U.S. Shale Energy II, LLC v. Laborde Properties, L.P.

In 1951, J.E. and Minnie Bryan conveyed a tract of land in Texas to S.E. Crews. The deed contained a nonparticipating royalty reservation (the royalty reservation) reserving the Bryans’ “undivided one-half interest” in the gas, oil, and mineral royalties produced by the conveyed land, “the same being equal to one-sixteenth of the production.” The Bryans’ royalty reservation applied against any mineral royalties paid to the new landowner under a mineral lease. In 1951, the standard royalty interest specified in mineral leases was one-eighth of the mineral production. Ultimately, the Bryans’ reserved royalty interest was held jointly by U.S. Shale Energy II, LLC and the Bryans’ successors (collectively, U.S. Shale) (plaintiffs). In 2010, Laborde Properties, L.P. (Laborde) (defendant) acquired title to the relevant land tract. At the time, EOG Resources held a mineral lease on the land under which one-fifth of the production was paid as a royalty interest. EOG notified Laborde that the one-fifth royalty interest would be split evenly between Laborde and U.S. Shale pursuant to the 1951 royalty reservation, under which U.S. Shale had a one-half interest in the royalties the land produced. In other words, EOG planned to give U.S. Shale and Laborde each one-tenth of the production as royalties. Laborde disputed EOG’s share calculation, arguing that the 1951 royalty reservation was a fixed reservation that entitled U.S. Shale to only a one-sixteenth share of the production. U.S. Shale filed an action seeking a declaratory judgment that the 1951 royalty reservation gave U.S. Shale a floating one-half interest in whatever royalties were paid under the current mineral lease. The trial court agreed and issued the requested declaratory judgment. Laborde appealed. On appeal, the appellate court reversed, holding that the royalty reservation gave U.S. Shale only a fixed royalty interest in one-sixteenth of the production. U.S. Shale appealed.