Perhaps you recall our discussion of the Texas Supreme Court’s opinion in Van Dyke v. Navigator Grp. (No. 21-0146; delivered February 17, 2023), in which the Court construed a 1924 deed reserving “one-half of one-eighth” of a mineral interest reserved one-half of the interest, not one-sixteenth. On November 10, the Court declined to review a case from the El Paso Court of Appeals holding that a 1945 deed reserving an “undivided 1/4th of the land owner’s usual 1/8throyalty interest (being a full 1/32nd royalty interest)” reserved a ¼ floating royalty interest, not a 1/32 fixed interest.
Royalty Asset Holdings II, LP, Charlotte Poe, Trustee of the Gerhardt Family Trust, Harold Schneider, TD Minerals LLC and Sourcing Rock LLC v. Bayswater Fund III-A LLC, Bayswater Fund III-B LLC, Bayswater Resources LLC, Colburn Oil, LP, Ditto Land Company, LLC, Fall Land & Cattle LLC, Pegasus Resources, LLC, Robbins Family Minerals, LP and COG Operating, LLC (No. 08-22-00108-CV; delivered March 15, 2023) has facts quite similar to those in Van Dyke. For about 75 years, various successors to the mineral estate and the non-participating royalty interest proceeded on the assumption that the deed reserved a fixed 1/32nd interest. In 2008 a new lease was executed on the tract that provided for a 1/4th royalty on oil, gas, and minerals produced. When Noble Energy acquired the lease in 2020, it informed the royalty owners that their nonparticipating interest would henceforth be a floating 1/4th.
The parties claimed and cross-claimed and filed competing motions for summary judgment. The trial court entered a judgment finding that the deed reserved a fixed 1/32nd interest, as it had previously been interpreted. The court, however, approved the parties’ request for a permissive interlocutory appeal to determine the controlling question of what interest the deed actually reserved. The court of appeals accepted the appeal.
As the court of appeals observed, “[w]hen a deed contains multiple fractions, disputes over whether a royalty interest is fixed, or floating are common,” and the “historic standardization” of the 1/8 royalty “no doubt influenced the language used to describe the quantum of royalty in conveyances of a certain vintage” [quoting Hysaw v. Dawkins, 483 S.W.3d 1, 9-10 (Tex. 2016)]. The court went on to discuss the “estate misconception” theory, under which “a grantor would assume he owned 1/8 of the minerals and may use fractions of 1/8 to convey a fraction of what he perceived he owned” (citation omitted). In Van Dyke, SCOTX sought to calm the confusion by deploying “a rebuttable presumption that the term of 1/8 in a double fraction in mineral instruments of this era refers to the entire mineral estate.” Applying this presumption, the deed in this case, with its double fraction 1/4th of 1/8th would indeed reserve a fixed 1/32nd interest.
But that is not the end of the analysis. Looking to the deed in its entirety, the court of appeals found plenty of language to rebut the presumption. Specifically, the lease’s use of the term “the land owner’s usual 1/8” interest “typically indicates an intent to reserve a floating interest” (citations omitted). This terminology “can stand as a proxy for the landowner’s royalty.” So what about the parenthetical specifying “a full 1/32nd royalty interest”? No problem said the court. Resisting the temptation to interpret the parenthetical “in isolation” from the rest of the deed, the court applied “basic grammatical rules to the single-fraction parenthetical … as a non-essential explanation of the multiple-fraction clause” (citations omitted). Reading it this way supports a 1/4th floating interest. Coupled with the deed’s references to future production, the court concluded that the deed as a whole indicates that “the grantor’s intent was to preserve a floating royalty.” The court thus reversed the trial court and sent the case back to Reeves County for further proceedings.
This is another fun case (again, depending on what side one happens to fall) that attempts to decode the hieroglyphics of mineral conveyances that have been chunking along for decades. And as we remarked in our comments about the Van Dyke case, it behooves a judge to be an historian of the law as well as a technician.
