- Hi, my name is Josh Stein. I am a lawyer out of Houston, Texas. Licensed in Texas and New Mexico. And I'm here to talk about oil and gas, mineral title, and title examination. This CLE is mostly gonna be based on Texas law. I'll talk a little bit about some other states, but it's mostly gonna be Texas because in terms of mineral title, a lot of the states where oil and gas production is prominent. Tend to follow what Texas does. Our law here is fairly well developed in mineral title and we're a big state. So we have lots of disputes. Anyway, the CLE is called Mineral Title. How bad can it be? And if you look at slide number two of your slideshow, that is the answer. That's a picture of a deed book in, I believe it's in Stevens County. They had a bunch of deed books in the attic, termites ate it. And they went through the trouble of photocopying. Well, not photocopying, but laminating the eaten pages so that you can flip through it and read a couple fragments of sentences from what remains, if you're ever out in that county, you can look in the courthouse, that's still up in the attic. They haven't moved it. And all of the books are like that. These aren't the deed records specifically, but they're old cases, old court records, things like that. And a lot of counties have this problem. Believe it or not. The deed records fall apart and there's no copy. The courthouse burns down. So they just say, well, everything before the courthouse burnt down is gone. Good luck. And that is unfortunately the state of mineral titled in some places. And you just have to go with what you got. Anyway, so the stuff I'm gonna be talking about in this CLE, there's a couple of brief topics, title examination basics, some advice on locating absentee, mineral owners, a little bit about property descriptions, a little bit about old overriding royalty interests on old leases and some stuff about intestacy. And after that, I'm gonna get into the more interesting topics. Interesting to me at least, the Duhig rule, fixed versus floating royalties, implied reservations, canons of construction, and land described versus is state conveyed. And the objective here is to provide you with some cases and some basics for problems, which frequently crop up in oil and gas cases in which cause royalties to be paid to the wrong people or to be paid in the wrong amounts, which is surprisingly common. You know, it always kind of blows my mind that when an an oil company gets a well and they send out division orders, the division order has a decimal on it and you sign it and then you get paid, whatever that decimal is out of production. And nobody checks to make sure that decimal is right. You know, if you go into a grocery store and you buy a stick of gum, a lot of people will look at their chains to make sure they got, you know, two quarters in a nickel as opposed to two nickels in a dime. And they'll make a stink about it if they got paid wrong. But when it comes to oil and gas, it's just too hard and millions of dollars change hands. And everybody assumes that big oil companies will get it right and, you know, believe it or not big oil companies rely on little people like me and like other lawyers who have my job and we are not perfect. Anyway, so title examination basics. If you've ever written a title opinion, you've probably gone into a courthouse and seen all the old deeds and thought this is gonna be terrible. And it's gonna take a long time. 'Cause the grantor-grantee indexes are a pain in states where they thought ahead, they have tracked indexes. So you have an index for section one, block five and all of the deeds covering that property are listed in that index. So it's very, very easy in other states where they weren't thinking about the future. You have a grantor-grantee index where you have to flip through the names of the parties and it becomes very difficult and very cumbersome. Some of those grantor-grantee indexes will have property descriptions in the index. Those are not necessarily reliable. They're written by the county clerks. They use shorthand, they don't list everything and sometimes they don't list anything at all. So if you're looking through the grantor-grantee index to try to figure out who owns the property, how it was conveyed over time, you'll often run into problems like a guy named Smith bought the property, or, and there's 50 Smiths in that county. And you have to look through 100 irrelevant deeds before you find the one you're looking for, or worse yet first financial bank acquired the property. And then there's a thousand deeds you have to look for before you can find the right one. And it takes a lot of time. And when you're looking through the grantor-grantee index, it's very, very easy to miss the one deed that is correct and then you gotta keep searching and it a terrible use of time is very cumbersome and it's very difficult. So what a lot of people do is they will use abstract companies in Texas and an abstract company does the same thing that the track books in states like Oklahoma do, where they have a list of index cards with all of the properties on them. And they file the index cards altogether. So if you have section one, block five, there's a stack of index cards covering section one, block five. And you can just put your chain of title together that way, when you do that, you are relying on the abstract company. Typically their records are accurate, but they're not 100% accurate. The best practice is to use the grantor-grantee index. In addition to the abstract, that way you won't spend weeks and weeks looking around blindfolded and the abstracts are really very helpful. I use them whenever I write a title opinion. Another thing people rely on is old division orders. There's a lot of oil and gas production doesn't have title opinions on it. And so the oil company is out there with nothing to show that they actually own the property, just an old division order that they got from whoever was operating the well before them telling them who to pay. And they just follow that, don't do that. That is a very bad idea. First of all, you're relying on the old division order being correct. And you have no way of knowing whether it is or is not. You just know that royalties have been paid based on this division order and no one has made noise about it, which does not imply that no one will make noise about it in the future, right? If you've got an oil well, that's not making a lot of production then no one's gonna fight about it because there's not enough money to fight over. And then if you go spend a million dollars, reworking it or fracking it or whatever, and it starts actually producing. Now there's something to fight about. And all of a sudden your old division order isn't worth anything. A lot of operators seem to think that they're invincible, you know, people sign division orders. So the operator isn't liable because they're indemnified by the division order. That is true, but if you don't have, if you're paying person A and person a has signed a division order, but you're not paying person B and person B has not signed a division order, well, you're still gonna be liable to person B, right? If he's not included in the old list of owners, then you're not gonna know that he exists. And if he hasn't signed a division order, you're not gonna be indemnified. So relying on an old division order is just the wrong thing to do. It's also problematic when you're buying property. And I have a client who's doing this right now against my sound and inexpensive advice because you don't know that the seller owns 100% of the working interest and is therefore capable of selling you the oil and gas lease. If he's just saying, "Well, here's the division order I use." It's not clear title. You don't have what you think you own. And it's really alarming how much this happens in Texas and how frequently people get away with it, particularly in East Texas, where the title is so screwed up, that it's just impossible to figure out who owns what. So nobody makes any noise about it. and everybody gets paid the wrong amount. And that's just how it is. Sometimes when you're doing a title opinion, people will also get an old title opinion on the property. In that case, you're relying on the old title opinion being correct, but it's at least something it's more than an old division order. There are a lot of old title opinions floating around. If you find one of mine do not use it, it is absolutely correct. There's nothing wrong with it, but, do your own damn title opinion. Like I said, the best practices are to use the grantor-grantee index, in addition to the abstract, the abstract will save you time. But the grantor grantee index is where the real information is. And you should also search for alternate names when you're going through the grantor-grantee index. A lot of people use nicknames and the county clerks know the, you know, know the people in small towns. So you don't wanna, don't search Joshua Stein, search Josh Stein, or, you know, in the old olden days, search Jr Stein and things like that because people used initials. So you have to do multiple searches in the grantor-grantee index to really find the documents you're looking for. It's also very helpful to use references within deeds. A lot of deeds will say that they're selling the same property, which was sold to so and so in 1910, recorded in such and such deed, that'll save you a lot of time as well. And you should also look in neighboring counties. I know there's notice issues about whether a deed is filed in the wrong county and blah, blah, blah, but very commonly people will file the deed in the wrong county, just because they're, you know, if you live in the Eastern half of one county, the county clerk of the county next door is the shorter drive. So that's where you file the deeds or people just don't know what they're doing. So they file them in the wrong counties. And it's generally a good idea when a property you're researching in is on the border to look across the border, even if it's a couple miles. So you wanna be able to find these deeds, to put people in paste status, not to just suspend them for no reason when you're an operator. Anyway, another common problem in oil and gas title examination is there are a lot of absentee owners. There's a lot of people who reserved minerals in 1920. And a lot of those people are dead. And a lot of dead people don't keep their records up to date. So you'll find someone reserved the minerals in 1920, and you don't know what happened to 'em. That's not in the deed records. There hasn't been a lot of production out there. So there's no wills filed of record. And if they own minerals, you gotta track 'em down. 'Cause you have to get a lease from the mineral owners. So the solution to that is you look at the body of the deed. A lot of deeds will say where the person lived and then you just have to go to that county and see if you can find some probate records. back in the day, people didn't move as much as they do now. So it's not too hard if somebody was born in, I don't know, Kittson County, Minnesota, and they were living in Kittson county, Minnesota when they were 50 chances are they died out there, maybe not, but that's a good place to look. If the body of the deed does not have an address, you look at the jurat, where it was signed and that'll often tell you where they were located. It'll at least give you an idea. So you can start looking that way. And if you can't find them, if Joe Blow lived in Kittson County, Minnesota in 1920 and you can't, and he apparently didn't die there, there are no probate records. Just look through the deed records in Kittson County. And you'll find a deed from him selling his house and moving to Florida. And then you can trace 'em that way. So it's a time intensive process, but that that's oil and gas. Also Google and ancestry.com are surprisingly powerful tools for finding people from back in the day. ancestry.com has a lot of federal census records. And those will tell you who went where, and who was living in the house and that kind of thing and that's a very useful process. And of course, if all else fails, you can just establish a receivership for mineral owners and have the court sign an oil and gas lease on their behalf. After you've done your due diligence. When you are establishing a receivership, a lot of people are tempted to do the bare minimum and get a one eighth royalty on the oil and gas lease. You really shouldn't do that. It doesn't have to be a quarter, but get something a little higher because there are people who go around trying to bust receiver ships, and they'll go and find Joe Blow from Kittson County, Minnesota, and show up and tell you why you didn't do your due diligence and how easy it was to find him. And they don't want the one eighth royalty on their receivership. They want to quarter, and then you got a major problem. So, you know, don't get greedy when you're doing receivership. Another common problem in oil and gas is property descriptions. As we all know a deed without a property description is void, not voidable. You have to be able to locate the property on the ground and you can reference a plat that's in existence or another deed in order to do that. It doesn't have to be filed in the deed records. You can say this deed covers section one of a plat that's in some lawyer's office. And that's good enough. As long as the plat is in existence at the time that puts people on notice of it's existence, puts people on notice of what you're describing, and as long as the plat is effective, you're good to go. Maybe the plat's not good enough to locate the property. In which case you have an ineffective deed. I don't know if this is just a peccadillo that I have, but a lot of people in West Texas will say, deeds in West Texas will say Northeast quarter space, Southwest quarter, when they mean the Northeast quarter of the Southwest quarter. And that's distinguished from Northeast quarter, Southwest quarter, which is the Northeast quarter and the Southwest quarter. I think it's a bad practice. Everybody seems to do it. I don't understand why they do it. But if you mean the Northeast quarter of the Southwest quarter, just type it. You know, it's not that hard. It'll make things easier on stupid people like me. And you know, one of the other problems that I think nobody seems to address is a lot of sections out in West Texas are not north. You know, they're not squares that run north to east, north to south and east to west, they're all at an angle. And so when you say the Northeast quarter and the property is tilted 45 degrees, you know, arguably I think that might be ambiguous, but I haven't seen any cases saying that everybody just seems to go along with it and assume that the Northeast quarter is the upper left part or the up the upper right part, I should say. But if it's really tilted, I don't know, it starts to get kind of weird, but it has to be pretty tilted. Anyway, old overrides old overrides are a major problem for people who are buying old leases and stripper production. A lot of old oil and gas leases will pass through many hands before they come to their current owners. And very frequently people will reserve one or 2% override over the course of many years. And all of a sudden you have a lease with 20% override on top of it or something insane like that, which really makes it uneconomic for a lot of operators. And many of these old overrides just haven't been paid in years and years because the guy who reserved the override was a geologist. He died, his kids don't know about it. And the guy who operated the well after him was just some local guy who had an old division order that he was using for a title opinion instead of a title opinion. So he just put it in his pocket and went about his business. Old overrides that haven't been paid in many years are still valid. You can't just ignore them. And overriding royalty is nonposessory. And that means it's not subject to adverse possession. If you want a case on that it's Sun Oil company of Delaware v. Madeley, I've got a site to it in my slideshow. It's one of the footnotes points it out. There's other cases that say the same thing, but Sun Oil Co is terse and pithy in the way that it say says it. Also abandonment of real property does not exist in Texas. So if you have an override, you haven't been paid in 50 years, you haven't abandoned it. You just haven't been paid. You still own the override, latches does not defeat legal title. There's possibly some wrinkles to that, but latches are not gonna work. If you haven't asserted your right to your ancient override, it still exists and limitations applies to damages, but it does not extinguish override. Case on that is Lyle v. Jane Guinn Revocable Trust. And in that case, the court, it's not talking about an override specifically, but the court says if you haven't been paid in many, many years, you've lost your cause of action for damages that occurred more than four years ago, but you still have the interest as it exists in the deed records. Incidentally, there's a lot of back and forth over whether or not the proper measure of damages is four years or two years under a nonpayment of royalties case, Lyle v. Jane Guinn Revocable Trust says it's four years, not two. So if you're a plaintiff, that's a pretty good case for you. Another frequent problem that I've seen crop up over and over again is intestacy. Intestacy will frequently create a life estate in mineral or royalty property. As we all know, in Texas, a surviving spouse gets a one third life estate on the other spouse's separate real property. And most minerals are inherited over several generations. So, they tend to be separate property. And so a surviving spouse will get a one third life estate in the deceased spouse's mineral rights, oil and gas royalty payments are payments for the sale of the Corpus. That means the principle, right? You have a lake of oil underground. And when you sell the oil, you are selling the Corpus of the estate. That means that royalty payments belong to the remainder men who has no present possessory interest. They do not belong to the life tenant who does have a present possessory interest. There's a Supreme Court case on that. It's Clyde v. Hamilton from 1967. And that case pretty clearly says that if you have a life estate, you do not have a right to payments on oil and gas royalties. The IRS has a more nuanced view. Unfortunately, they treat oil and gas royalties as income. So if you're making a million dollars in oil royalty every year, that's taxable income, it is not a capital gain. You can't do a 1031 to offset it and buy a house with it without paying taxes. That's not gonna work. So the IRS is not helpful in that regard, but that said, if you're a plaintiff's lawyer and you win a case for the contingent fee and you get a million oil and gas royalty acres, then you are taxed as payments are received, you don't have to pay the tax on all the money up front. So that's good for everybody, I guess. One of the wrinkles to a life estate is the open minds doctrine. The open minds doctrine allows a life tenant to keep payments on production when the land is leased prior to the creation of the life tendency. So it an oil well is considered an open mind when the lease exists prior to the life tenancy's creation, and then the life tenant gets paid. The thing to keep in mind here is the land just has to be leased. It doesn't have to be drilled. It doesn't have to be producing. It has to be subject to an oil and gas lease. So if your spouse owns minerals as separate property and is planning to die, go get an oil and gas lease with a 30 year primary term. And you'll be good to go. Also, an oil and gas lease signed by a life tenant will not bind the remainder man and vice versa, a life tenants, oil and gas lease terminates when the life tenancy extinguishes, and it's called a life estate pur autre vie, life estate for the life of another. And the same is true for a remainder man, except in the reverse. So what, one of the ways to avoid a life estate, which is kind of a medieval concept to begin with is to use a Lady Bird Johnson Deed where the, I've got the language you can use to create one in my slide show on, on slide number nine, it says grantor reserves a life estate in the lands together with the full ability to sell, convey mortgage used, waste, and dispose of the land without the joiner of the remainder men and to retain absolutely any and all proceeds derived there from. So if you use this language in a deed, creating a life estate to avoid Medicare or something like that, that will allow you to keep the royalties, keep the land. You can commit waste, you can burn the forest down, you can dig up all the dirt and sell it. You can do whatever you want. And it really, they call it an enhanced life estate. But what it really is a fee simple. Determinable with an asterisks on it that says, if there's anything left after I sell it, it goes to my kids, Lady Bird Johnson Deeds, unsurprisingly are not recognized in most states because they take an animal, which is a life estate, and they turn it into a completely different animal, which is a fee simple. They're recognized in Texas, Florida, Michigan, Vermont, and West Virginia, sort of a strange list. I don't know what Vermont is doing on that list, but keep Vermont weird, right? So in there as well. If you haven't created a Lady Bird Johnson when you have the life estate, then you're stuck, right? You're stuck with this crazy medieval scheme. And the only way to really get around it is to do a stipulation of interest among family members. Hopefully everybody gets along, if not, you're screwed, but you do a stipulation of interest and say, who gets what during grandma's lifetime? And that'll get that solved. So let's move on to the fun stuff. The first fun thing is the Duhig rule, right? Everybody loves the Duhig rule and other people don't. So the Duhig rule stands for the proposition that a person who conveys land using a warranty deed and attempts to reserve something, but doesn't own enough to make the grantee whole will lose the reservation, right? So if the seller owns half of the minerals in land and all of the surface, and he uses a warranty deed that says, seller sell all the land, save and accept half the minerals, which are reserved. And he has a general warranty in there, then Duhig applies. And because he has sold all of the land except half the minerals, but he only owns half the minerals. The grantee will get the half of the minerals that he owns to make the grantee whole, and the grantor, the seller will get nothing. That is the rule stated in Duhig. So it's a narrow rule. There are a lot of exceptions to it. It's very easy to miss I've done it myself. So if you have a deed that says, the seller sells all of the land save, and except half the minerals, which are reserved, and this deed is subject to all reservations of record, then Duhig does not apply, right? The deed's same language, but it has this subject to clause, which says subject to outstanding reservations of record. And if you do that, then you have put the buyer on notice that there are reservations of record as if average buyers are not on notice of that very obvious fact, but the courts have said that that's good enough. A case on that is Gore v. Roosth or Roosth or something like that, R O O S T H. I don't know how to pronounce it, but it's a great case that says Duhig, doesn't apply when there's a subject to clause in the deed. Another exception to the Duhig rule is if a deed says, seller sells all of seller's interest in the land, save and accept half of the minerals, which are reserved. Once again, Duhig does not apply because the grant is restricted to seller's interest. And, you know, same thing. The seller is referring in the deed only to his interest. It's a narrower deed. It puts the buyer on notice of the fact that seller may not own everything. And a case on that is Hunsaker v. Brown Distribution Company. That's not exactly on point, but it's close enough for the purposes that I'm looking at here. Anyway, the Duhig rule is kind of a wacky rule. It conflicts with other rules in Texas, like constructive notice, right? If you file a deed in the deed records, everyone is on constructive notice of what the deed says, and the fact that the deed exists. That's a Cosgrove v. Cade, it's a 2015 Texas Supreme Court case. It says that the property code says that if a deed is filed in the deed records, then you're on notice of the fact that the deed exists, and it would be fanciful to say that if the deed is filed in the deed records, you're on notice of its existence, but not its contents. So we are going to, imput the contents of the deed to everybody who's buying land in the county, not just as to its existence. So of course, you know, that kind of contradicts Duhig because if the reservation is filed of record, which they all are, and you have a Duhig problem, then the buyer is on constructive notice based on what the deed records say. So it's kind of a weird case in light of Cosgrove, but it's still the law, you know, and you might also say, well, what about the four corners rule? Every case ever written in the last 30 years at least In Texas, says, "We follow the four corners rule. We read the document within its four corners, no extrinsic evidence, We assume every clause matters. We don't allow parties to rewrite, courts to rewrite contracts." So whenever you have a Duhig problem, it kind of violates the four corners rule, right? The reservation is clearly written in the deed. Every clause matters. We harmonize to make things unambiguous, but not in a Duhig scenario. That is Duhig seems to stand out above these cases as well. Incidentally, New Mexico does not follow the four corners rule. They allow extrinsic evidence, which is shocking to me as a primarily a Texas lawyer, particularly because Mexico borders the four corners, but that's the law in New Mexico. They allow extrinsic evidence in to prevent courts from rewriting contracts by enforcing the objective intent of the deed, as opposed to the subjective intent of the parties, which is shown by extrinsic evidence. So that's, I guess I'm getting off topic here, but a recent case on Duhig is trial v. Dragon. It's a Supreme Court case from 2019. And in that case, they say Duhig is very narrow. It is an equitable doctrine where Duhig owned the exact royalty or minerals required to make the grantee whole. And so the doctrine of equity passes that reservation over to the grantee, and it's sort of restrained to its facts. I think Trial v. Dragon was certainly not a pro Duhig case. Duhig is still the law because Texas is weird. And so is the Supreme Court, it restricted Duhig to its facts. And I suspect there's going to be some cases coming out after Trial v. Dragon, that really tests that to see where it goes. That's all I have to say about Duhig for now. Anyway, the next topic is fixed versus floating royalties. Everyone in oil and gas has had one of these cases and they have an interesting historical basis, which is one eighth royalty in all oil and gas leases prior to the 1970s. So for many years, oil and gas leases, they all had a one eighth landowner's royalty. And eventually people figured out, they could ask for more, a lot of leases nowadays have a quarter royalty. If you're in a marginal area, maybe it's a fifth or a three 16th or something like that. And you'll still find old oil and gas leases today, which only have a one eighth royalty in them and are still producing, probably wired it up with overrides, but that's okay. And so, because one eighth was the standard royalty for so long, landowners would buy and sell fractions of what they called the usual one eighth or the landowner's one eighth or just one eighth, period. And this has created a lot of problems down the line, because of course, half of one eighth doesn't necessarily mean a 16th. It could mean half of whatever the royalty is. And courts have struggled to reconcile a lot of deeds that have really strange language in them and go both ways. under a modern royalty lease with a one fourth royalty, the owner of one half of the usual one eighth actually owns half of a quarter because the phrase the usual one eighth is understood by modern courts to mean the landowner's royalty, right? One eighth is not a fraction, in this case, it is a shorthand for the landowner's royalty. It's sort of a defined term because of the historical basis the historical Milu in which these deeds were written. So when someone says floating royalties, what they mean is a royalty that says half of the usual one eighth, where one eighth means the royalty in the oil and gas lease, and an increase in the royalty in the oil and gas lease will endure to the benefit of the non participating royalty owner so that they receive half of a quarter. If the lease calls for a quarter or half of a fifth of the lease calls for a fifth and so on, and they're called floating because they increase or decrease with the royalty in the underlying oil and gas lease. The opposite of a floating royalty is a fixed royalty, a deed that conveys, "One 16th royalty is fixed. If you have a one 16th royalty, then you get one 16th of every dollar that comes outta the ground, regardless of whether or not the royalty in the underlying oil and gas lease is a quarter or a fifth. It stays fixed and it doesn't change." The benefits of the mineral owners' negotiation are for the mineral owner, not for the royalty owners. So how do you tell the difference? All of these deeds have different language in them. So they're all, you know, subject to being distinguished from other cases. And there's really a lot of cases that talk about this, because it's been a very active area of litigation. It's dangerous to rely on cases before about 2015, when the court started trying to make sense of it. And the latest cases have really all favored floating royalties. It's very clear that the court is moving in a floating royalties win whenever you have language that is in this universe of fixed versus floating royalties, one of the Supreme Court cases is US Shale v. Laborde,, the deed in there reserved, "An undivided, one half interest in the oil royalty, gas royalty, and royalty, and other minerals, same being equal to one 16th of production." So one half of the royalty, same being equal to one 16th of production. And the court says, "Well, that's a fixed one half," sorry, "A floating one half royalty, not a fixed one 16th." Another case is Hysaw v. Dawkins. Another Supreme Court case 2016, where they really started clarifying this, In Hysaw, there was a will the test date order had three children and she left one third of one eighth to each kid. And the court said, "Well, it's pretty obvious what she was intending to do." She intended to give each kid a floating one third, as opposed to a fixed one third of one eighth, or a one 24th. So that makes sense, right? That's pretty obvious. Luke v. White. That's actually a fixed versus floating case. The deed conveyed a one 32nd royalty interest, but provided that the grantee, "Shall be entitled to one fourth of any and all royalties in future leases." And the court says, "That's floating, not fixed." Luke v. White was it's the case that overturned Alfred v. Crum back in the day and younger lawyers, you know, won't have the misfortune of experiencing this, but back in the day, the granting clause in a deed was the only clause that mattered. If the grant said a 16th of the minerals, and then the rest of the deed talked with fixed and floating language or other stuff, the court just ignored everything outside the grant, which is crazy now under the harmonization rule set forth in Luke and under what we all understand to be the standard canons of construction. But that was the rule in Alfred v. Crum and Luke V white got rid of that and said, "We're gonna read everything and create a bunch of business for lawyers by really making everything very complicated. We don't want simple, bright line rules." And here we are, it's a great case. Another old case is Garrett v. Dils, it's 1957. It comes out on the floating side, but that was back when everything was very complicated and confusing, more recent cases, if you're looking for one are floating through the courts of appeals, there's Hoffman v. Thompson from San Antonio, that's a 2021 case. And in that case, the deed described an undivided three 30 seconds interest. And then next to that in parenthesis, same being three fourths of the usual one eighth royalty. And the court says that's a floating three quarters royalty, not a fixed one 30 seconds. So it's three quarters of whatever the royalty is in the underlying oil and gas lease. And that's actually an interesting case because the court says the deed defined three 30 seconds with that parenthetical phrase next to three 30 seconds, where they say three 30 seconds means three fourths of the usual one eighth. So you have several things going on in that deed. You have a restated fraction, three 30 seconds, same being three-fourths of the usual one eighth, a double fraction three-fourths of the usual one eighth, and a reference to the usual one eighth royalty, just to make it extra clear that the parties were thinking about the one eighth royalty owned by the landowner. So it's really got all of the indicia of a floating royalty interest. And that case is, I believe a petition has been filed for the Supreme Court. I'm recording this in July 1st, 2022. So they may have granted it by now. They may not have, I don't know, but you can look that up. Another current case is Five Star Royalty v. Mauldin from the Fifth Circuit. So now that we're in the Fifth Circuit, the confusion that Texas courts have created around the usual one eighth is escaping our borders and bleeding into the unfortunate victims in Louisiana and places like that. Also found that to be floating, particularly aggressive in case is WTX Fund v. Brown out of El Paso. And in that case, the deed conveys seven eighth's leasing rights and reserves one eighth, non participating royalty rights. And unfortunately for the loser, the court said, "Well, that's a floating reservation of all of the royalty." You're conveying seven eighth's leasing rights, which means the executive rights, I suppose, and the bonus rights. And you're reserving one eighth non participating royalty rights, which means everything, every dime of oil and gas royalty. So that's a brutal case for the losing side who just got destroyed, even though there's no double fraction, no restated fraction, nothing like that. It did say seven eighths, leasing rights, and one eighth royalty and that's good enough. I've got some other cases that I cite here. I probably shouldn't read them all for you. They're in my slideshow, the language, you know, I've quoted the language in all the cases. They all end up on the floating side and that's really where courts are going. You may be led to believe that everything is floating, right? Every single deed that says anything about the usual one eighth uses a double fraction, etc, is gonna be floating. And maybe that is true, maybe it isn't. There's a case out of Eastland Van Dyke v. Navigator Group. The petition has been granted it's before the Supreme Court right now. And in that case, the Eastland court of appeals said, well, the Eastland court of appeals dealt with a deed, which referred to half of an eighth, period, half of an eighth, nothing else. And the court said, well, there's no conflicting fractions here. There's no reference to the usual one eighth royalty. There's no restated fraction, a 16th being half of an eighth. There's nothing, it just says half of an eighth. So it's fixed, right? There's no other language employed to describe the reservation. Therefore it is fixed according to Van Dyke v. Navigator Group. And we'll see what the Supreme Court does about that. That's probably about as close to a borderline case as exists. And it'll be interesting to see what happens going up. You know, one of the, I guess, idiosyncrasies here is all of these deeds talk about half of an eighth, right? There's no deed that says half of a fifth or half of a 32nd, or half of a fourth. It's all half of an eighth. So it very well could be. And we'll see what the Supreme Court does that anytime you see the one eighth fraction, you have a floating case, or it could be that if you don't have the right language to make it floating like a restated fraction, references to the usual one eighth, references to the landowner's royalty, then you just multiply half times an eighth is the 16th, which is fixed period, end of story. But that's gonna be an interesting case. Incidentally Van Dyke v. Navigator Group is not, it was not published by the Eastland court of appeals. It's not in the Southwestern reporter. Unpublished cases are still good law. You can cite an unpublished case. A lot of people don't like to, I guess, because we're all elitist. And if it doesn't say SW3D and have a couple numbers, it's no good, but an unpublished case is still good law. You can still cite it. And an interesting wrinkle in appellate law is the guidelines for deciding whether to publish or not publish a case, are you publish the cases that are strange, that change the law, that raise interesting issues that are borderline, that are helpful for other people to interpret that will advance the law. And you don't publish the cases that are just obvious, right? That are just it. You know, if you know, I sell myself into slavery and then I sue because the 13th amendment says, I can't be a slave. That's not gonna be published because it's just so obvious that I can't do that. So people see these unpublished cases and they think, oh, that's unpublished. That doesn't count. But the way the publication scheme works in Texas is if it is unpublished, it's so obvious that they don't need to publish it. So the unpublished cases are really super persuasive because it's just a statement of something so clear that nobody needs to even think about it. And maybe the court should revisit why they publish and don't publish certain cases because as written it sure seems like unpublished cases are just so obvious that they should don't need to be published. Therefore they're better law than published cases, but that's beyond the scope of this CLE, but somebody should go pick a fight with the Supreme Court about that, because that's very weird. Anyway, moving along. The next topic is implied reservations, and there are no implied reservations in deeds. The latest Supreme Court case on that, that I'm aware of is Perryman v. Spartan, Texas Six Capital Partners, LTD incidentally, if you're ever doing a CLE and you are running short on time and you need to make it an hour long, so people can get their CLE credits a great way to do that is to include a bunch of cases and then cite them and read the entire citation, including the publication information and the writ history. And then you can burn a couple of minutes doing that. So Perryman is a good case for no implied reservations, but it's not a particularly interesting case in my humble opinion, 'cause it sort of states the obvious, an interesting case on implied reservations is Relic v. Robert Wells. Full disclosure, that's one of my cases and it is a weird and an incoherent case. You should go try to read it and try not to pull your hair out. And the reason it's weird and incoherent is that the deed at issue was weird and you know, difficult to make sense of. So in that case, there was a conveyance of land and the deed that they used had two granting clauses in it, one granting clause was just the standard boiler plate clause that everyone has in their standard general warranty deed or special warranty deed. It said grantor grant sells and conveys to grantee, the property together with any and all singular rights and appearances there too, blah, blah, blah. So it's just basic stuff. And the court points it out in their opinion that at that point in the deed, the grantor had sold everything and had not impliedly or explicitly reserved anything. The problem came from the next section of the deed, where they had a specific grant and a specific reservation. So that language said, and I quote, "Grantor reserves all current oil and gas production, grantor conveys one eighth of mineral and royalty on all new production, which are owned by grantors." So that's you know, it seems obvious when you read it and you're not thinking too hard, but once you start thinking a little harder, it becomes very complicated. The reservation is clear, grantor reserves all current oil and gas production. But if you start thinking about it, what does current oil and gas production mean? And what does new oil and gas production mean in the second grant? And the answer to that is we stipulated to it. That's how we resolved that problem. Although it would've been interesting to see where a court went with it. The issue here is what did they sell? Did they sell one eighth of what they owned? One eighth of mineral and royalty, which are owned by grantors, meaning one eighth of whatever the grantors owned, which incidentally happened to be one eighth, there were two grantors, they each owned a one eighth mineral interest for a quarter collectively. Or is that a grant of one eighth? Well, a grant of two, one eighth interests, which happen to be owned by the grantors. And does the phrase, which are owned by grantors, mean that the grantors are just saying that they own what they are conveying. And the court came out and said that's not a reservation, reservation has to be made by clear and specific language. This certainly is neither clear nor specific the first grant, the general grant, which is the boiler plate language is clear and specific, but the second grant with this wacky language is not, and you can't imply a reservation unless you and you can't restrict the grant by weird language later on. So the court says, "Well, we're not gonna allow this to be a reservation. And the deed has sold the two, one eighth mineral interests, which both grantors owned." Incidentally, there is a fixed versus floating question here, did they convey one eighth of, you know, one eighth of the minerals being all of the landowners royalty or one eighth of the minerals being the one eighth minerals they owned. And the answer is the court didn't get to that. Don't think too hard about it. The case that Relic Group was relying upon was Hunsaker v. Brown. And in that case, it basically says you can convey one half of what I own. And if you own an eighth, then you've conveyed one half of the eighth, which is a 16th or, well, let's get away from the one eighth fraction, if you own a quarter. Well, I haven't gotten away from the one eighth. If you own 10%, and you convey a half of what I own, you've conveyed 5%. The court in Hunsaker v. Brown states the obvious, which is sure you can do that if you want to. You just have to use clear language and that's good enough. The rule against implied reservations says, you can reserve it, but you have to use clear language, otherwise we're not gonna allow it. And Relic v. Wells is an example of the pitfalls of not using clear language. Another fun case on that is Reeves v. Towry, which is once again, a brutal case for the seller. In that case, there is a plat that says a portion of lot one is, reserved by owner. Seems pretty clear. The defendant sold lot one to the plaintiff. And reference the plat. The deed from the defendant says as same as marked and designated upon the duly recorded plat, I'm selling lot one as same as marked and designated upon the dually recorded plat. And the court says there is no reservation. That's not good enough. A plat is not an instrument of conveyance. If you reference the plat in the deed, apparently that's not good enough. The reservation fails. And the court, you know, condescendingly tells us, "The English language contains words, which may be easily employed to particularly and clearly describe the estate or interest in lands sought to be reserved or conveyed. And there's no valid reason why we shouldn't follow that. As we all know, the English language is not the most clear and precise language in the world, but apparently it's good enough to grant and reserve property. So you have to use clear language, otherwise your reservation is gonna fail. And the way to use clear language is to say, grantor reserves one half of the royalty, period or one half of what grantor owns, period. And just say it that way. Don't, you know, make it clear. That's all you gotta do. So moving on from that, and we're kind of in the same universe, but the next topic is canons of construction. The headlining case on that is Luke v. White Texas Supreme Court case from 1984, which I've talked about a little bit already. In Luke v. White. They say there are canons of construction that we use to make sense of deeds. They're the four corners rule, except in New Mexico. There's the harmonization rule where you look at all the deeds and you try to look at all the language and you try to harmonize it to make it make sense, which is not as easy a task as it may sound. And there's the every clause matters rule, which means that anything that is in the deed counts, you can't just say, we're gonna read the grant and ignore everything else. So those are the cans listed in Luke v. Whites. Now, there are other cans of construction. There's quite a few of them. There's the greatest estate doctrine, which is that the deed conveys the greatest estate that the language will allow. There's the rule against implied reservations. That's another canon of construction. There's another canon that says doubts are resolved against the grantor. And that's because the grantor is presumed to be the author of the deed. And therefore, we, you know, we interpret the documents against the person who wrote the deed. That's not really a good presumption to make in a lot of cases, as we all know, oil and gas leases are written by the oil company. And it's certainly not the lessor who is writing those documents. So it doesn't make a lot of sense to resolve doubts against the lessor I had a fraud case not too long ago, where someone used a fraudulent document to Rob a little old lady. And one of their defenses was well doubts are resolved against the grantor. And the little old lady who signed the fraudulent document, that the buyer drafted is subject to that rule of construction. Even though we all know she didn't write it. And you know, that's a canon of construction. That's out there at something you have to deal with. Incidentally, there is a fracture in the courts of appeal on how you apply these canons. In Eastland, they have sort of a two-step process. Step number one, is you apply the canons in Luke, four corners, harmonization, every clause matters to determine whether a deed is ambiguous. If the deed is still ambiguous after you apply those canons, then you apply the other canons. And if that doesn't work, then it's ambiguous and you send it to a jury. It's a different process than the other courts use. And the reason for that is Eastland distinguishes between what it calls rules of interpretation, which determine whether a deed is ambiguous and canons of construction, which resolve ambiguity and the rules of interpretation are those outlined in local and the canons of construction are everything else. There's a couple Eastland cases that clearly say this Gail v. Perry, a 2011 case says that. Moon Royalty v. Boldrick says, the rules of interpretation may be utilized to determine if an agreement is ambiguous. but the canons of construction do not apply absent to determination of ambiguity, Stewman Ranch v. Double M says the same thing. Other courts do not do that everywhere else seems to follow a different rule. They apply Luke v. White and the other canons at the same time to determine whether an instrument is ambiguous. So if you're in Houston or El Paso or the panhandle or whatever, you can rely upon the greatest estate doctrine, the no implied reservations doctrine etc, before determining whether a deed is ambiguous or not, which is kind of what the court did in the Relic case, which was in Eastland. And a couple of appellate courts have pointed this distinction out there's Boo Lander v. Waste Management of Texas, which is in Houston, there's Elder v. Anna Darco, an unpublished opinion from Tyler saying that Eastland does one thing, we do something else. This distinction has not been resolved. It's still floating around out there. And if you have the perfect case to resolve it, you should file it and you should appeal it because it needs to be fixed. Now, if you think about it, I think the Eastland court of appeals process is probably not the right one. Luke v. White listed the canons of construction. It didn't eliminate everything, it did not list. It just listed a few of them. It didn't demote the ones that did not list. These things have been around for hundreds of years. It's not the sort of thing you just throw out, like Roe v. Wade, you know, that's neither here nor there. Anyway, how did I get on that? The Eastland rule doesn't make a lot of sense because you can't say, "This is unambiguous therefore I will not use interpretive tools without first using the interpretive tools to decide whether it is unambiguous." If a document is unambiguous, you figure that out by using the interpretive tools, which tell you whether it's unambiguous. It's just putting the cart before the horse. It's something Immanuel Kant, David Hume would have major problems with. So that's enough about the Eastland rule. Hopefully it gets resolved or someone sheds light upon it or something in the near future. But we'll see when that happens, the court doesn't seem ready to change its procedure. The next topic is land conveyed v. a state described. In a case like this, they're simple words and a lot of people won't get it right. And a lot of courts won't get it right. And it's sort of a very strange rule. So suppose the seller owns half of the surface. I'm sorry, all of the surface and half of the minerals in section one, the seller conveys the surface of section one and half of the minerals, "The lands described." This conveys all of sellers, one half mineral interest, right? You're saying I'm conveying section one. And half of the minerals in the lands described, which are section one that covers all of the half. But if the seller conveys the surface of section one and half of the minerals in the estate conveyed, then that's actually a conveyance of a quarter of the minerals, right? Because you're saying you're conveying half of the estate, the seller owns in section one and estate is a legal concept. And if you only own half of the minerals in that estate and you convey half of the minerals in that estate, then you've conveyed a quarter. So the reason for this sort of insane and highly specific issue is that lands described means the meets and bounds of the property as it exists on the ground. So when you describe lands, you're saying beginning at one point, then's continuing to another point, then's more or less in the shape of a square, you know, etc And a state conveyed means the legal estate conveyed by the deed. The fee simple determinable interest in one half of the minerals, or however you want to describe it in the land, which is being conveyed. And so when you use a fraction to describe in a state, you're describing the ownership of the grantor, and when you use a fraction to describe land, you're just referring to where the property is located on a map. Now, those cases are King v. First National Bank of Wichita Falls. It's from 1946 and Hooks v. Neil. It's from 1929. That's very old, but that is still the law in the state of Texas. And if you think that's crazy that you can change the fundamental nature of what is being conveyed and deed by these simple terms that are used interchangeably in the vernacular. If you think that's crazy, the Texas Supreme Court agrees, they think it's weird too, but they're not gonna change it. And they tell us why in Averyt v. Grande from a 1986. And they say that courts quote should be loath to change longstanding rules in the oil and gas field when doing so would alter the ownership of minerals, conveyed deeds, which rely on the law established by this court and followed by lower courts, commentators, and lawyers, advising their clients, which is a very reasonable position to have, right? If you've got these weird idiosyncratic laws that have developed over time, like the floating royalties, the land is described versus the state conveyed and like Duhig, lower courts rely on them. Landowners rely on them. Lots of deeds are written in reliance upon those deeds being written a certain way. And so if the court just changes the rules and makes lands described versus the state conveyed less of a trap for the unwary, then injustice will follow. You might wonder whether that same logic applies to things like the definition of what a mineral is. Apparently it doesn't, but that's the rule that the court has stated in Averyt v. Grande. And that's the rule we follow and we're stuck with it. Now, you might be wondering after thinking about this for a while, what about Duhig, right? If you reserve half of the minerals in the land described v. the estate conveyed, how does Duhig interact with that? And the answer, as you might imagine, is incoherent and not subject to being well summarized, Duhig is a land described case. In that case, the court says that the statement and the deed that the land describes the same tract, as that formally owned by a lumber company is not intended to define or quantify the estate or interest conveyed, but it is inserted to further identify the tract or area described by meets and bounds. So there's interesting interplay between all of these interpretive and Duhig as part of that, you might also wonder, well, what about implied reservations? Doesn't a grant of one half of the minerals in the estate conveyed impliedly reserve the rest? And the answer is no, that's a specific grant estate conveyed is clear enough. And there's a bunch of case law to support whether estate conveyed is clear enough. So no implied reservations are not apparently a problem with lands described versus estates conveyed. All right, so before the CLE ends, I've got three hypotheticals that I'm gonna go over one by one. Hypothetical number one, in 1950, a deed conveys, "A one 16th non participating royalty interest, same being one half of the usual one eighth and in 2022, the mineral loaner signs, an oil and gas lease with a one fifth royalty. So the question is, does the deed A, convey a floating one half non participating royalty interest for half of a fifth under the current lease? Does it B, convey a fixed one 16th non participating royalty interest for one 16th? And the benefit of the one fifth royalty goes to the mineral owner and he just gets to pocket his well negotiated royalty. Does it C, create an ambiguity for the jury to resolve? or D, it doesn't matter because nobody will check their division orders. So hopefully you don't have to think about that too long. The answer is A, the answer is also D as in dog, both answers are correct. It creates a floating one half non participating royalty interest. And the reason it does so is it uses a double fraction. One half of the usual one eighth, it uses a restated fraction, one 16th being one half of the usual one eighth, and it uses a reference to the usual one eighth royalty, which courts have interpreted to mean a reference to the landowner's royalty and shorthand for a floating non participating royalty interest. This is an area of Texas law that is in flux. So if you are watching this CLE really at any point in the future, it could be different but under current law, it's pretty clear that the courts are moving toward floating royalties. And I think this would be interpreted as a floating royalty. Anyway, hypothetical number two, grantor owns 60% of the minerals in section one, grantor signs, a deed that says, "grantor, quick claims all of grantor's right title and interest in section one and grantor reserves one half of the minerals in the estate conveyed, does this deed A, reserve one half of the minerals in section on? B, reserve 30% of the minerals in section one? C, create a Duhig problem? or D, once again, it doesn't matter because nobody will check their division orders. The oil company will pay whatever it decides to pay. And the royalty owners will be none the wiser in perpetuity. And once again, the answer is B, as in Boston and also D, as in damned. People should check their division orders. So both answers are acceptable. And the reason it reserves 30% of the minerals is because it uses that state conveyed language, as opposed to lands described language. If it said land described, then it would reserve half of the minerals in section one and convey 10% of the minerals in section one. But it doesn't, it says the state conveyed and that's the law. As to the Duhig issue. There is no Duhig problem here. I decided to make it easy on myself. And this is a quick claim deed, Duhig does not apply to quick claim deeds. It applies only when you have a warranty deed. Hypothetical number three, grantor owns 100 mineral acres in section two, grantor signs a deed that says grantor conveys all of section two, grantor reserves 10 mineral acres, grantor conveys 50 mineral acres. Does this deed A, convey 90 mineral acres in section two? B, convey 50 mineral acres in section two? C, convey a hundred mineral acres in section two? Or D, create an ambiguity for the jury to decide. And the answer to this is A, it conveys 90 mineral acres in section two. That is because, although it does say grantor conveys 50 mineral acres in section two, it also says he conveys all of section two, and this is just a Relic v. Wells case. Slightly simplified. The reservation of 10 mineral acres is effective. The reservation of 10 mineral acres is clear, the implied reservation of 60 mineral acres. If you reserve 10, you convey 50. Then you've impliedly reserve 60. That implied reservation will fail because courts do not allow implied reservations. And if a court interpreting this deed follows the Relic v. Wells case, which I think correctly states the law, then the court will come to the conclusion that the grantor has conveyed all of section two. And then the grantor has erroneously described what he conveyed in the second grant, which grants 50 acres, but does not proportionately reduce or otherwise alter the first grant where he conveys all of section two. And it also doesn't enlarge the reservation of 10 mineral acres, which is clear. A lot of people are gonna be tempted to say that this creates an ambiguity for the jury. It's close to ambiguous, but after courts apply the canons of construction, the ambiguity is resolved and there is no longer any ambiguity and implied reservation may look ambiguous, but it fails on its face. And you don't get to go to a jury to ask them what the deed actually says. Incidentally, one of the ways that people can always attack these issues. And I've very rarely seen it done is if you are a defendant in a case like this, you can file a counterclaim for reformation of the deed. And if you have evidence showing what was intended to be conveyed, then your cause of action is reformation, right? So if you have a fixed versus floating problem, a Duhig problem, an implied reservation, any problem like that, and you get sued and it looks like you're up against the wall, but you have evidence to show what the intention of the parties was besides what's written in the four corners of the document, just sue them for reformation, right? And your cause of action for reformation is subject to a four year statute of limitations, but it is revived under the civil practice and remedies code. When you're a defendant, that's in section 16. And if you have evidence great, if not, probably not a good cause of action. But if grandma has the closing paperwork for some transaction that was completed in 1950, you might just have a colorable cause of action there. Anyway, thanks again for listening and hope this has been helpful to you. And you might also be wondering, well, what if the deed says land conveyed or estate described or something like that, or lands and estate conveyed and described, what happens then? And if you're wondering that, then you should stop listening to this CLE and you should go outside. That's all I have. Thank you for listening and thank you for indulging me. I hope you enjoyed it, it's been fun. And if you have any questions about oil and gas royalty, you're welcome to contact me. I'm happy to talk about it. It's a fun area of law to practice in, and it is as I hope you agree from the recitations of all these cases, endlessly and infinitely exciting, and that it's a lot of fun. So it's a great area to practice law, thanks.