## Facts

- Plaintiffs, Colorado citizens, owned overriding royalty interests (ORRIs) carved out of federal oil and gas leases on Wyoming federal lands.
- Defendants were Merit Energy Company and related working-interest owners producing under those federal leases.
- The leases were issued by the Bureau of Land Management under the Mineral Leasing Act and expressly incorporated applicable federal statutes and Department of the Interior royalty regulations.
- Plaintiffs’ ORRIs originated from a geological services agreement under which services were exchanged for ORRIs “to be computed and paid in the same manner as the corresponding lessor’s royalty.”
- Recorded ORRI assignments stated that gas royalties would be paid for gas sold under the terms of the underlying federal leases.
- Plaintiffs alleged underpayment and brought Wyoming statutory and common-law claims, including claims under the Wyoming Royalty Payment Act (WRPA).
- Defendants moved for partial summary judgment seeking dismissal of the Wyoming state-law claims to the extent they required royalty computation or payment obligations different from those imposed by the federal leases and incorporated federal regulations.

## Issues

1. Whether the WRPA applies to ORRIs derived from federal BLM leases when the parties’ agreements tie ORRI computation to the federal lessor’s royalty calculated under federal regulations.
2. Whether ambiguity in recorded ORRI assignments permits consideration of a related, earlier agreement to determine the intended royalty-computation method.
3. Whether the doctrine of merger bars reliance on the earlier geological services agreement when interpreting the recorded assignments.

## Decision

- The court granted defendants’ joint motion for partial summary judgment on plaintiffs’ Wyoming state-law claims.
- The court held the WRPA did not govern these ORRIs because the parties agreed the ORRIs would be computed and paid in the same manner as the federal lessor’s royalty under the federal leases and incorporated federal regulations.
- The court found the recorded assignments, viewed alone, were ambiguous on whether state or federal royalty rules applied, allowing use of related instruments and context to determine intent.
- The court rejected plaintiffs’ merger argument, concluding the assignments and earlier agreement were part of the same transaction and could be read together to resolve ambiguity.

## Legal Principles

- When an ORRI agreement provides that the ORRI is “to be computed and paid in the same manner as the corresponding lessor’s royalty,” and the underlying federal lease incorporates federal royalty statutes and regulations, the ORRI computation follows the federal royalty methodology.
- Ambiguous royalty language in an assignment may be interpreted using related agreements and extrinsic evidence to determine the parties’ intent under applicable contract-interpretation rules.
- The doctrine of merger does not prevent consultation of prior, related instruments when the later recorded assignment is ambiguous and the documents reflect a single transaction.
- A later-enacted state royalty-payment statute will not be applied to alter a royalty-computation method the parties set by contract through incorporation of federal royalty rules, absent clear language adopting the state statute.

## Conclusion

The court concluded that the parties contractually tied plaintiffs’ ORRIs to the federal lessor’s royalty calculation under federal regulations incorporated into the BLM leases; therefore, the WRPA and related Wyoming state-law theories could not be used to impose different computation or payment requirements, warranting partial summary judgment for defendants.


Followwill v. Merit Energy Co., 371 F. Supp. 2d 1305 (D. Wyo. 2005)