By now, most oil and gas lawyers are familiar with the Van Dyke v. Navigator Group decision where the Supreme Court of Texas ruled that a mineral reservation of “one-half of one-eighth of all minerals” in a 1927 deed reserved “1/2 of the mineral estate,” not a 1/16 interest. 668 S.W.3d 353 (Tex. 2023). In so holding, the Court relied on the legacy of the 1/8th royalty (the legacy doctrine) and the estate misconception doctrine. The legacy doctrine recognizes that during the “era” in which the deed in question was executed, “‘1/8’ was widely used as a term of art to refer to the total mineral estate.” Consequently, for many years, lessors used “1/8” to refer to what they believed reflected their entire interest in the mineral estate. The estate misconception doctrine refers to the misunderstanding amongst landowners that they only retained a 1/8 interest in their minerals after executing a mineral lease instead of a fee simple determinable with the possibility of reverter in the entirety.
The Court clarified that courts interpreting “antiquated instruments” that use 1/8 within a double fraction must begin with the presumption that 1/8 refers to the entire mineral estate. This presumption may be rebutted if, for example, there are provisions in the instrument that cannot be harmonized with the presumption or if there is a repeated use of other fractions demonstrating an intent that an “arithmetical expression” should be applied to all fractions. The Court alternatively ruled that the grantors reserved 1/2 of the mineral estate under the presumed-grant doctrine.
So far, only the El Paso Court of Appeals (the COA) has grappled with the impact of the guidelines concerning double fractions announced in Van Dyke. First, in Royalty Asset Holdings II, LP v. Bayswater Fund III-A LLC, No. 08-22-00108-CV, 2023 Tex. App. LEXIS 1677, at *1 (Tex. App.—El Paso Mar. 15, 2023, pet. denied), the COA was asked to interpret a 1945 deed reservation. This reservation concerned an “undivided 1/4th of the land owner’s usual 1/8th royalty interest (being a full 1/32nd royalty interest) payable or accruing under the terms of any existing or future … lease.” The COA was asked to determine whether the interest reserved was fixed or floating. Applying Van Dyke, the COA found that the use of a double fraction with 1/8 implicated the presumption that 1/8 referred to the entire mineral estate and thus the deed reserved an undivided floating 1/4 interest. The COA reasoned that the reference to the “usual 1/8th royalty interest” related to the legacy and estate misconception doctrines and supported the presumption that the deed reserved a floating 1/4 interest.
Likewise, the reference to “existing or future…leases” indicated an intent for the royalty to take place in the future; thus, the intent must have been to reserve a floating interest. Applying “basic grammatical rules,” the COA also concluded that the parenthetical referring to the interest reserved as a “full 1/32nd royalty interest” was a “nonessential explanation of the multiple-fraction clause.” Thus, it did not rebut the presumption.
Just a few months after Royalty Asset, the COA was asked to determine whether a 1937 deed reserved a 1/16th fixed royalty interest or a 1/2 floating royalty interest. See Permico Royalties, LLC v. Barron Props., No. 08-22-00168-CV, 2023 Tex. App. LEXIS 4926, at *1 (Tex. App.—El Paso July 10, 2023, pet. filed). The deed expressly reserved “a one-sixteenth (1/16) free royalty interest, (being 1/2 of the usual 1/8th free royalty) in and to all of the oil and gas in and under, and that may be produced” and provided that the grantee “shall be entitled to receive 1/16th of the oil and/or gas produced . . . from said land, being 1/2 of the usual 1/8th royalty therein.”
After finding that the double fraction implicated the presumption that 1/8 refers to the entire mineral estate, the COA rejected arguments that the legacy doctrine did not apply to deeds drafted in the 1930s even though oil and gas leases existed during that period that provided for a royalty other than 1/8. The COA also concluded that the double fractions in this case must be considered regardless of their placement in nonrestrictive dependent clauses, differentiating Permico from Royalty Asset and a previous case also dealing with double fractions where the COA emphasized that a nonrestrictive clause is merely incidental and should not alter the sentence’s essential meaning. The COA explained that the phrase “usual 1/8” in the deed reflects the royalty standard of “the era” it was drafted, indicating an intent to convey a 1/2 floating royalty interest.
On the same day, the COA applied the legacy and estate misconception doctrines to determine the size of a conveyance in a 1951 deed that did not contain a double fraction. See Johnson v. Clifton, No. 08-22-00132-CV, 2023 Tex. App. LEXIS 4925, at *1 (Tex. App.—El Paso July 10, 2023, pet. filed). The deed at issue conveyed an “undivided one-one hundred and twenty-eight (1/128) interest in and to all of the oil, gas and other minerals in and under the … land” and “a 1/128 (1/16 of the usual 1/8 royalty) part of all of the oil, gas, and other minerals” taken under subsequent leases. The COA reasoned that a grantor, intending to sell half of the minerals already leased, would likely believe they owned 1/8 of the minerals due to the existing lease. Thus, they would convey half of what they perceived they owned using the fraction 1/16 or a double fraction, 1/2 of 1/8. As a result, the COA held, the estate misconception doctrine also applies when the fraction in the deed is a multiple of 1/8. Because the 1/128 fraction is a multiple of 1/8, the presumption was triggered, resulting in a 1/16 mineral interest conveyance with a corresponding floating 1/16 royalty interest. The COA once again emphasized that language referring to the “usual 1/8 royalty” supported the application of the legacy doctrine.
Finally, the COA interpreted a 1947 deed conveying “an undivided three sixteenth (3/16ths) interest in and to all the oil, gas and other minerals in and under that may be produced from the … described land” and, “[i]n the event the … land” was leased, “3/16ths of one-eighth of all the oil and/or gas or other minerals produced therefrom under such lease.” Powder River Mineral Partners, LLC v. Cimarex Energy Co., No. 08-23-00058-CV, 2023 Tex. App. LEXIS 9410, at *1 (Tex. App.—El Paso Dec. 15, 2023, pet. filed). The question was whether the deed conveyed a fixed 3/128th royalty interest or a floating 3/16th royalty interest. Seeing as the 1947 deed contained a double fraction with 1/8, the COA applied the presumption and found that the deed conveyed a floating 3/16 royalty interest.
The COA dismissed the argument that a 1942 article that was written five years before the 1947 deed was executed supported the intentional use of double fractions in conveying specific meanings about royalty interests. Instead, the COA found that the article advocated for the use of single fractions to establish fixed royalty interests and suggested that double fractions indicated an intent for the royalty owner to share in future royalties exceeding the usual 1/8. The COA also rejected an attempt to distinguish this case from Van Dyke based on the nature of the conveyance (royalty interest versus mineral rights with a royalty reservation). The difference, the COA found, is irrelevant as both methods create the same interest and are governed by the same legal principles. The COA also disagreed with the claim that the royalty conveyance applied only “in the event” of a lease, clarifying that the deed conveyed an immediate interest in all future royalties, effective upon execution, regardless of when production began.
