The Aftermath of Hysaw v. Dawkins: A Fractional Resolution to the Double Fraction Issue

Transcription

1 The Aftermath of Hysaw v. Dawkins: A Fractional Resolution to the Double Fraction Issue This webcast will begin promptly at 12:00 PM EST Follow Steptoe & Johnson on ALSO FIND US ON Steptoe & Johnson PLLC. All Rights Reserved.

2 Today s Presenters Christina A. Denmark (512) christina.denmark@steptoe johnson.com Kelli D. Smith (281) kelli.smith@steptoe johnson.com

3 What is the Double Fraction Issue? Used to show a fractional conveyance of the Grantor s interest 1/3 of the usual 1/8 royalty 1/3 of 1/8 of the oil, gas and other mineral royalty that may be produced

4 What is the Double Fraction Issue? Devise in a 1947 will: That each of my children shall have and hold an undivided one third (1/3) of an undivided one eighth (1/8) of all oil, gas or other minerals in or under of that may be produced from any said lands, the same being a non participating royalty interest.

5 Fixed Royalty An undivided one third (1/3) of an undivided one eighth (1/8) A set fraction or fractional royalty 1/3 of 1/8 will always equal 1/24

6 Floating Royalty An undivided one third (1/3) of an undivided one eighth (1/8) A fraction of royalty, which varies based on the size of the royalty negotiated in the lease 1/3 of [royalty] Changes each time there is a new lease with a different royalty

7 Historical Significance of 1/8 Royalty 1/8 the usual landowner s royalty in leases Estate misconception: landowner retaining only 1/8 of minerals in place after executing lease With the 1/8 royalty no longer the standard, issues have arisen over the interpretation of double fraction language

8 Words must be given the meaning they had when the text was adopted. Antonin Scalia & Bryan A. Garner, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 78 (2012)

9 Rules of Interpretation Jurisdictions vary, but usually 3 step process: Intent is examined by four corners If unclear, canons of construction If remains unclear, document deemed ambiguous and extrinsic evidence allowed Parties in double fraction cases typically agree document is unambiguous

10 Double Fraction Decisions Deed reserving one half interest in the [minerals] and describing the reservation as one half of the usual one eighth royalty [sic] Sundance Minerals, L.P. v. Moore, 354 S.W.3d 507 (Tex.App. Fort Worth 2011, pet. denied)

11 Double Fraction Decisions Deed reserved one eighth (1/8) interest in and to all of the [royalty], subject to a one eighth (1/8) of all royalties payable under the terms of [an existing lease], and further reserved one eighth (1/8) of the usual one eighth (1/8) royalties provided for [in future leases], on the condition that such lease shall provide for at least a royalty on oil of the usual oneeighth (1/8) and further reserving an undivided one sixty fourth (1/64) of production in the event of development by the mineral fee owner Coghill v. Griffith, 358 S.W.3d 834 (Tex.App. Tyler 2012, pet. denied)

12 Double Fraction Decisions Deed granted one half interest in the minerals, one half of the 1/8 royalties under an existing lease and 1/16th of production payable out of the royalty provided in future leases Coates Energy Trust v. Frost Nat l Bank, 2012 WL

13 Double Fraction Decisions Deed reserving a one half nonparticipating royalty interest (one half of one eighth of production) Moore v. Noble Energy, 374 S.W.3d 644 (Tex.App. Amarillo 2012, no pet.)

14 Double Fraction Decisions Deed reserving one half (1/2) of the usual one eighth (1/8) royalty Wynne/Jackson Dev., L.P. v. PAC Capital Holdings, Ltd., No CV, 2013 WL (Tex.App. Corpus Christi June 6, 2013, pet. denied) (mem.op.)

15 Double Fraction Decisions one half of the usual 1/8th royalty and one half of the royalty Butler v. Horton, 447 S.W.3d 514 (Tex.App. Eastland 2014, no pet.)

16 Graham v. Prochaska, 429 S.W.3d 650 (Tex. App San Antonio 2013, pet. Issue denied) 1950 warranty deed royalty reservation Save and except clause: there is reserved... one half (1/2) of the one eighth (1/8) royalty to be provided in any and all leases... same being equal to onesixteenth (1/16th) of all oil, gas and other minerals of any nature, free and clear of all costs of production, except taxes

17 Prochaska, cont. And provided: This reservation is burdened with paying the two outstanding mineral royalty reservations, each of one fourth (1/4) of oneeighth (1/8) royalty,... And this reservation shall only be effective to the extent that one or both of said outstanding reservations become terminated. It being the intent of the parties hereto that [grantees] shall be vested with and entitled to one half (1/2) of the usual oneeighth (1/8) royalty in and to all oil, gas and other minerals in on and/or under the property herein conveyed, and the reservation herein above recited in favor of the grantor herein, shall relate to and cover only the one half (1/2) of one eighth (1/8) royalty interest previously reserved..., if, as and when said interest in favor of said parties terminate.

18 Prochaska, cont. Holding The royalty interest reserved was a floating one half (1/2) royalty interest

19 Hysaw v. Dawkins, No , 2016 WL (Tex. 2016) Will interpretation dispute Ethel Hysaw had three children and divided her lands in Karnes County, Texas via her will She gave one tract (each differing in size) to each child in fee simple title, however the devise of interest in royalty produced from the land differed

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21 Blood may be thicker than water, but oil is thicker than both. Dallas: The Changing of the Guard (TNT television broadcast June 13, 2012) (J. R. Ewing, perf. by Larry Hagman), as quoted in Hysaw v. Dawkins.

22 Hysaw, cont. An undivided one third (1/3) of an undivided one eighth (1/8) of all oil, gas or other minerals in or under or that may be produced from any of said lands

23 Hysaw, cont. Each child shall receive one third of oneeighth royalty, unless there has been an inter vivos sale or conveyance of royalty on land willed to that child, in which case the children shall each receive one third of the remainder of the unsold royalty

24 Hysaw, cont. Trial Court/Appellate Court Findings The proper construction of instruments containing double fraction language is a dilemma of increasing concern in the oil and gas industry, as uncertainty abounds, disputes proliferate, and courts have seemingly varied in their approaches to this complicated issue. Hysaw, 483 S.W.3d 1, 4 (Tex. 2016).

25 Hysaw, cont. Holding The Supreme Court found that Ethel intended to treat her children equally and therefore her intent was to equally divide the royalties among the children. The four corners rule applies to both wills, as well as other non testamentary instruments conveying mineral interests. Holistic approach

26 Hysaw, cont. Guidance by the Court on interpretation Holistic approach aim at ascertaining intent from the entire document Four corners rule look within the four corners of the instrument to determine intent No mechanical approach do not merely multiply Estate misconception is instructive but not determinative in the deed interpretation process

27 After Hysaw Dragon v. Harrell, No CV, 2016 WL (Tex. App. San Antonio Mar. 30,2016) Fraction of royalty Follows Hysaw analysis reserved onto the Grantors... A free nonparticipating interest in and to the royalty on oil, gas and other mineral in and under the hereinabove 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...

28 After Hysaw Laborde Properties, L.P. v. U.S. Shale Energy II, LLC, No CV (Tex. App. San Antonio Oct. 12,2016) Fixed 1/16 Follows Hysaw analysis There is reserved and excepted from this conveyance unto the grantors herein an undivided one half (1/2) interest in and to the Oil Royalty, Gas Royalty in and under or that may be produced or mined from the above described premises, the same being equal to one sixteenth (1/16) of the production.

29 After Hysaw Hysaw provides guidance no bright line rule Existing documents v. future documents

30 QUESTIONS?

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