Title examiners often come across an assignment of oil and gas leases which contains inconsistencies between the granting language in the body of the assignment and the property descriptions contained in the exhibit attached thereto. The cases of Piranha Partners v. Neuhoff[1] and Posse Energy, Ltd. v. Parsley Energy, LP,[2] both summarized below, provide important insight into how a court might rule in interpreting such assignments.
In Piranha Partners, decided in 2020, the Texas Supreme Court was tasked with construing an assignment of an overriding royalty interest which contained the following granting language:
“[a]ll oil and gas leases, mineral fee properties or other interests, INSOFAR AND ONLY INSOFAR AS set out in Exhibit A … whether said interest consists of leasehold interest, overriding royalty interest, or both, which shall include any working interest, leasehold rights, overriding royalty interests … held by assignor as of the Effective Date.”
The relevant portion of the assignment’s “Exhibit A” appears as follows:
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The issue was whether the assignment conveyed the assignor’s overriding royalty interest in the well (Puryear #1-28), the land (the NW/4 of Section 28), or the lease (the Puryear lease). The Puryear #1-28 was located on the NW/4 of Section 28, but the lease covered all of Section 28, and additional wells were drilled on other lands in Section 28 after the assignment was executed. The Court noted that nothing in the assignment’s exhibit clearly stated “whether the well, the land, or the lease identifie[d] the scope of the interest conveyed.” The Court described the exhibit as ambiguous and employed its “holistic and harmonizing approach” to assignment construction which requires the court to consider the entire agreement together with its exhibit to determine the parties’ intent.
In its analysis, the Court stated that although the granting language limits the interest to that described in the exhibit, it goes on to provide that the interest described in the exhibit “shall include any … overriding royalty interests owned by [the assignor] as of the Effective Date” [emphasis added], which language the Court interpreted as evidence of the assignor’s intent to convey its entire overriding royalty interest in the lease as to all of the land covered thereby (being all of Section 28). The Court treated the references to the well and the land as merely descriptive as opposed to limiting. Specifically, the well and the land were seen as simply identifying the only location containing a producing well at the time the assignment was executed.
It should be noted, that in responding to the dissent in this case, the majority stated that if the exhibit had identified only the well and the land but not the lease, then “we could not rely on other provisions to conclude that the Assignment actually conveys all interests under the lease.” As a result, an assignment of an overriding royalty interest which only describes the well and the land on which the well is located may be construed by a court as limited to the land described in the exhibit.
A different outcome was reached in Posse Energy, Ltd. v. Parsley Energy, LP, another assignment construction case which required the court to resolve an inconsistency between the granting language in the body of the assignment and the descriptions contained in the assignment’s exhibit. The assignment in question contained especially broad granting language, but the exhibit described a certain lease “INSOFAR AND ONLY INSOFAR” as the lease covered certain proration units identified therein. At issue was whether the assignment conveyed the lease as to all depths or whether it was limited to the shallow depths covered by the referenced proration units.
In its analysis of the assignment, the El Paso Court of Appeals also considered the Acquisition Agreement to which the assignment was made subject, in addition to other related unrecorded agreements. The court explained that considering these corresponding documents does not alter the plain meaning of the agreement as expressed within its four corners, but rather it “provide[s] clarity and context to the parties’ intent and aid[s] in construing the intent set forth in the document.”
After considering the assignment and the related agreements, the court ultimately concluded that the parties intended for the conveyance to be limited to the shallow depths. The court explained that the phrase “insofar and only insofar as” in the exhibit functioned as a limitation on the conveyance and that “where an exhibit is referenced to describe the property being conveyed, it is the description of the interest in the exhibit which controls the scope of the grant, regardless of the breadth of the granting language.” In this case, since the proration units referenced in the exhibit only covered depths down to 8,900 feet, the court concluded that the conveyance could not have included depths below 8,900 feet. The court distinguished this case from Piranha Partners by noting that the Acquisition Agreement repeatedly limited the grant to the property specifically described in the exhibit, which repetitive qualifications were missing from the Piranha Partners assignment.
To avoid the confusion seen in Piranha Partners and Posse Energy, the parties to an assignment, whether they be in-house counsel, outside counsel, or land professionals, should work together to ensure that the language in the body of the assignment and its exhibit accurately expresses their intentions.
[1] Piranha Partners v. Neuhoff, 596 S.W.3d 740 (Tex. 2020).
[2] Posse Energy, Ltd. v. Parsley Energy, LP, 632 S.W.3d 677 (Tex. App.—El Paso 2021, pet. denied).