What happens when language in the body of an assignment of oil and gas interests conflicts with descriptions in the exhibits? Can limitations in the exhibit, such as depth references, supersede the operative granting language in the body of an agreement? These issues are front and center in the Texas Supreme Court’s recent opinion in Occidental Permian, Ltd., et al. v. Citation 2002 Inv. LLC, No. 23-0037, 2024 Tex. LEXIS 369 (May 17, 2024) and the previous appellate history.
The dispute concerned two competing asset transfer agreements: (1) a 1987 sale of large acreage oil and gas properties (the “1987 Assignment”), and (2) a 1997 assignment by the same assignor of certain of the same interests, but for deeper interests (the “1997 Assignment”). Attached to the 1987 Assignment was an exhibit containing over 50 pages of spreadsheet entries describing the properties being conveyed, including references to specific depths (i.e., a tract “down to 8,393 feet”). A title dispute arose based on competing claims of ownership, raising the issue of whether the 1987 Assignment was depth-limited regarding the properties at issue, or an unlimited grant of all the assignor’s interest in those properties.
The trial court granted summary judgment declaring that the 1987 Assignment was limited to certain depths as stated in the exhibit. The El Paso Court of Appeals reversed, holding that the 1987 Assignment conveyed all of the assignor’s interests without any depth limitations. Citation 2002 Inv. LLC, & Endeavor Energy Res., L.P. v. Occidental Permian, 662 S.W.3d 550 (Tex. App.—El Paso 2022, pet. granted). The court of appeals’ analysis centered on the interpretation of two seemingly contradictory precedents found in Piranha Partners v. Neuhoff, 596 S.W.3d 740 (Tex.2020) and Posse Energy, Ltd. v. Parsley Energy, LP, 632 S.W.3d 677 (Tex.App.—El Paso 2021, pet. denied).
In Piranha Partners, the Texas Supreme Court found that the exhibit at issue did not control the granting language in the body of the document, since the exhibit did not contain any specific limiting language, and thus served merely to more clearly identify the lease at issue. In Posse Energy the El Paso Court of Appeals determined that the limiting language in the exhibit at issue did control, since the language in the granting instrument was “extremely broad” and the exhibit included the critical limiting language of “insofar and only insofar as.” The different results arose by applying the same standard, articulated in Piranha Partners: when an instrument of conveyance refers to an exhibit to provide property descriptions the court must harmonize that exhibit with the body of the agreement to determine the parties’ intent. Applying that standard the court of appeals found that, unlike in Posse Energy, the exhibit to the 1987 Assignment did not contain any specific limiting language, and held that the 1987 Assignment conveyed all interests in the properties at issue without depth limitation of any kind.
The Texas Supreme Court agreed and affirmed the court of appeals’ ruling. The Court noted the broad granting language in the body of the 1987 Assignment, stating that it transferred “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.” This language, in tandem with other similarly broad clauses, emphasized the leases as the significant interests described in Exhibit A, which consequently indicated the assignor intended to convey all rights it had in the leases. Therefore, by applying the Piranha Partners rubric, the Supreme Court held that the 1987 Assignment unambiguously transferred all leasehold interests listed in the exhibit without reservation or depth limitations.
The immediate practical takeaway is to draft carefully. As is usually the case with contract interpretation, clarity and specificity are paramount. When attaching an exhibit to any instrument that transfers title, take care to harmonize any text or property descriptions in the exhibit with the operative language in the body of the document, or at a minimum include a clause clearly spelling out whether the document or the exhibit controls. Often times practitioners focus so intently on the terms of an agreement that the content of exhibits can be an afterthought. In the wake of Citation 2002, keeping all parts of the agreement in mind is essential to avoid any unintended ambiguity that might ultimately undermine the parties’ intentions.
