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Fixed vs. Floating Royalty Considered by Texas Supreme Court

Whether a royalty granted or reserved in a deed is a “fixed” or “floating” royalty has resulted in a lot of litigation in Texas. The Corpus Christi Court of Appeals considered the issue again in Hahn v. ConocoPhillips Co., ___ S.W.3d ___, 2022 WL 17351596 (Tex.Civ.App.—Corpus Christi 2022, pet. granted).

The Plaintiff sold land to a third party and reserved a 1/8 royalty nonparticipating royalty interest (fixed royalty language). Years later, the third party leased to the Defendant, ConocoPhillips. The Plaintiff then signed a ratification of that lease to allow pooling. In addition, the Plaintiff and third party signed a stipulation of interest in which the Plaintiff agreed he owned a 1/8 of royalty (floating royalty language).

The question is: does the stipulation of interest change the original fixed royalty into a floating royalty? If the royalty is floating, the Plaintiff’s interest would be decreased by the 25% royalty in the lease between the third party and ConocoPhillips. The trial court found for ConocoPhillips and the third party. The Court of Appeals reversed and held that the stipulation of interest should not be considered, and that the Plaintiff owned a 1/8 fixed royalty. ConocoPhillips has appealed the case to the Texas, on the grounds that: 1) the stipulation changed the royalty from fixed to floating, and 2) when the Plaintiff ratified the third-party lease, he was ratifying the whole lease (including the 25% royalty) and not just the pooling clause in the lease.

The Supreme Court has granted review.