25Apr
Part II of the Latest Shot Fired in the Fixed Versus Floating Royalty Battle

The Latest Shot Fired in the Fixed Versus Floating Royalty Battle

This is a deed interpretation case out ofthe San Antonio Court of Appeals, arisingfrom the 218th Judicial District Court of Karnes County, Texas.

In 1991, the Harrells executed a warranty deed (“1991 Deed”) that conveyed approximately 10 acres of land to the Dragons. The 1991 Deed was subject to prior reservations and it contained the following new reservation by the Harrells:

SAVE and except however, and there is hereby reserved unto the GRANTORS, their heirs and assigns, a free non-participating interest in and to the royalty on oil, gas and other minerals in and under the herein above described property consisting of one half (1/2) of the interest now owned by Grantors together with one half (1/2) of the reversionary rights in and to the presently outstanding royalty in, on and under said property, perpetually from the date hereof. It being understood and hereby provided, however, that Grantors, their heirs or assigns, shall not be entitled to participate in the bonus money or annual delay rentals paid, or to be paid, under any present or future oil, gas and mineral lease on said premises, and that it shall not be necessary for Grantors, their heirs or assigns, to join in the execution of any future oil, gas or mineral lease or leases on said premises.

The Dragons argued that because the reserved interest consisted of the royalty on oil, gas and other minerals, and not all of the oil, gas and other minerals, the grantors reserved an interest in the royalty paid on the minerals, not the minerals themselves. However, on the other hand, the Harrells argued that the reservation reserved a fixed fractional royalty interest entitling them to one-half of total production of the oil and gas produced from the conveyed premises.

After analyzing the reservations made prior to the 1991 Deed, the Court determined that, at the time the Harrells executed the 1991 Deed, they owned both 15/16 of the mineral estate, less a life estate in a one fourth floating royalty interest, and a reversionary interest to that then–outstanding life estate royalty interest.

While analyzing the reservation made by the Harrells, the Court noted that the reservation unambiguously stated that it is an interest in the royalty on those minerals. The Grantors’ use of the phrase “the interest now owned by Grantors” meant that the Grantors recognized that the royalty interest being reserved was reduced by the prior reservations. The Court also noted that the phrase “one half (1/2) of the reversionary rights in and to the presently outstanding royalty . . .” reserved one-half of the reversionary interest in the outstanding royalty life estate to the Harrells. Reading the entire deed as a whole and giving effect to all parts of the deed, the Court held that the phrase “the interest now owned by Grantors” referred to the presently vested royalty interest owned by the Grantors at the time they executed the 1991 Deed but not the reversionary interest.  The Court recognized that to give effect to the Harrells interpretation of the reservation would render the phrase about the reversionary rights in and to the presently outstanding royalty meaningless.

The Court concluded the 1991 Deed reserved to the Harrells a fraction of royalty interest: one half of 15/16ths of whatever royalty is to be paid from the land.

In reversing the trial court’s summary judgment in favor of the Harrells, the San Antonio Court of Appeals reiterates the importance of giving effect to all parts of a deed and that a correct interpretation of a deed cannot ignore clauses within the deed.

Case Citation: Dragon v. Harrell, 2016 WL 1238165  (Tex. App. —San Antonio 2016).

Ian McNeill
Ian McNeill's practice focuses on the oil and gas industry advising clients on division orders, title defects, curative requirements, royalty and rental issues as well as lease maintenance provisions and assignments analysis. Ian has also rendered division order opinions and title opinions involving complex ownerships, leases held by production, depth and mineral severances and pooling agreements in Texas and Ohio.
Ian McNeill
© Copyright 2014, Austin W. Brister. All Rights Reserved. DISCLAIMER: The information in this article is for general information purposes only. This article should not be substituted for legal advice and should not be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or reading this article does not constitute, an attorney-client relationship. You are encouraged to contact an attorney for legal advice concerning the information provided in this article.
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