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Oil/Gas/Royalty Interest

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Question
A contract reads that the investors get a 90% ownership interest unless "with respect to those subject leases that have lessor's royalties in excess of 23%, if any, the interest shall be assigned to the investor with a 77% net revenue interest".  According to standard language in the industry is the 23% royalty language referring to if the royalties exceed 23% of the profit then the investors receive 77% net revenue?  

The language is confusing to me because it seems to be referring to if any of the individual leases exceed 23% then the investors receive the net revenue.   Thank you for your help!

Answer
The language is confusing because you have several layers of ambiguity in that question.  Does the contract define whether it simply refers to whether the number written in the royalty blank is 1/8, 3/16, or 1/4 regardless of expenses?  Or, does "profit," as you imply in the question, refer to that issue plus the additional issue of the royalty calculation depending on the language in the lease about expenses, i.e, is it calculated based on "gross proceeds," "market value," or something else?  Then there is the switch from "ownership" in one event and a completely different "net revenue interest" in the event of the other outcome.  The short answer is that there is not enough information in this hypothetical to answer the question.  Does the contract have an integration clause, or will parol evidence be admissible at the trial of this case to illustrate the intent of the parties, for instance, would be another unanswered question.

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Mark Bonner

Expertise

Interests include oil and gas leases, mineral deeds, royalty payments, interest on late royalty payments, post-production costs.

Experience

I have been an attorney for over 20 years.

Organizations
Norman & Edem, PLLC 127 N.W. 10th St. Oklahoma City, OK 73103 405-272-0200 (Tel.)

Publications
Oklahoma Bar Journal; Oklahoma Association for Justice Advocate

Education/Credentials
Highest Honors, OU College of Law, 1992 Earl Sneed Award for Oil & Gas

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