 80 acres of minerals you have 40 mineral acres, and you have either 5 net royalty acres or 7.5 net royalty acres depending on whether the royalty is 1/8 or 3/16. The landman, however, is calling it 5 net mineral acres. The landowner asks what that means and is told it’s 1/8 of 40 acres. But, the landowner responds, I thought you said the royalty is 3/16!

I recognize that a lot of people have been accustomed for a lot of years to think in terms of 1/8 when thinking about oil and gas leases and “mineral acres” or “net mineral acres”. When putting a value on a mineral interest, one could argue that royalty interest is irrelevant, as there may not even be a lease. On the other hand, if there is a lease and you’re thinking of selling your mineral interest, would you think it’s more valuable if it’s generating a 3/16 royalty than if it’s generating a 1/8 royalty? But, you might argue, if there’s a lease then you’re selling your royalty interest and, of course, you’d want more for a 1/8 royalty than a 3/16 royalty. And here, if you practice law, is where you roll your eyes around because you know about all the litigation that’s been spawned because of documents entitled “Royalty Deed” that were actually a mineral deed but messed up because they were thinking about that 1/8 and so the grantor conveyed “my entire 1/8” interest.

It’s getting worse each passing year because the “new” kids working in the division order departments of the crude buyers don’t have a clue about net mineral acres or net royalty acres and will tell a landowner who calls up with a question about their division order that the decimal number on it is their net revenue interest (NRI). So then they call the lawyer who drew up their dad’s will but has never seen an oil and gas lease and god only knows what they’ll be told.

I’d favor banning the use of “net mineral acres” and “net royalty acres”. When I see either of those terms in a lease that’s been presented to a landowner client, I have to call the landman or lessee’s lawyer to verify what he/she intends to mean by it. Then I’ll probably draw up something to add to it in order to avoid confusion in the future.

DST Recant

Okay, much as I hate DST, I must admit I also hate the 5:00 darkness that comes with CST. Exiting into darkness from the office at quitting time makes it feel like the day has ended and there’s nothing left but eat something and go to bed. Of course, millennials and younger wouldn’t even notice the darkness as they exited the office with thoughts of meeting up at their crowd’s favorite watering hole for buffalo wings, inebriation and karaoke. I sort of remember being that way at their age. I wonder if I should tell them what they have to look forward to when they pass the age 65 mark? Nah! They probably wouldn’t believe me.

Privacy of Medical Records

Recently, I received in the mail a notification about a class action lawsuit regarding the prescription drug modafinil. Anyone who bought modafinil between 2006 and 2012 it is entitled to receive money from a settlement in the lawsuit. I have had a modafinil prescription for several years and, no doubt, I am entitled to participate in the settlement and receive some amount of money from it. I wonder, though, how they found out about my prescription. Medical records are supposed to be highly confidential. In many instances, it’s like pulling hen’s teeth when I want to get information from my own records. How did some lawyers I’ve never heard of get my name and address as a person who has bought modafinil? How did they do it without my knowledge? I suppose my modafinil prescription is now a matter of public record, since the lawyers involved in the settlement are no doubt required to file with the court a statement certifying that they gave notice of the settlement to a list of named people who were determined to have been modafinil users or purchasers. I’m not sure which is more unsettling, that I got overcharged for the drug, or that lawyers I don’t know were able to find out I used or bought a certain drug.