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Drafting Practical Royalty Clauses For the Mining Lease

Oliver W. Gushee, Jr., Proceedings of 20th Annual Rocky Mountain Mineral Law Institute (1974)

Those of us engaged in the mining industry who have roots in the oil business tend to view the development of a royalty clause to be contained in a lease of mining property as somewhat of a nuisance. The basis for this, of course, is that for many long years the oil industry has operated under leases which contain generally standardized form royalty clauses. Factors, such as potential depth of the pay zones, character of the oil and gas, and varying expenses to move the fluid to the surface, were not considered. The royalty owner received his share of the production without regard to any of these elements. Evolution in development of oil and gas lease royalty clauses arose because of new value to previously valueless commodities or the inability to classify a new product as oil, and, later, as oil or gas. The fraction, one-eighth (1/8), usually remained the same.1 Essentially, expediency was the genesis for this attitude toward development of a standardized royalty for oil and gas operations. The acquisition of hundreds of leases by a moderate-sized company within the space of an operating year did not permit sufficient time to pause with every one of them and attempt to develop a particular kind of royalty provision which would relate specifically to the various factors involved.

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However, this approach is not a satisfactory one in the case of mining