Recent Texas royalty cases seem to feature litigants on the fixed royalty side trying, more often than not in vain, to escape the clutches of Van Dyke v. Navigator and Hysaw v. Dawkins. See those decisions for the history of how the Supreme Court got to where it is. (Regardless of which side you’re on, recall the admonition that each instrument must be examined according to its own language; arbitrary rules of construction are history.)

Which brings us to Powder River Mineral Partners v. Cimarex Energy et al.  A 1947 Royalty Deed from Chapman to May contained these operative provisions:  

  • Chapman conveyed “ … an undivided … 3/16 of oil, gas and other minerals …” in 120 acres in Reeves County.
  • The intention was that Grantee receive a “3/16 royalty interest … which interest shall not be chargeable with any production costs or expense.”
  • “In the event that the above land should be loaned for the mining of oil, gas and other minerals, Grantees shall be entitled to receive under this conveyance … 3/16th of 1/8th of all the oil, gas or other minerals produced therefrom under such lease.”

The land is under lease to Cimarex for a 25% royalty. The May successors argued that Cimarex should be paying 3/16th of the 1/4 lease royalty, not the 3/128 (3/16 of 1/8) they were being paid.  This post focuses on the Chapman successors’ failed effort to avoid Van Dyke and Hysaw.

The Chapman successors (winners at the trial court, losers on appeal) argued that Hysaw’s presumption against a mathematical approach to deed interpretation should not be applied for two reasons:

  • There is no expressly defined date when the 1/8 confusion would have been effectively cleared up. Would, for example, a 1960 instrument with double fractions present the same presumption that would apply to a similar instrument in the 1920s. The Supreme Court in Hysaw was confronted with a will from the same year as the Chapman-May Deed.
  • A 1942 article by Professor A. W. Walker, Jr. explained when double fractions were used what such words meant. The court rejected this characterization of Prof. Walker’s article for two reasons. First, the article more pointedly discussed oil payments which are form of bonus payment belonging to the executive right owner. Second, an excerpt of the article advocated for the use of a single fraction, not a double fraction, when the intent is to create a fixed royalty interest.

Other unsuccessful arguments invoked the language of the Deed itself:

  • The granting clause in the Deed did not use a double fraction. Rejected, said the court; the broad language in the grant could not be harmonized with the double fraction found in the second paragraph if the intent of the double fraction were only to convey a fixed 3/128 royalty.
  • The Van Dyke presumption is rebutted because that instrument was a conveyance of the minerals with a royalty reservation whereas the Chapman-May Deed conveyed a royalty interest. That distinction made no difference to the court.
  • The royalty conveyance was effective only in the event the subject property was leased. The court disagreed. The Deed conveyed an interest in all future royalties that was effective upon execution.
  • The double fraction language itself rebutted the presumption because the double fraction unequivocally conveyed a fixed royalty. But Hysaw and Van Dyke stand for the completely opposite outcome. This argument was denied as being circular.

Not discussed in this post is the court’s discussion of why the Deed conveyed a royalty interest and not a mineral interest.

Your musical interlude, just in time for Easter.