After four stops at the lower courts, Kenneth Hahn v. ConocoPhillips has been resolved by the Supreme Court of Texas. The Court opined on the effect of two instruments often used to clarify land titles in Texas: ratifications of an oil and gas lease and stipulations of interests.
See this post for background. And remember: These brief posts are not presented as fulsome discussions of the cases we report on. We promise not to “hallucinate”, as with AI and 1960’s rock-and-rollers, but we can’t discuss every nuance and detail of these often long and complicated decisions.
The result
The Supreme Court reversed a court of appeals judgment favoring Hahn. Hahn’s NRPI was reduced to a floating interest as a result of a Stipulation between the parties but not as a result of a Ratification. It’s complicated. Read on.
The facts
Briefly stated: Hahn owned a 1/8 NPRI in “Tract A” and ratified a subsequently negotiated oil and gas lease from mineral owners the Gipses to ConocoPhillips which paid a ¼ royalty. After the Gips lease was pooled title questions arose. At the request of ConocoPhillips, Hahn executed a “Ratification of Oil Gas and Mineral Lease” and he and the Gipses executed a “Stipulation of Interest’’.
The Ratification
An NPRI owner like Hahn has the option to ratify or repudiate a lease containing provisions which as to his interest the executive right owner has no authority to insert into the lease. But if an NPRI owner ratifies a pooling agreement (or a lease with such an agreement) his interest is bound by the entire agreement. He cannot accept provisions that benefit him and reject provisions that are detrimental to him.
The Gips lease’s royalty provision did not apply to Hahn’s nonpossessory interest in production because of the different nature of those property interests. An NPRI is neither ownership of the mineral fee nor a fractional title to the mineral fee. It is not leasable. The standard lease provision obligating the lessee to pay royalty to the mineral fee owner does not also apply to a pre-existing fixed NPRI and does not create an NPRI that floats with the lease royalty.
Because Hahn’s royalty interest was fixed it remained constant regardless of the royalty in the subsequently negotiated Gips lease.
The Stipulation
This instrument told a different story. The Stipulation included a cross-conveyance of interests between Hahn and the Gipses. Stipulations are favored in the law as a way to avoid litigation and clarify land titles. The parties agreed that if the Stipulation was effective, Hahn’s NPRI would float with the lease royalty. On its way to finding the Stipulation to be enforceable, the Court discussed in detail what is required for a written contract to satisfy the Statute of Frauds (See pp. 14 -16).
The Stipulation referred to the NPRI reserved to Hahn in the Gips deed as a 1/8 “of royalty”. Thus, the Stipulation changed Hahn’s NPRI from fixed to floating.
Clarifying Ellison
The Court clarified its ruling in Concho Resources v. Ellison regarding the effect of a stipulation of title:
- No proof of subjective uncertainty of the parties is required to make a stipulation enforceable, and
- Stipulations are not limited to agreements establishing the physical location of a property boundary.
Roberta Flack RIP