Appellate Court Resolves Texas Oil and Gas Dispute by Looking to a Deed Written Nearly 100 Years Ago | The Law Offices of Gregory D. Jordan

Appellate Court Resolves Texas Oil and Gas Dispute by Looking to a Deed Written Nearly 100 Years Ago

Earlier this year, a state appellate court issued an opinion in a Texas oil and gas case, requiring the court to interpret a 1927 deed. The deed purported to convey a “royalty interest” as well as an “equivalent reversionary interest in and to all oil, gas, casinghead gas and other minerals” pertaining to certain land. Ultimately, the court affirmed the lower court’s ruling.

In this case, Five Star claimed it was the successor in interest to the original grantee, and that it was entitled to a “floating” royalty interest, providing the company a 3/8 interest in any leased royalty. Ultimately, the court found that Five Star owns an undivided 3/8 interest in the minerals. However, the court clarified that the interest consists only of the “right to receive a proportionate share of royalties and does not include any executive right or right to develop the land.”

The Facts of the Case

According to the court’s opinion, Five Star sought to establish that it was the successor in interest to an earlier grantee. Five Star tried to prove that it owned a 3/8 interest in the mineral interests. In response, the defendants argued that Five Star was only entitled to 3/8 of a 1/8 interest, or a 3/64 interest.

In support of its claim, Five Star presented the court with a quit-claim deed that purported to convey a “ROYALTY ONLY” interest. The question for the court was whether the quit-claim deed conveyed a 3/8 interest or a 3/64 interest to Five Star. In resolving this question, the court had to wrestle with the fact that the Texas oil and gas industry’s customs and terms have changed significantly since the original deed was created in 1927.

The court began its analysis by noting that there are two types of royalty interests.

  1. a “mineral interest” that includes a right to receive a proportionate share of reserved royalties; and
  2. a free “royalty interest” granting a right to a fixed fraction of gross production.

The court then went on to explain that a mineral estate consists of five separate interests:

  1. The right to develop,
  2. The right to lease,
  3. The right to receive bonus payments,
  4. The right to receive delayed rentals, and
  5. The right to receive royalty payments.

Under state law, a party can convey any of the above interests while reserving others. If any of the above interests are conveyed, they are generally referred to as “mineral interests.” The court explained that when a deed conveys a royalty interest, through a fractional share, “what is conveyed is a fraction of royalty, not a fixed fraction of total production royalty.”

Here, the court noted that the original deed conveyed a “royalty interest of three-eighths of all . . . minerals.” The court acknowledged this alone may indicate that the conveyance only consisted of a 3/8 fixed royalty. However, later in the document, the same interest is referred to as “a three-eighths part of the royalty provided by the then-operative lease” and again as a “three-eighths of one-eighth interest.” The court also noted that the deed did not address production costs. This led the court to find that the “royalty interest” mentioned in the deed was not a fixed royalty, but a right to receive royalties proportionate to a held mineral interest. Ultimately, the court concluded that Five Star was entitled to a full 3/8 interest, but that its interest was limited to receive a proportionate share of royalties and does not enable Five Star to develop or lease the land.

The court acknowledged that the original deed used confusing, and at times, conflicting language. The court attributed some of this confusion to the fact that the deed was nearly 100 years old, and that the customs and common terms used in the oil and gas industry have changed.

If nothing else, this case illustrates the complexity of oil and gas litigation in Texas. These cases often involve old documents that may not comport with the current state of the law. Thus, anyone dealing with a dispute surrounding Texas mineral interests should work with an experienced attorney to ensure that their rights are adequately protected.

Reach Out to a Dedicated Austin Oil and Gas Lawyer

Oil and gas disputes can be extremely complicated. Choosing an attorney to represent you or your business is a crucial decision that can save months or even years of litigation, and many thousands of dollars. At the Law Offices of Gregory D. Jordan, we have been effectively handling Texas oil and gas cases for over 30 years. This experience provides us with a detailed understanding of this unique practice area, which we put into each of our clients’ cases. We genuinely value your business and time and strive for quick and effective resolutions to whatever legal issues you face. To learn more, and to schedule an initial consultation, call 512-419-0684. You can also contact me online.

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