## Facts

- Royalty owners held nonparticipating royalty interests in minerals under ranch lands in Campbell County, Wyoming; mineral owners held the executive right to lease.
- A 1982 agreement confirmed the mineral owners’ executive right, required them to act in good faith and as “ordinary prudent mineral owners,” and required sharing only of overriding royalty interests (ORRIs) acquired by the mineral owners.
- Petrox Resources sought to develop coalbed methane; negotiations involved both mineral leasing and surface-use arrangements.
- The final transaction provided: (1) mineral leases to Petrox with a 15% production royalty to the mineral owners, and (2) separate surface-related compensation to Durham Ranches, Inc. (a surface owner), including a 3% ORRI in Durham’s name.
- Durham did not share its 3% ORRI with the royalty owners.
- Royalty owners sued, alleging breach of the 1982 agreement, breach of fiduciary duty and the implied covenant of good faith and fair dealing by the executive-right holders, and tortious interference, claiming the ORRI was effectively obtained through exercise of the executive right and should be shared.

## Issues

1. Whether the 1982 agreement required mineral owners to share an ORRI granted to a separate surface-owner entity (Durham) as part of the overall development deal.
2. Whether mineral owners/executive-right holders breached duties to nonparticipating royalty owners by negotiating lease terms that included a 15% royalty while a related party received a 3% ORRI.
3. Whether related claims (including implied covenant, tortious interference, and damages theories) could stand given the contract’s limits on ORRI sharing.

## Decision

- The Wyoming Supreme Court affirmed.
- Summary judgment against the royalty owners on the breach of contract claim was proper because the 1982 agreement required sharing only of ORRIs acquired by the mineral owners, and Durham was not a mineral owner.
- After bench trial, the judgment for mineral owners on fiduciary-duty and good-faith/fair-dealing claims was affirmed; the negotiated lease terms satisfied the agreement’s “good faith” and “ordinary prudent mineral owner” standard.
- The court rejected the contention that the deal structure constituted actionable self-dealing on the record presented.
- Because the asserted duty to share the Durham ORRI failed under the contract’s interpretation, related tort and damages theories premised on that broader duty also failed.

## Legal Principles

- Contract language controls ORRI-sharing obligations; an agreement limited to ORRIs “acquired by the mineral owners” does not extend to an ORRI granted to a distinct surface-owner entity.
- Executive-right conduct may be evaluated under express contractual standards (e.g., good faith and “ordinary prudent mineral owner”) rather than an expanded, undefined fiduciary standard.
- Dual involvement in negotiating mineral leases and surface compensation does not alone establish a breach; liability requires proof that the executive-right holder acted outside the prudent-owner/good-faith standard or engaged in unfair self-dealing causing harm.

## Conclusion

The court enforced the 1982 agreement as written, holding that an ORRI granted to a separate surface owner was not subject to the mineral owners’ ORRI-sharing obligation and affirming findings that the mineral owners acted in good faith and as ordinary prudent mineral owners in negotiating the coalbed methane leases.


Carlson v. Flocchini Invs., 2005 WY 19, 106 P.3d 847 (Wyo. 2005)