[co-author: Katherine Sartain]*
We begin with a document-drafting tip: When reserving an interest in minerals, before cutting and pasting from your old document that would be yellowed and dusty if it remained in its original papyrus format, lawyers and non-lawyers alike should consider Devon Energy Prod. Co. v. Enplat II, LLC. The Court was asked to determine whether a 1940 deed from Harris et al to Lopoo conveying a tract in Reeves County, Texas, reserved a cost-free royalty interest or a cost-bearing non-executive mineral interest.
The reservation was of an:
“… undivided one-sixteenth (1/16) of any and all oil, gas or other minerals produced on or from under the land above described. Lopoo … shall have the right to lease said land for mineral development without the joinder of Grantors or their heirs and assigns, and to keep all bonus money, as well as all delay rentals, but when, if and as Oil, Gas or other mineral is produced from said land, one-sixteenth (1/16) of same, or the value thereof, shall be the property of Grantors,.”(emphasis ours)
Enplat, successor of Harris, sued Devon, successor of Lopoo, for a judgment declaring that Harris granted the entire mineral interest and reserved a 1/16 royalty interest. Devon counterclaimed saying that Harris conveyed a 15/16 mineral interest. On cross-motions for summary judgment the trial court granted judgment for Enplat; The deed reserved a fixed royalty interest. Devon appealed.
The court of appeals reversed. The deed reserved a mineral estate shorn of all attributes but for the right to receive a royalty, if and when there was production.
This deed did not use “in, on or under”, which indicates a mineral interest, not a royalty. However, a deed need not use the exact term to denote a mineral interest; it may instead use terms “of similar import.”
- The language did not meet the “of similar import” standard because “produced on or from under” reflected the grantor’s specific intent to reserve a royalty interest after production.
- Courts interpret “produced, saved and made available for market” as a royalty interest because they denote the grantor’s intent to reserve a post-production interest only.
- “1/8th of all minerals that may hereafter be produced and saved on the land conveyed” was “akin” to a royalty interest.
The Court acknowledged Enplat’s argument that the last provision alone may denote a royalty interest, but that clause must be read with other portions of the document to determine the type of interest that was reserved.
The magic language historically associated with a post-production intent was not used. “Produced on or from under” is not the same as “produced, saved and made available,” and is not necessarily a royalty interest.
According to the Court, Harris specifically stated their intent not to strip themselves of the fourth attribute of their estate – the right to receive royalty payments (the first three being right to develop, right to lease, and right to receive the bonus) – because they specifically stated “but when, if and as Oil, Gas or other mineral is produced … ” The deed as a whole indicated reservation of a mineral interest.
The Court distinguished a reservation with similar language in which “royalty” was used “no less than six times”. Here, the Harris grantors did not use the term once in describing the reservation.
Caveat: Don’t generalize from this post. Each case turns on the specific language of the reservation in light of previous decisions, and there are many.
Your musical interlude. This is what the appellate court is for.
* 3L at Baylor School of Law and progeny of your author.