Royalty and Royalty Interests: Overriding Royalty

摘要

In 1946, the predecessor to the plaintiffs conveys surface and mineral rights in Ohio County, Kentucky to Beaver Dam Coal Co. Beaver Dam then leases the coal mining rights back to the grantor who assigns the coal leases to the Rough River Coal Co., an entity owned by the grantor. Rough River agrees to pay the predecessor in interest and his wife a 5% overriding royalty interest of the average gross realization from coal mined and sold by Rough River. A subsequent assignment by Rough River to Alston Coal Co., another entity owned by the predecessor in interest changes the royalty obligation. Peabody Coal acquires Alston Coal in 1956, The overriding royalty interests are assigned to the plaintiffs in 1959. In 2002, a Peabody subsidiary purchases the interests of Beaver Dam and five years later, the 1946 Beaver Dam leases are terminated through the actions of various Peabody affiliates. Eventually, another Peabody subsidiary begins mining operations on lands allegedly covered by the overriding royalty interests. It does not pay any royalty to the plaintiffs who bring this action. The trial court grants the defendants' motion for summary judgment. Held: affirmed. The court determines that the ultimate issue is whether the overriding royalty interests are dependent upon the continued existence of the 1946 Beaver Dam lease or whether they burden the mineral estate in the described lands. Without deciding whether Missouri, Kentucky or Kansas law is applicable, the court applies general principles relating to overriding royalties that agree that an overriding royalty interest carved out of a working interest is extinguished when the working interest is terminated. Thus, once the Peabody entities terminated the Beaver Dam lease the plaintiffs were no longer entitled to any royalty payments from coal production.