Navigating Complexities and Conflicts in Assignments and Exhibits
Assignments of oil and gas leases often consist of broad and abstract granting clause in the body, which then points to an exhibit for a listing of the specific interests being assigned, and it is not uncommon for the attached exhibits to contain descriptive information regarding rights and interests within those leases, such as relevant wellbores, tracts or depths. Where the instruments are not clear, this can sometimes lead to disagreement as to whether the descriptive information is intended to limit the scope of the assignment, or to merely serve as helpful descriptive information.
In 2020, the Texas Supreme Court released its opinion in Piranha Partners v. Neuhoff, addressing how to interpret an assignment with broad language in the body, and descriptive information in the exhibit, and held that when properly harmonized the descriptive information in the exhibit was descriptive rather than limiting.
Oxy v. Citation - The Latest Twist
The Texas Supreme Court revisited the issue of harmonizing an assignment’s broad body and descriptive exhibits in the recent case, Occidental Permian, Ltd. v. Citation 2002 Inv. LLC, 689 S.W.3d 899 (Tex. 2024). That case focused on a 1987 assignment of a large acreage bundle of Texas oil and gas properties, from a predecessor of Occidental Permian, Ltd. et al (Occidental) to a predecessor of Citation 2002 Investment LLC (Citation). The body of the assignment contained multiple granting clauses, one which assigned “all of [assignor’s] right, title and interest in and to the oil and gas fee, mineral and leasehold estates described in EXHIBIT A” and another that assigned “all of [assignor’s] right, title and interest in and to any contracts or agreements, including, but not limited to […] rights above or below certain footage depths or geological formations, affecting the property described in EXHIBIT A.” The assignment stated “[i]t is the intent of this ASSIGNMENT to transfer […] all rights and interests now owned by [assignor …] in the leases and other rights described herein, regardless of whether same may be incorrectly described or omitted from Exhibit A.”
The attached Exhibit A consisted of numerous pages of spreadsheet entries that described the assigned leases. A few rows not only described assigned leases, but also contained entries in neighboring columns that described (a) tracts of land within those leases, some of which also included a depth description, such as “Sec 28: W1/2 SE1/4, from 8,361 feet to 8,393 feet” and (b) related agreements under which third parties had interests that encumbered those leases (such as a farmout agreement).
Key Arguments and Court's Analysis
Occidental contended that these depth descriptions effectively reserved the “deep rights” in those leases. Citation, on the other hand, claimed that those entries did not limit the scope of the assignment, but instead merely identified portions of the interests that were subject to the described agreements and third-party interests.
The Texas Supreme Court began by recognizing that the first granting clause pertained to leases, while the second granting clause pertained to contract rights, whereas only the second granting clause specifically instructs that depth specifications on the exhibit were not determinative. In the court’s view, that reflected a separation between leasehold estates which would not be depth limited, versus contract rights that may be depth limited. The court said the final “intent” clause confirmed that reading, as it clarifies that the intent was to assign all of the assignor’s interest in the “leases” that were “described herein,” “regardless of whether same may be incorrectly described or omitted.” In the court’s view, that language reflected an intent to assign all interests in the described leases without limitation, and was not consistent with an interpretation that the assignor intended to reserve deep rights in the leasehold interests.
Occidental argued that this final clause was an overly broad Mother Hubbard clause that could not be read to effectively remove the assignor’s reservation of portions of the leases. The court recognized that a Mother Hubbard clause is “a catch-all for small, overlooked interests,” but that it “is not effective to convey a significant property interest not adequately described in the deed.” However, in the court’s view, this final clause was not a Mother Hubbard clause, and was instead “a general grant of conveyance” that expressly “transfer[s] and convey[s]” the leasehold interests listed, consistent with the first granting clause that “plainly grants” all of the assignor’s rights in the leases. The fact that a final sentence expressly reserved future interests acquired by the assignor in the same properties reflected the intended scope of reservations, in the court’s view, which did not encompass a reservation of interests deeper than the depth descriptions.
Occidental argued that this interpretation was improper because it would render the depth descriptions meaningless. The court disagreed, pointing out that in Piranha the court held that an exhibit to an assignment set forth descriptions of tracts found within each conveyed estate for descriptive purposes without serving to reserve interests.
Occidental also argued that the assignment’s use of “subject to” in several locations demands a limited reading of the depth descriptions. The court disagreed, pointing out that while a “subject to” clause can serve to limit the scope of a conveyance, they are also “widely used for other purposes,” such as notifying the grantee of an outstanding right or obligation affecting the property. In the court’s view, the proper reading of the descriptions on Exhibit A were that they provided notice that the assigned leasehold interests were “subject to” certain burdens and existing operations. The court explained its reasoning, stating that neither the “subject to” clauses, the body of the assignment, nor the exhibits indicated that the depth descriptions in the exhibit were intended to reserve portions of the assigned leases to the assignor. Instead, the court reasoned that the “subject to” language pointed to terms and conditions, none of which directed that Exhibit A limits the scope of leasehold interests assigned.
The Texas Supreme Court's Takeaways
Occidental argued that two entries conflicted with this interpretation, because they did not correspond to a third party interest described in the same row. The court rejected that argument, stating “[a] grantor who intends to reserve specific interests while otherwise granting all of its ‘right, title and interest’ in the described estate must do so explicitly.” In the court’s view, two potentially conflicting spreadsheet entries “are insufficient to constitute a reservation of rights not expressed in the Assignment or Exhibit A.”
