Can Lease Ratification Really Transform Your NPRI?
In this recent case, the Texas Supreme Court resolved whether ratification of a lease or signing of a stipulation agreement could transform a fixed non-participating royalty interest (NPRI) into a floating NPRI. In short, the court held that mere ratification of a lease does not alter a fixed NPRI. However, the court also held that a subsequent stipulation between the parties effectively modified the NPRI, rejecting arguments that an unambiguous deed could not be modified by a later stipulation.
In 2002, Kenneth Hahn conveyed land to William and Lucille Gips, reserving "an undivided one-half (1/2) non-participating interest in and to all of the royalty [Hahn] now owns ConocoPhillips Co. v. Hahn, No. 23-0024, 2024 WL 5249570 (Tex. Dec. 31, 2024), (same being an undivided one-half (1/2) of [Hahn's] one-fourth (1/4) or an undivided one-eighth (1/8) royalty) in and to all of the oil royalty, gas royalty and royalty in other minerals." The Gipses later leased the minerals to ConocoPhillips for a 1/4 royalty. At ConocoPhillips's request, Hahn signed both a lease ratification and a separate stipulation with the Gipses stating that the parties intended the reserved interest to be a 1/8 "of royalty."
After years of litigation about whether Hahn's NPRI was fixed or floating, the Texas Supreme Court addressed two key issues: (1) whether Hahn's ratification of the lease subjected his NPRI to the lease's 1/4 royalty provision (i.e., converting it to a floating NPRI), and (2) whether the stipulation effectively modified his interest from fixed to floating.
Why “All Terms and Provisions” Don’t Always Apply to NPRIs
The court first held that ratification of a lease does not subject an NPRI to lease provisions that are otherwise inapplicable to non-possessory interests in production. The court emphasized the fundamental difference between mineral fee ownership — which includes rights to possess, extract, and lease minerals — and an NPRI, which is merely "a fractional non-possessory interest in oil and gas produced from the tract."
Because an NPRI is non-possessory, certain lease provisions naturally apply to it (like pooling), while others do not (like delay rentals or shut-in royalties). The court explained that a standard lease provision obligating payment of royalties to mineral fee owners does not apply to a pre-existing fixed NPRI, as such interests "remain[ ] constant regardless of the amount of royalty contained in a subsequently negotiated oil and gas lease." That provided the primary basis for the court's holding that Hahn's ratification of "all terms and provisions" of the lease did not convert his fixed NPRI into a floating NPRI.
Could a Private Stipulation Override an Unambiguous Deed?
Regarding the stipulation, the court addressed Hahn's argument that the holding in Concho Resources, Inc. v. Ellison, 627 S.W.3d 226 (Tex. 2021), should be limited to boundary dispute stipulations to remain effective without proof of uncertainty or ambiguity. The court rejected this narrow reading, explaining that its reasoning in Concho Resources about facilitating private resolution of ownership disputes applied equally here — requiring proof of title uncertainty "would scuttle agreements between property owners as a mechanism to avoid litigation because parties will never know whether their informal settlement ... is effective until it is declared so by a court.” The court emphasized that this principle extends beyond just boundary disputes to other title matters that parties wish to resolve by agreement.
Hahn also challenged the stipulation under the statute of frauds, arguing it failed as a conveyance for lack of adequate property descriptions. The court disagreed, finding the instrument sufficiently identified the relevant property interests through references to prior recorded documents. The court explained that while the statute requires property descriptions to be ascertainable from the instrument itself or reference to existing writings, the stipulation met this standard by incorporating the prior deed. In the court’s view, the inclusion of quitclaim language further supported its effectiveness, reasoning that quitclaims are commonly used to convey "interests of an unknown extent or claims having a dubious basis.”
Key Implications for NPRI Owners Going Forward
This decision is notable for a couple of reasons. First, it confirms that lease ratification by NPRI owners only binds them to provisions that can logically apply to non-possessory interests — an NPRI owner's broad lease ratification will not inadvertently convert a fixed NPRI into a floating one. Second, it establishes that the principles favoring private resolution of boundary disputes in Concho Resources extend to agreements clarifying other title matters, such that a stipulation may be effective regardless of any showing of ambiguity.
