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Drafting Royalty Provisions For Solid Mineral Leases: The Impact of Changes in Real Mineral Prices

Karl K. Kindig, Proceedings of 33d Annual Rocky Mountain Mineral Law Institute (1987)

The term royalty is generally used to refer to one of two concepts: a specific interest in real property,1 or some quantity of mineral or money to which the owner of the royalty interest is entitled upon the production of minerals from the property to which the royalty pertains. It is the latter concept which is the subject of this paper, specifically, the issues which must be addressed by the lawyer in drafting royalty provisions for inclusion in solid mineral2 leases or independent royalty3 provisions in deeds or other conveyances of mineral rights.

It is the premise of this paper that the lawyer engaged in drafting royalty provisions must have not only an awareness of the monetary objectives which the client is attempting to achieve, but also a fundamental appreciation of the economics of extraction, processing, and sale of the commodity to which the royalty provision applies in order that the royalty provision ultimately drafted has a reasonable probability of achieving the client's objectives throughout the term of the lease or the life of the mineral deposit, not merely under the set of economic conditions which existed at the time the royalty provision was drafted.