Co-author Kelley Clark Morris

Geary v. Two Bow Ranch Limited Partnership* is an example of the havoc an unusual contract provision can create.

In 1981, Geary and other Grantors executed a warranty deed conveying 2,614 acres (let’s call it the Property) in Bandera County, Texas, to Meader, Two Bow’s predecessor. The Grantors reserved an undivided one-half mineral interest, and conveyed one-half. The deed conveyed to Meader the ”executory rights” to its minerals and reserved the same to Grantors over their half. The deed included this “Provisional Authority” language:

“Grantee may control the executory rights pertaining to the minerals provided the Grantors and Grantee share equally in any and all proceeds related thereto.” Continue Reading “Provisional Authority” to Control Executive Rights Not Assignable

The question in Cannisnia Plantation, LLC v. Cecil Blount Farms, LLC was whether a well was drilled in good faith in order to interrupt the running of prescription on a Louisiana mineral servitude.

The Mineral Servitude

If you conduct your business where they don’t have the Mardi Gras, the nutria, or the King of Zydeco, be mindful that in Louisiana there is no “mineral estate” that lives in perpetuity. Instead, there is the mineral servitude. See Mineral Code Article 21: “ … the right of enjoyment of land belonging to another for the purpose of exploring for and producing minerals and reducing them to possession and ownership.” Among the modes of extinction of mineral servitudes is prescription for nonuse for 10 years.

Continue Reading Louisiana Servitude Extended by Good Faith Drilling

Co-authors Ethan Wood and Rusty Tucker

We read the comments and listened in on portions of the historic April 14 hearing on the proposal that the Commission order market demand prorationing of Texas oil and gas production. Of the 120+ written comments, 51 supported, 59 opposed, 12 were neutral, and several were not clear.

Here is our summary of the comments.* To read them for yourself, go to:  https://www.rrc.state.tx.us/general-counsel/open-meetings/comments-received-re-the-rrcs-april-14-2020-open-meeting/

Continue Reading Who Said What at the Railroad Commission Market Demand Prorationing Hearing?

Co-author Rusty Tucker

Contract construction cases are fact-specific, but one can take lessons of general application from all of them. Here are the takeaways from Jones Energy, Inc. v. Pima Oil & Gas, L.L.C.,

  • In assigning an ORRI, it matters whether the parties intend to exclude production from a particular interval of a formation or from a particular wellbore.
  • It also matters, when two documents relate to the same subject, which one will control.
  • Courts rely on the grammatical meaning of words and phrases. If in doubt when writing or reviewing a document, brush up on your eighth grade grammar.

Caveat: If this analysis doesn’t make total sense (or, God forbid, makes no sense at all), it’s because the agreements are complicated and we don’t have the space to dive into them in detail. Focus on the takeaways. Continue Reading Lessons from an Override Assignment

WTX Fund, LLC v. Brown, is Texas mineral deed construction case.

In the same year as that crazy thing happened at Coogan’s Bluff, the Roaches executed a Mineral Conveyance to the Holts. Let’s review the transaction and ask ourselves why – or if – there had to be so many “intentions” clauses in addition to the granting clause, and whether “magic words” are needed to reserve a royalty interest.

The granting clause

By the granting clause the Roaches conveyed:

“ … all of grantor’s right, title, interest, and estate in and to the leasing rights, bonuses and delay rentals in and to the oil gas and other minerals … under [the described land].

Intentions clause, part 1

The grantors intended to grant:

” … 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 same.”

Intentions clause, part 2

Grantees were 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 … leases now upon said property or which may hereafter be made by grantee his heirs or assigns… .

Intentions clause, part 3

The grantors intended to convey:

… all of grantor’s right … the 7/8 leasing rights or working interest in the oil, gas and minerals … together with all bonuses, delay rentals, oil payments and all other rights and benefits [from leases] … together with the right of ingress and egress … .

The shall-not-affect clause

The conveyance would not affect any interest that any grantor:

“ … may have in the future to the non-participating 1/8th royalty … “. But the grantors would have no right to “bonuses, delay rentals, oil payments or other benefits under any … leases which have been made or which may hereafter be made.”

Heirs and successors of the original parties to the deed sued, counter-sued and cross-sued each other seeking proceeds from production from property. By this time, a lease with a 1/6th royalty was in effect.

The analysis

The court noted that the granting clause individually named (1) the leasing rights, (2) bonuses, and (3) delay rentals, so the deed expressly conveyed those attributes. The intentions clause described the conveyance of (4) leasing/executive rights, (5) the rights to collect bonus and delay rentals, and (6) right of development (with ingress and egress).

Importantly, the intentions clause specified that it was a conveyance of “the 7/8 leasing rights or working interest … “ The court concluded that, together with a reference to a “1/8 non-participatory royalty rights” in the later clause, and given the deed’s vintage, signified an intent of the Grantors to reserve a 1/8th royalty interest.

“Shall-not-affect” as a reservation?

The sharpest point of contention was the meaning of “benefits” and the effect of the shall-not-affect clause.The court construed “benefits” as “ … an interchangeable term operating as a catch-all to describe the economic gains of a mineral lease. Such gains include bonuses, delay rentals, royalties, or other forms of payment. “ In this case it included the 1/8th royalty in the shall-not-affect clause.

The court held that the deed conveyed leasing rights, bonuses, delay rentals, and development rights in their entirety, but reserved the entire non-participatory royalty as a floating (rather than fixed) royalty in favor of grantors. How’s that, you say? Because the intention of the reserved 1/8th was informed by the transfer of the 7/8ths, and recalling that in 1951 the 1/8th royalty was standard and everybody thought it would be that way forever. The court rejected the argument that “shall-not-affect” language in a deed could not be construed as a reservation.

RIP Ellis Marsalis.  While we’re at it, let’s hear from Winton and Branford.

Co-authors: Gray Reed lawyers too talented and numerous to mention

I start with a promise: To leave you-know-what behind as soon as possible. In the meantime, here are summaries of your federal government’s effort to alleviate the distress caused by the situation. Click on each title for more detail and to learn about the appropriate Gray Reed attorneys who can help you navigate the new laws.

Business Loan Programs in the CARES Act: What Businesses Need to Know 
The Coronavirus Aid, Relief and Economic Security Act was signed into law by President Trump on March 27, 2020.  Its commercial lending provisions are intended to provide a lifeline to the economy in the form of loans to eligible businesses to fund payroll and other operating costs.  This alert summarizes the following loan programs in the CARES Act:

  • the Paycheck Protection Program,
  • Economic Injury Disaster Loans (EIDLs),
  • advances for up to $10,000 on EIDLs (an Emergency Advance) and
  • the Subsidy for Certain Loan Payments.  

CARES Act Tax Provisions Impacting Businesses 
This alert reviews the CARES Act’s main tax provisions that impact businesses. The Act provides immediate benefits to businesses through a number of provisions including:

  • a new SBA loan program called the Paycheck Protection Program and
  • both refundable payroll tax credits and payroll tax deferral for a significant portion of employer payroll taxes.
  • the Act also makes a number of significant taxpayer-friendly changes to the Internal Revenue Code. 

The Great Toilet Paper Crisis: Price-Gouging During the Coronavirus Pandemic 
Because of the uncertainty caused by the pandemic, staples such as toilet paper, hand sanitizer, bottled water and surgical masks are flying off the shelves. Retailers’ natural response to the sudden increase in demand for those products would be to raise their prices, but merchants who do so run the risk being accused of and sued for “price-gouging.” This article reviews price-gouging laws in Texas and what retailers should be careful of.

Is this how you are looking at the situation these days? Or maybe its this?

 

Here we continue our discussion of the Texas Supreme Court’s opinion in Piranha Partners et al. v. Joe B. Neuhoff et al. determining that an assignment of an overriding royalty in minerals unambiguously conveyed the override in production under an entire lease. The Court concluded that circumstances surrounding the transaction didn’t matter. Here was the first round.

Surrounding circumstances …

May be considered in construing a deed or other instrument to

  • aid the understanding of an unambiguous contract,
  • inform the meaning of the language actually used, and
  • provide context or elucidate the meaning of the words employed.

It is not the same as

The parole evidence rule …

Which prohibits reliance on evidence to

  • create ambiguity in the text,
  • altar or contradict the terms of an unambiguous contract,
  • show what the parties probably meant,
  • admit something other than what their agreement stated, or
  • make the language say what it unambiguously does not say.

No help to nobody

Piranha purchased Neuhoff’s interest through an oil and gas clearinghouse auction involving 1,200 properties located in 14 states. There was no negotiation between parties and the winning bidders typically acquired interests as-is, where-is, and without warranty of title. To enter its interests at the auction Neuhoff agreed:

  • To use “reasonable efforts” to accurately and completely describe the properties and all WI’s, ORRI’s and other interests on an exhibit attached to the agreement and on all property datasheets,
  • To provide additional information that prospective bidders might reasonably request for the purpose of verifying the accuracy and completion completeness of the information concerning the properties,
  • To use reasonable efforts to respond to reasonable questions from bidders,
  • It had not fractionalized its interests but was selling all of his interest in same, and
  • All interests in the property were available for sale.

Piranha had to register as a qualified bidder and to make representations such as it:

  • Was a sophisticated buyer,
  • Received all documents and information it reasonably required to evaluate the properties,
  • Performed its own due diligence to its complete satisfaction, and
  • Understood that the terms of the conveyance document would prevail.

A Sale Brochure and Auction Catalog identified the well “Puryear B 1-28″ N. Mills Ranch, Wheeler County, TX, a .0375 overriding royalty interest …”. A Property Data sheet identified the description as the “NW/4 Sect. 28 … .”. After the sale the auction house provided a Detail Invoice describing the interest as the Puryear B #1-28.

The parties argued back and forth about what the Sales Brochure and related documents meant, but the Court said the documents didn’t matter. The buyer was required to look at the data package and conveyance documents for a complete representation of restrictions associated with the property. The catalog said it was provided for convenience purposes only and bidders should verify all information. The data sheet said due diligence and verification by buyer were required.

The dissent: The deed is ambiguous

Two justices would have found the property description ambiguous, remand to a jury to “break the logjam”, and let each side emphasize the surrounding circumstances in favor of its interpretation. When competing interpretations are reasonable and no context favors one over another, the contract is ambiguous.

The dissent relied on “… INSOFAR AND ONLY INSOFAR as set out in Exhibit A … ”, which described the NW/4 and the well. The majority, they say, ignored those descriptive limitations. Because the description contained an expressed geographic reference to the NW/4 the majority’s construction was the least reasonable of the three readings.

That the court should take a holistic and harmonizing approach to deed construction does not also mean that all provisions of the document will be helpful in interpreting an ambiguous provision.

Today’s musical interlude describes a place that would be nice to find.

Gray Reed lawyer Ethan Wood explains what the oil industry’s classification as an essential business means during this crisis.

Read it here: COVID-19: Shelter-in-Place Orders and the Energy Industry

A musical interlude for the times.

And another. It’s about the coronavirus!

DONT CLICK ON THE VIDEO BELOW WITHOUT HEEDING THIS WARNING. By my count, this one could be offensive in no less than four  six ways. Even to identify those who might be offended could be deemed offensive. If you deem yourself likely to be offended, or a member of a group that might be offended, or this blog as offensive, you might want to go ahead and leave, but only after reading Ethan’s excellent work.

 

 

https://www.instagram.com/tv/B98IGRtFGVI/?igshid=728n6o7lmmjo

 

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The question for the Texas Supreme Court in Piranha Partners et al. v. Joe B. Neuhoff et al. was whether an assignment of an overriding royalty in minerals conveyed the override only in production from the identified well (the B #1-28), in production from any well drilled on the identified land (NW/4, Section 28), or in all production under the identified lease (the Puryear).

The takeaway

The Court shrugged off what it referred to as “rigid mechanical, arbitrary rules of construction” and examined the words of the deed itself, concluding that the assignment unambiguously conveyed to Piranha an override in production under the entire lease.

Scriveners of all sorts of agreements: This follows other recent rulings of the Court. ALWAYS consider carefully, especially when using a form you “know”, what it is you are trying to say. Think you’ve got it? Have someone else tell you what they think you are saying.

Today we will consider the Court’s treatment of rules of deed construction. Next week we will take a look at the effect of surrounding circumstances on the transaction.

The assignment

Neuhoff sold its interest in the lease, reserving a 3.75% override. The B #1-28 was located on the NW/4 of Section 28. The dispute arose after new wells were drilled on other portions of Section 28.

The granting clause was of “ … all of [Neuhoff Oil’s] right, title and interest in and to the properties described in Exhibit “A”.

The clause continued: “ … all oil and gas leases, mineral fee properties or other interests, INSORFAR AND ONLY INSOFAR as set out in Exhibit A, … .”

The Court looked at Exhibit A:

Lands and Associated Well(s):        Puryear #1-28, Wheeler County, Texas

NW/4, Secton 28, …

Oil and Gas Lease(s):

Lessor: [the Puryears]

Lessee: Marie Lister

Recorded: Volume 297, Page 818.

Which of the three provisions identified the “properties”?

Piranha cited what it asserted were well recognized rules of deed construction (see bullets below) and asserted that the court of appeal established a new rule that permits courts to imply a limitation on a grant even in the absence of language to that effect. The Court said that whenever it is necessary to harmonize apparently conflicting provisions, courts will do that.

Rejection of arbitrary rules of construction

The Court explained that it lately has been casting off rigid mechanical or arbitrary rules to conduct a careful and detailed examination of the deed in its entirety rather than applying some default rule that appears nowhere in the deed’s text. (We’ve talked about this before). The Court admitted that it has not clearly distinguished between those default rules it has recently rejected and well-settled contract construction principles. The Court rejected these rules as inapplicable:

  • The grant must be of the greatest estate permissible (not “possible” as Piranha argued). Even with a conveyance of all right, title and interest … , the Court still must ask whether Exhibit A conveyed all of Neuhoff’s interests under the entire lease.
  • Any alleged exception, reservation, or limitation not expressly and clearly stated should be rejected. Piranha ignored the difference between a deed conveying only a partial interest and a deed conveying an entire interest but reserving a portion.
  • Because the document was not ambiguous it didn’t need to be construed against one party or the other.

What does the deed say?

The Court harmonized all words in the assignment, refusing to give greater weight to the granting clause than other provisions. For example, the granting clause referred to overriding royalty interests and Neuhoff owned an override in the entire lease. Another section included all contracts that affected “the leases”. And another referred to production “from the leases”.

RIP both personas of Kenny Rogers: the psychedelic and the country.