The Texas Supreme Court recently released its opinion in Van Dyke v. Navigators Grp., No. 21-0146, 2023 WL 2053175 (Tex. Feb. 17, 2023), in which it re-affirmed the axiomatic principle that a text retains the same meaning in the present day as when it was drafted. In the context of antiquated oil and gas conveyances including a double fraction that includes "one-eighth," the Court affirmed this principle by holding that such language gives rise to a rebuttable presumption that "one-eighth" refers to the entire mineral estate. Trying to construe double fractions outside the bounds of basic arithmetic has been at the heart of many controversies decided by many Texas courts in recent years. As the Court stated in its introductory sentence, "Only in a legal text could the formula 'one-half of one-eighth' mean anything other than one-sixteenth." But the history of oil and gas conveyances in Texas shows why this has become such a challenging issue for the state's judicial branch.
In the 1920s—the time the deed at issue was executed—lessors commonly reserved a one-eighth royalty interest when they executed oil and gas leases. It is believed that those lessors were under the impression that they received one-eighth of the production from the lease because they retained one-eighth of the mineral estate instead of what they actually retained—a one-eighth royalty interest and a fee simple determinable with the possibility of reverter in the entire mineral estate. It also believed that because lessors thought they retained only one-eighth of the mineral estate, they would often attempt to convey all of their interests in the mineral estate by conveying one-eighth thereof. Texas courts refer to this phenomenon as the "estate-misconception" theory.
According to the Court, the estate-misconception theory was so prevalent in instruments in and around 1924—the time of the deed at issue—that "courts have taken judicial notice of this widespread phenomenon." That rationale led to the Court's holding that the mere use of one-eighth in a double fraction is some evidence that the parties were operating under the estate misconception theory.
In addition to the estate misconception theory, the Court analyzed the "legacy of the one-eighth royalty." Stemming from the same common occurrence underlying the estate misconception theory—that lessors commonly reserved a one-eighth interest in production from their leases—it is believed that mineral owners in and around the 1920s would mistakenly assume that the royalties to be provided in future leases would always be one-eighth of production. In support of that notion, the Court cited the 1957 Texas Supreme Court case Garrett v. Dils Co., 299 S.W.2d 904 (Tex. 1957), in which the Supreme Court took judicial notice that "the usual royalty provided in mineral leases is one-eighth." Id. at 907. In Van Dyke, the Court reasoned that because mineral owners so commonly assumed that a one-eighth royalty would be reserved in all future leases, that one-eighth was used, at least in some instances, as a term of art for future royalties generally.
Taking the estate misconception theory and the legacy of the one-eighth royalty together, the Court decided that, at the time the deed was executed, "one-eighth" had various meanings, each of which represented what the landowner believed to be the entire mineral estate. At the same time, that was not to say that no parties in that time period could have intended "one-eighth" to only mean "one-eighth" in an arithmetical sense. To account for the possibility that parties could have intended for such a meaning, the Court clarified its holding in Hysaw v. Dawkins, 483 S.W.3d 1 (Tex. 2016) by adopting a new rule of construction: when an antiquated oil and gas conveyance contains double fractions that include one-eighth, a rebuttable presumption arises that the parties intended for "one-eighth" to reflect the entire mineral estate, though that presumption may only be rebutted by language present in the instrument itself.
The Court, however, was not aware of any instruments in the relevant time period that used a double fraction for arithmetical purposes and, as such, could not provide an example of language that may rebut the presumption. But, the Court stated in a footnote that, although they were aware of no real-world examples of such a conveyance, if an instrument were to list a series of conveyances in the form of double fractions, some of which were a fraction of one-eighth and others that were a fraction of a different fraction, then the double fractions that contain one-eighth should be given their arithmetical meaning.
Another possible example, though not noted by the Court, can be seen in a case currently pending before the Eastland Court of Appeals: PetroLegacy Energy II, LLC v. Element Petroleum Props., LLC, No. 11-21-00103-CV (Tex. App.—Eastland June 1, 2021). In that case, the mineral owner executed a deed in 1958 and reserved a royalty interest with the following language: "[O]ne-fourth (1/4th) of the usual one-eighth (1/8th) royalty (and Grantors shall be entitled to 1/4th of the 1/8th royalty irrespective of the amount of royalty actually provided for in any lease executed by Grantee, its successors or assigns) . . . ." While the court has not yet rendered a decision, the deed's language could be an example of language that rebuts the presumption of one-eighth referring to the entire mineral estate, despite the parties' usage of a fraction of "the usual one-eighth."
Going forward, operators should carefully review any antiquated conveyances under which they claim title to certain mineral interests and under which they are obligated to pay royalties and note any instances in which a fraction of one-eighth was conveyed or reserved. Despite Van Dyke prescribing the interpretation to be applied to most of these instances, a careful analysis should nonetheless be undertaken to determine whether any other language in the instruments may rebut the presumption that "one-eighth" refers to the entire mineral estate. Such language may take many different forms, and anyone that is uncertain of what they own or owe is should contact an experienced attorney.
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