TOil and gas deed and conveyance disputes are not new to our courts, and they often involve the interpretation of older documents that were written at a time when the people involved may not have fully understood the size or type of estates involved in the transfer. One such case, a decision out of the El Paso Court of Appeals and being appealed to the Texas Supreme Court, is a good example. The case, Ray Holt Brown, et al. v. WTX Funds, LLC, involves a deed from 1951 (the “1951 Deed”), and the Court of Appeal’s interpretation that reversed the parties’ positions over the previous 60+ years.
Ray Holt Brown, et al., (“Holt”) is the successor Grantee in the 1951 Deed and WTX is the successor Grantor. At the time of the conveyance under the 1951 Deed, the disputed interest was burdened by a 1/8 non-participating royalty interest owned by a third party. The 1951 Deed provided the following:
[Grantors] Have bargained, sold, released, transferred, assigned and quitclaimed and do by these presents bargain, sell, release, transfer, assign and quitclaim unto [grantee] … his heirs and assigns, … all of grantors’ right, title, interest and estate in and to the leasing rights, bonuses and delay rentals in and to all the oil, gas and other minerals in and under the following described land[.]
It is intended by this conveyance to give to the grantee, his heirs and assigns, the right to control and execute all oil and gas leases now on said property or which may be made thereon in the future without the necessity of grantors, heirs or assigns, joining in the execution of the same[.]
[G]rantee … [is] hereby given the right to collect any and all bonuses and benefits on any future oil and gas leases and any and all delay rentals on all oil and gas leases now upon said property or which may hereafter be made by grantee, his heirs or assigns, thereon[.]
[I]t being intended hereby to convey to grantee, his heirs and assigns, all of grantors’ right, title, interest and estate in and to the 7/8 leasing rights or working interest in the oil, gas and minerals in and under said land together with all bonuses, delay rentals, oil payments and all other rights and benefits which may be provided for in any oil and gas leases which grantee, heirs and assigns, have or may hereafter execute upon the above mentioned property, together with the right of ingress and egress at all times for the purpose of enforcing his rights thereunder[.]
It is understood and agreed, however, that this conveyance shall not affect any interest which any grantors, heirs or assigns, have or may have in the future to the non-participating 1/8th royalty in and under said land, but it shall never be necessary for grantors, heirs or assigns, to join in the execution of any instrument pertaining to any past or future oil and gas leases and the grantors, heirs or assigns, shall have no right to any bonuses, delay rentals, oil payments or other benefits under any oil, gas and mineral leases which have been made or which may hereafter be made by grantee, his heirs or assigns, upon said property.
For over 60 years, Holt received all of the royalties that were paid under any oil and gas leases. But, in 2015, WTX claimed that the 1951 Deed did not convey any right to receive royalty to Holt. At the trial level, Holt prevailed. WTX appealed and the El Paso Court of Appeals reversed the trial court, holding in favor of WTX. Holt has filed a Petition for Review with the Texas Supreme Court.
A mineral estate has five separate rights: (1) the right to develop; (2) the right to lease; (3) the right to receive bonus payments; (4) the right to receive royalty payments; and, (5) the right to receive delay rentals. Each of these rights can be conveyed separately. The Court reviewed the 1951 Deed and found that it clearly conveyed “’all of grantors’ right, title, interest and estate in and to the leasing rights[.]’” It also “conveyed [Grantors’] ownership interest in ‘bonuses and delay rentals in and to all the oil, gas and other minerals in and under’ the described property”. By the grant of “ingress and egress”, the Court found that the right to develop was granted as well. However, the Court did not find that the right to receive royalty payments was conveyed.
Holt argued that the greatest-possible-estate rule applied, which provides that “[w]hen an undivided mineral interest is conveyed, reserved, or excepted, it is presumed that all attributes remain with the mineral interest unless a contrary intent is expressed.” Thus, Holt claimed that the 1951 Deed, a mineral conveyance, conveyed the entirety of the mineral estate (i.e. all 5 rights). Holt also argued that the language that granted “and all other rights and benefits which may be provided for in any oil and gas leases” necessarily conveyed the right to receive royalty payments because royalties are “unambiguously, a benefit under an oil and gas lease.”
WTX argued that the 1951 Deed explicitly conveyed 4 of the 5 rights by listing them. Because “the word ‘royalty’ is conspicuously absent from these provisions”, WTX asked the Court to “apply the well-known canon of construction that expression of one thing implies the exclusion of others (‘expressio unius est exclusio alterius’).” In essence, WTX argued that if the parties to the 1951 Deed meant to convey the right to receive royalties, they could have said so clearly instead of merely providing for right to receive “benefits”.
This case also addresses another often present and ever-complex issue regarding the size of a royalty intended to be conveyed/reserved, further illustrating the various issues involved in interpreting older documents. If the Texas Supreme Court grants the opportunity for the parties to be heard, it will be another useful tool we can use to understand documents we have inherited and draft new ones. In the meantime, it could be a worthwhile exercise to dig up any older instruments you may have relating to real property and have your lawyer review them. You may find a surprise or two!