Brad and Randi Aery, and the House Intervenors Lloyd House, Robert Eugene House, Magdalen House, Judith Ann House, Wayne House, Jimmy R. House, Edna Pawelek Ulbrich, Peter Pawelek, Jesse Pawelek, Ruby Pawelek Schumacher, Elizabeth Pawalek Reigh, Roy Mitch v. Hoskins, Inc.

ACCEPTED
04-14-00807-CV
FOURTH COURT OF APPEALS
SAN ANTONIO, TEXAS
6/19/2015 3:55:18 PM
KEITH HOTTLE
CLERK

No. 04-14-00807-CV

FILED IN
In The Fourth Court Of Appeals4th COURT OF APPEALS
SAN ANTONIO, TEXAS
San Antonio, Texas 06/19/2015 3:55:18 PM
KEITH E. HOTTLE
Clerk

BRAD AERY, LLOYD HOUSE, ET AL.,
Appellants
V.
C. CLIFTON HOSKINS, ET AL.,
Appellees

FROM THE 36TH JUDICIAL DISTRICT COURT, MCMULLEN COUNTY, TEXAS
CAUSE NO. M-12-0045-CV-A
HONORABLE STARR BOLDRICK BAUER, PRESIDING

APPELLANTS’ REPLY BRIEF

NORTON ROSE FULBRIGHT US LLP LAW OFFICES OF DAN POZZA

Rosemarie Kanusky Dan Pozza
State Bar No. 00790999 State Bar No. 16224800
rosemarie.kanusky@nortonrosefulbright.com danpozza@yahoo.com
John W. Weber, Jr. 239 E. Commerce Street
State Bar No. 21046500 San Antonio, Texas 78205-2923
john.weber@nortonrosefulbright.com Telephone: 210.226.8888
Jeffrey A. Webb Fax: 210.224.6373
State Bar No. 24053544
jeff.webb@nortonrosefulbright.com Counsel for the Aerys
300 Convent, Suite 2100
San Antonio, Texas 78205
Telephone: 210.224.5575
Fax: 210.270.7205

Counsel for the House Family

ORAL ARGUMENT REQUESTED
 Table Of Contents

Index Of Authorities .................................................................................................4

Introduction ...............................................................................................................7

Argument...................................................................................................................8

I. Hoskins confuses semantics with substance by labeling the
Quinns’ pooled royalty interest as “NPIR/NPRI.”...............................8

II. Pooling is subject to both property and contract law. ........................10

III. Sam’s pooled royalty interest passed to House as a contract
right.....................................................................................................10

IV. Sam’s pooled royalty interest passed to House pursuant to the
greatest estate rule. .............................................................................12

V. Sam’s pooled royalty interest passed to House as an
appurtenance. ......................................................................................13

A. Hoskins’ cross-conveyance theory is not dispositive. .............13

B. The Quinns’ express intent is dispositive. ...............................14

C. Precedent from this Court and the Supreme Court
controls. ....................................................................................16

D. Commentators agree pooled royalty interests are
appurtenances. ..........................................................................19

E. Avery and McCall are not binding on this Court. ....................20

VI. Recitations in the House and Aery chain of title have no effect. .......22

VII. Hoskins’ position is not logical. .........................................................22

Conclusion ..............................................................................................................23

Certificate Of Compliance & Service .....................................................................25

2
Appendix

OWEN ANDERSON, ET AL., KUNTZ, A TREATISE ON THE
LAW OF OIL & GAS (1989 & Supp. 2014)
volume 1 § 6.1
volume 3 § 42.6

LEO J. HOFFMAN, VOLUNTARY POOLING &
UTILIZATION 169-189 (1954)

Edwin P. Horner, McCall v. McCall Discussion Notes,
145 OIL & GAS REP. 415-421 (2001)
BRUCE M. KRAMER & PATRICK H. MARTIN, THE LAW OF POOLING &
UNITIZATION (3d ed. 2014)
volume 1 § 7.00 at 7-3
volume 2 § 19.01[1]
volume 2 § 19.02[2]

BRUCE M. KRAMER & PATRICK H. MARTIN, WILLIAMS & MEYERS OIL
& GAS LAW (2013)
volume 3 § 660
volume 6 § 929.1
ERNEST E. SMITH & JACQUELINE LANG WEAVER,
TEX. LAW OF OIL & GAS (2d ed. 2014)
volume 1 § 2.4[A]
volume 1 § 3.4

3
 Index Of Authorities
Page(s)

Cases
Avery v. Moore,
144 S.E.2d 434 (W. Va. 1965)............................................................................20
Bibb v. Nolan,
6 S.W.2d 156 (Tex. Civ. App.—Waco 1928, writ ref’d) ...................................22

Coolbaugh v. Lehigh & Wilkes-Barre Coal Co.,
67 A. 615 (Pa. 1907) ...........................................................................................11
Cox v. Campbell,
143 S.W.2d 361 (Tex. 1940) ........................................................................17, 18
Day & Co., Inc. v. Texland Petroleum, Inc.
786 S.W.2d 667 (Tex. 1990) ..............................................................................21
Eastin v. Dial,
288 S.W.3d 491 (Tex. App.—San Antonio 2009, pet. denied)..........................12
Forister v. Coleman,
418 S.W.2d 550 (Tex. Civ. App.—Austin 1967), writ ref’d n.r.e.,
431 S.W.2d 2 (Tex. 1968)...................................................................................18
Gage v. Owen,
435 S.W.2d 559 (Tex. Civ. App.—Fort Worth 1968,
writ ref’d n.r.e.) ...................................................................................................12

Harris v. Currie,
176 S.W.2d 302 (Tex. 1943) ..............................................................................21

Key Operating & Equip., Inc. v. Hegar,
435 S.W.3d 794 (Tex. 2014) ..............................................................................19

Killam Ranch Properties, Ltd. v. Webb County,
376 S.W.3d 146 (Tex. App.—San Antonio 2012, pet. denied)
(en banc)........................................................................................................17, 21

4
Landgrebe v. Rock Hill Oil Co.,
273 S.W.2d 636 (Tex. Civ. App.—San Antonio 1954,
writ ref’d n.r.e.) ...................................................................................................17

Lott v. Lott,
370 S.W.2d 463 (Tex. 1963) ..............................................................................12
McCall v. McCall,
24 S.W.3d 508 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) ...........20, 21

MCEN 1996 P’ship v. Glassell,
42 S.W.3d 262 (Tex. App.—Corpus Christi 2001, pet. denied) ........................10
Merrill Eng’g Co. v. Capital Nat’l Bank of Jackson,
5 So. 2d 666 (Miss. 1942) ...............................................................................9, 14

Sharp v. Fowler,
252 S.W.2d 153 (Tex. 1952) ..............................................................................12
Southland Royalty Co. v. Humble Oil & Ref. Co.,
249 S.W.2d 914 (Tex. 1952) ........................................................................19, 20
Tanner v. Title Ins. & Trust Co.,
129 P.2d 383 (Cal. 1942) ..............................................................................14, 15

Teal Trading & Dev., LP v. Champee Springs Ranches
Prop. Owners Ass’n, 432 S.W.3d 381
(Tex. App.—San Antonio 2014, pet. denied) .....................................................22
Thomas v. Fin & Feather Club,
171 S.W. 698 (Tex. 1914)...................................................................................18
Wagner & Brown, Ltd. v. Sheppard,
282 S.W.3d 419 (Tex. 2008) ..................................................................11, 14, 18
Westland Oil Dev. Corp. v. Gulf Oil Corp.,
637 S.W.2d 903 (Tex. 1982) ..............................................................................18

5
Other Authorities
(alphabetized by first author’s last name and then title)
OWEN ANDERSON, ET AL.,
3 KUNTZ, A TREATISE ON THE LAW OF OIL & GAS § 42.6 (1989) .....................19

Edwin P. Horner, McCall v. McCall Discussion Notes,
145 OIL & GAS REP. 415 (2001) ...................................................................20, 21
WILLIAM O. HUIE, Apportionment of Oil & Gas Royalties,
78 HARV. L. REV. 1113 (1965) ...........................................................................19

BRUCE M. KRAMER & PATRICK H. MARTIN,
WILLIAMS & MEYERS OIL & GAS LAW (2014)
volume 3 § 660....................................................................................................19
volume 6 § 904....................................................................................................13
volume 6 § 919.2 ................................................................................................15
volume 6 § 929.1(6) ................................................................................14, 15, 19
voluem 6 § 930.4 ................................................................................................20
RESTATEMENT (THIRD) OF PROPERTY (SERVITUDES) § 1.5 (2000) ..........................17

NANCY SAINT-PAUL, 4 SUMMERS OIL & GAS § 54.3 (3d ed. 2014).........................13

JOSEPH SHADE & BONNIE BLACKWELL,
PRIMER ON THE TEXAS LAW OF OIL & GAS 20 (5th ed. 2013) ......................... 9, 10

ERNEST E. SMITH & JACQUELINE LANG WEAVER,
TEX. LAW OF OIL & GAS (2d ed. 2014)
volume 1 § 2.4[B][1] ............................................................................................9
volume 1 § 2.49[A] ...............................................................................................8

6
 Introduction

The Quinn siblings originally shared an undivided interest in the mineral

estate of the Rose Teal Quinn Ranch. When they later partitioned the mineral

estate, they expressly pooled their royalty interests. Sam Quinn then conveyed his

estate to House, together with all rights and appurtenances. Sam’s pooled royalty

interest in the entire ranch necessarily passed to House. At this point, Sam had

nothing left to give — as such, his subsequent deed to Hoskins conveyed nothing.

Hoskins argues that, by cross-conveyance, the Quinns did not pool their

royalty interests but instead splintered their interests into distinct parts for each

sibling’s tract that could not be appurtenant to the tract committed to the pool

(despite admitting that each tract is burdened by all of the other siblings’ royalty

interests). Hoskins’ argument ignores not only the Quinns’ express intent to pool,

but also the plain terms of their agreement to cross-convey only as “necessary to

effectuate the pooling.” Hoskins overlooks the fundamental nature of pooling as a

form of joint ownership involving both contract and real property law.

As Hoskins concedes, Sam’s tract was burdened by the pooled royalty

interest, making that interest an appurtenance as a matter of law. Respected cases

and commentators agree that pooled royalty interests are both rights and

appurtenances. Because Sam’s pooled royalty interest passed to House and not to

7
Hoskins, the trial court’s judgment should be reversed and judgment rendered in

favor of House and Aery.

Argument

Appellees filed eight briefs, which generally join the arguments of Clifton

Hoskins. For the sake of brevity, the appellees are addressed collectively as

“Hoskins” unless noted otherwise. This term explicitly includes the oil and gas

producers, whose summary judgments are entirely derivative of the motion granted

in favor of Clifton. See Appellants’ Brief at 25; CR5:1631-32.

I. Hoskins confuses semantics with substance by labeling the Quinns’
pooled royalty interest as “NPIR/NPRI.”

Clifton Hoskins insists on using the novel term “non-participating interest in

royalty” (NPIR) to describe the Quinns’ pooled royalty interest in the entire Rose

Teal Quinn Ranch. See, e.g., Clifton’s Brief at vii. Other appellees use the

traditional term “non-participating royalty interest” (NPRI). See, e.g., Jane’s Brief

at 4 n.1. Either term is a red herring. See ERNEST E. SMITH & JACQUELINE LANG

WEAVER, 1 TEX. LAW OF OIL & GAS § 2.49[A] (2d ed. 2014) (defining “royalty” as

a “chameleon-hued” term).

The dispute here is not whether the Quinns’ pooled royalty interest is non-

participatory in the costs of production. Instead, the dispute is whether the Quinns

created a pooled royalty interest that, by contract and property law, was conveyed

to House.

8
 While Hoskins contends that the sole issue in this appeal is the construction

of the deed from Sam to House, he ultimately recognizes that the scope of Sam’s

ownership interest depends on his prior agreement with his siblings — an

agreement to, in their own words, “pool their interests in the royalties from the

production of oil, gas and any other mineral, produced and saved from any part of

the 2,471.8 acres of land, more or less, known as the Rose Teal Quinn Ranch.”

Clifton’s Brief at viii, 17; CR2:416. Hoskins’ label (either NPIR or NPRI)

completely ignores any concept of pooling. See, e.g., Clifton’s Brief at 3-4.

Additionally, Hoskins’ label does not affect the law governing the Quinns’

pooled royalty interest, despite Hoskins’ suggestion to the contrary. Compare

Blake’s Brief at 3-4 (arguing that cases involving lease royalty interests cannot be

applied to cases involving NPRIs) with SMITH, 1 TEX. LAW OF OIL & GAS

§ 2.4[B][1] (“In analyzing rights of royalty owners, Texas courts have tended to

ignore distinctions between types of royalties”) & Merrill Eng’g Co. v. Capital

Nat’l Bank of Jackson, 5 So. 2d 666, 671 (Miss. 1942) (“We are unable to conceive

of any sound basis for a distinction …”); see also JOSEPH SHADE & BONNIE

BLACKWELL, PRIMER ON THE TEXAS LAW OF OIL & GAS 20 (5th ed. 2013)

(“[S]imilarities among the different types of royalties far outweigh their

differences”). Hoskins’ label should be set aside as irrelevant.

9
II. Pooling is subject to both property and contract law.

Not only does Hoskins attempt to use irrelevant labels to divert the Court’s

attention from the key documents, Hoskins also attempts to draw a sharp

distinction between contract and real property law. See, e.g., Clifton’s Brief at 15,

30. Texas, however, applies both contract and property law in the oil and gas

context.

For example:

• Pooling is a real property interest. MCEN 1996 P’ship v. Glassell, 42
S.W.3d 262, 263 (Tex. App.—Corpus Christi 2001, pet. denied).

• Pooling is contractual. SHADE, PRIMER ON THE TEXAS LAW OF OIL &
GAS at 143.

• Oil and gas law is a blend of contract law and property law. SHADE,
PRIMER ON THE TEXAS LAW OF OIL & GAS at 4

Under either contract or real property law, House and Aery win.

III. Sam’s pooled royalty interest passed to House as a contract right.

Significantly, Hoskins agrees that if pooled royalty interests are contractual,

then they pass whether explicitly described in a deed or not. Clifton’s Brief at 26

(conceding that “contract-theory jurisdictions treat pooled interests as appurtenant”

but arguing that Texas does not recognize pooling as contractual); Aurora’s Brief

at 5 (conceding the Quinns’ pooling agreement is contractual). In an attempt to

avoid this concession, Hoskins claims that House and Aery waived any reliance on

contract. Clifton’s Brief at 26.

10
 House and Aery have consistently applied both contract and property law.

See, e.g., Appellants’ Brief 27 (noting that review should be de novo under

property and contract law); id. at 28 (citing multiple cases for property and contract

principles); id. at 28 (quoting Professor Bruce Kramer, Hoskins’ expert in the trial

court, for the proposition that pooling agreements are contracts that grow out of

property law); id. at 29 (explaining that Sam’s pooled royalty interest passed to

House under “contract and property law”); id. at 35 (highlighting Sam’s transfer of

all rights to House); CR2:394-96 (describing the express contract language in the

Quinns’ pooling agreement).

Likewise, House and Aery have consistently relied on Wagner & Brown,

Ltd. v. Sheppard, 282 S.W.3d 419, 424 (Tex. 2008) — a case not mentioned or

acknowledged by Hoskins — for the rule that pooling is contractual. Compare

Appellants’ Brief at 28 & CR2:395 with Clifton’s Brief at v.

In this case, the pooling agreement signed by all of the Quinns was a valid

contract that gave Sam rights in the pooled royalty interest in the entire Rose Teal

Quinn Ranch. CR2:408-19; Wagner, 282 S.W.3d at 424. There can be no doubt

that Sam, in his deed to House, explicitly transferred his contract right to House.

CR2:432 (transferring to House “all and singular the rights … in anywise

belonging”); Coolbaugh v. Lehigh & Wilkes-Barre Coal Co., 67 A. 615, 615 (Pa.

11
1907) (illustrating that a deed’s reference to rights passes pooled contractual

rights). The trial court erred in concluding otherwise.

IV. Sam’s pooled royalty interest passed to House pursuant to the greatest
estate rule.

Falling back on real property law, Hoskins insists that Sam’s pooled royalty

interest must be particularly described in a deed before it can be conveyed.

Clifton’s Brief at 10-11 (citing Gage v. Owen, 435 S.W.2d 559, 562 (Tex. Civ.

App.—Fort Worth 1968, writ ref’d n.r.e.). Neither Gage nor any of the cases it

cites have been used to overrule the long-standing principle that a deed confers

upon the grantee the greatest estate owned by the grantor, whether particularly

described or not. See, e.g., Lott v. Lott, 370 S.W.2d 463, 465 (Tex. 1963); Eastin v.

Dial, 288 S.W.3d 491, 500 (Tex. App.—San Antonio 2009, pet. denied).

Sam’s deed to House broadly conveys all rights and appurtenances.

CR2:432. Moreover, Sam’s deed to House actually describes the entire Rose Teal

Quinn Ranch. CR2:431 (identifying “623.93 acres … being a part of the Rose Teal

Quinn Ranch consisting of 2471.8 acres, more or less, and being described in a

certain Deed of Trust”). Finally, Sam’s deed to House expressly reserves only one

thing: his mother’s life estate described in the pooling agreement. CR2:431-32;

Sharp v. Fowler, 252 S.W.2d 153, 154 (Tex. 1952) (holding that a warranty deed

passes the entire estate absent a reservation to the contrary). By application of the

greatest estate rule, Sam’s pooled royalty interest passed to House.

12
V. Sam’s pooled royalty interest passed to House as an appurtenance.

Hoskins denies that a pooled royalty interest is an “appurtenance,” but

Hoskins is wrong. See Clifton’s Brief at 17. The Quinns’ pooled royalty interest in

the entire Rose Teal Quinn Ranch is directly appurtenant to Sam’s own land.

A. Hoskins’ cross-conveyance theory is not dispositive.

Hoskins argues that the Quinns’ pooling agreement, as a cross-conveyance,

“resolves this case.” Id. at 17 & n.8 (citing NANCY SAINT-PAUL, 4 SUMMERS OIL &

GAS § 54.3 (3d ed. 2014)). Ironically, after criticizing House and Aery for relying

on secondary sources, Hoskins does the same. Compare id. at 28. Hoskins’

reliance on SUMMERS, however, is inconsistent with Texas law.

According to Hoskins’ reading of SUMMERS, a contract state characterizes

pooling as a contract right, while a cross-conveyance state characterizes pooling as

a property interest that is not appurtenant to any unit committed to the pool.

Clifton’s Brief at 17 (citing SAINT-PAUL, 4 SUMMERS OIL & GAS § 54.3). While

SUMMERS is actually addressing a community lease, a community lease is a type of

voluntary pooling agreement where a single oil and gas lease covers two or more

tracts executed by the separate owners as if they were joint owners. BRUCE M.

KRAMER & PATRICK H. MARTIN, 6 WILLIAMS & MEYERS OIL & GAS LAW § 904

(2014).

13
 Hoskins then characterizes Texas as a cross-conveyance state. Clifton’s

Brief at 17. Whether Texas is a cross-conveyance state is a nonstarter, in part

because Texas does not sharply distinguish contract and property law in the oil and

gas context. As Professor Kramer further explains, the adoption or rejection of the

cross-conveyance theory has no effect on whether the interest in a pooled unit is

appurtenant (passes with the land) or in gross (does not pass with the land).

KRAMER, 6 WILLIAMS & MEYERS § 929.1(6).

For example, both California and Mississippi are cross-conveyance states,

but Mississippi considers a pooled royalty interest to be appurtenant, while

California does not. Id. § 930.1, § 930.4; Merrill, 5 So. 2d at 672 (holding that “in

the absence of a reservation to the contrary[,] a subsequent grantee of any part of

the pooled area would be entitled to the benefits”); Tanner v. Title Ins. & Trust

Co., 129 P.2d 383, 386 (Cal. 1942) (holding that the pooled royalty interest is “an

incorporeal hereditament in gross”). Thus, SUMMERS’ position is an

oversimplification, and Hoskins’ reliance on it is misplaced.

B. The Quinns’ express intent is dispositive.

Consistent with Texas principles of contract and deed construction, Kramer

concentrates on the “intent of the parties, not whether pooling or unitization effects

cross-conveyances.” KRAMER, 6 WILLIAMS & MEYERS § 929.1(6); see also

Wagner, 282 S.W.3d at 424 (construing a Texas pooling agreement based on the

14
intent reflected in the agreement). Even Tanner, the leading “in gross” case cited

above from California, is consistent with this basic tenant of document

construction. Tanner, 129 P.2d at 389 (concurring that the intention of the parties

as expressed in their agreement controls).

Kramer further notes that if the parties did not adequately manifest their

intent, “the courts should usually take the position that the grantor’s interest in unit

production is included in a conveyance of the premises he has committed to the

unit.” KRAMER, 6 WILLIAMS & MEYERS § 929.1(6). “In other words, the interest of

a party in unit production should ordinarily be viewed as appurtenant to his interest

in premises committed to the unit rather than ‘in gross.’ ” Id.

Here, although it leads to the same result in favor of House and Aery, the

Court need not resort to Kramer’s default position because the Quinns fully

manifested their intent. The Quinn siblings pooled all of their royalty interests.

CR2:416 (expressing the Quinns’ “desire to and do hereby pool their interests in

the royalties from the production of oil, gas and any other mineral, produced and

saved from any part of the 2,471.8 acres of land, more or less, known as the Rose

Teal Quinn Ranch”).

Furthermore, the Quinns evidenced their intent to cross-convey only to the

extent “necessary to effectuate” their pooling agreement. CR1:231; see also

KRAMER, 6 WILLIAMS & MEYERS § 919.2 (pooling language may negate any

15
undesirable consequences of cross-conveyance by agreement of the parties). If the

Quinns had intended to create the separate and distinct royalty interests in each

sibling’s tract that Hoskins advocates, then they would have used a simple

conveyance to reach that result without implicating pooling at all.

In their pooling agreement, the Quinns bound their heirs and assigns, further

evidencing their intent to pass their pooled royalty interest with the tracts

committed to the pool. CR2:409. This intent is further underscored by the

recitations regarding the siblings’ prior undivided interests in the mineral estate of

the entire ranch and by the inclusion of their mother as a party to the agreement

and holder of a life estate in the ranch’s mineral estate. CR2:408, 418-49.

Later, when Sam conveyed his rights and appurtenances to House, he

evidenced his intent to convey his pooled royalty interest in the entire ranch.

CR2:432. Not only did Sam mention all “rights and appurtenances,” but he also

described the entire Rose Teal Quinn Ranch by name and cross-reference to other

filed documents. CR2:431-32. The trial court erred in granting summary judgment

in favor of Hoskins rather than House and Aery.

C. Precedent from this Court and the Supreme Court controls.

Hoskins contends that Sam’s pooled royalty interest cannot be an

appurtenance because is not necessary to the enjoyment of Sam’s tract, but

Hoskins’ contention focuses only on Sam’s surface tract. Clifton’s Brief at 19.

16
That narrow focus is misplaced and is inconsistent with Hoskins’ admission that

Sam’s tract was “burdened” with an obligation to share royalties. Id. at 25 (row

three of Hoskins’ chart).

“A burden that obligates the owner or occupier of a particular unit or parcel

in that person’s capacity as owner or occupier is an appurtenant burden.” Killam

Ranch Properties, Ltd. v. Webb County, 376 S.W.3d 146, 156 n.4 (Tex. App.—San

Antonio 2012, pet. denied) (en banc) (citing RESTATEMENT (THIRD) OF PROPERTY

(SERVITUDES) § 1.5 (2000), which defines “appurtenances”). An appurtenance

may also be a beneficial right essential to the proper enjoyment of the premises.

Cox v. Campbell, 143 S.W.2d 361, 364 (Tex. 1940).

Pursuant to the Quinns’ pooling agreement, if oil and gas were ever

produced on Sam’s acres, then he would be required to share royalty with his

siblings. As Hoskins conceded, Sam’s tract was “burdened” by the pooled royalty

interest in the entire ranch. Clifton’s Brief at 25; see also CR3:852 & 861 n.13.

Thus, Sam’s pooled royalty interest is an appurtenance. Killam, 376 S.W.3d at 156

n.4; see also Landgrebe v. Rock Hill Oil Co., 273 S.W.2d 636, 638 & 640 (Tex.

Civ. App.—San Antonio 1954, writ ref’d n.r.e.) (holding that parties to a pooled

lease continued to receive their proportionate share even when their subsequent

partition deeds did not mention the prior pooled royalty interest).

17
 Additionally, under the pooling agreement, if oil and gas were ever produced

on the tracts of Sam’s siblings, they would be required to share royalty with Sam,

conferring on him a beneficial right essential to the proper enjoyment of his own

tract. See Cox, 143 S.W.2d at 364. In this sense, a pooled royalty interest is not

unlike an appurtenant easement, which “inheres in the land, concerns the premises,

and pertains to its enjoyment.” Forister v. Coleman, 418 S.W.2d 550, 559 (Tex.

Civ. App.—Austin 1967), writ ref’d n.r.e., 431 S.W.2d 2 (Tex. 1968).

The Quinns’ pooled royalty interest in the entire ranch certainly “affected

the nature and value” of their respective tracts. See Westland Oil Dev. Corp. v.

Gulf Oil Corp., 637 S.W.2d 903, 911 (Tex. 1982) (defining an agreement to share

leases in a geographic area as an appurtenance). Hoskins discounts Westland

because “the interest at issue was one created by contract.” Clifton’s Brief at 27.

Westland, however, is controlling here because the Quinns’ pooled royalty interest

is contractual. See Wagner, 282 S.W.3d at 424.

Furthermore, Hoskins’ attempt to divorce contract law from property law

once again fails. See Westland, 637 S.W.2d at 905 (describing the agreement as a

contract to convey real property interests); see also Thomas v. Fin & Feather Club,

171 S.W. 698, 700 (Tex. 1914) (holding that Bateman’s fishing contract with the

club, recorded in the real property records, was an appurtenance to land Bateman

18
conveyed to Thomas). Because Sam’s royalty interest in the pool was appurtenant

to the tract he committed to the pool, that pooled royalty interest passed to House.

D. Commentators agree pooled royalty interests are appurtenances.

For Professor Kramer, the pooled royalty interest “should ordinarily be

viewed as appurtenant to [the] interest in premises committed to the unit rather

than ‘in gross.’ ” KRAMER, 6 WILLIAMS & MEYERS § 929.1(6); see also

3 WILLIAMS & MEYERS § 660. Under Kramer’s analysis, even if the Quinn siblings

owned fractional royalty interests in each other’s tracts as Hoskins claims (when

they did not), those interests would still be appurtenant to the tract committed to

the unit. Id.; see also William O. Huie, Apportionment of Oil & Gas Royalties, 78

HARV. L. REV. 1113, 1145 n.65 (1965) (characterizing pooled royalty interests as

appurtenances).

This outcome makes sense given Supreme Court authority holding that

production anywhere on a pooled unit is considered production on every tract in

the unit. See, e.g., Key Operating & Equip., Inc. v. Hegar, 435 S.W.3d 794, 798-99

(Tex. 2014) (citing Southland Royalty Co. v. Humble Oil & Ref. Co., 249 S.W.2d

914, 916 (Tex. 1952)). “Under such reasoning, the right to receive royalty from

production which is realized from wells located on other land covered by the

community lease would necessarily follow the ownership of each tract of land

contributed to the community lease.” OWEN ANDERSON, ET AL., KUNTZ, 3

19
A TREATISE ON THE LAW OF OIL & GAS § 42.6 (1989) (citing Southland, 249

S.W.2d at 916).

E. Avery and McCall are not binding on this Court.

In rejecting pooled royalty interests as appurtenances, Hoskins relies heavily

on McCall and the West Virginia case it cites. Clifton’s Brief at 20-25 (discussing

McCall v. McCall, 24 S.W.3d 508 (Tex. App.—Houston [1st Dist.] 2000, pet.

denied) and Avery v. Moore, 144 S.E.2d 434 (W. Va. 1965)). Neither case is

controlling.

Avery arises in a contract theory state, which under Hoskins’ analysis, would

not apply in Texas. See KRAMER, 6 WILLIAMS & MEYERS § 930.4. Regardless, as

Hoskins admits, Avery does not explicitly discuss appurtenances (nor does it even

discuss contractual rights); it simply draws a conclusion without relating enough

facts to make a comparison here. See Clifton’s Brief at 21.

As for McCall, the “facts as stated in the court’s opinion are not entirely

clear.” See Edwin P. Horner, McCall v. McCall Discussion Notes, 145 OIL & GAS

REP. 415, 419 (2001). Nonetheless, there was no pooling of the royalty interest

concurrent with the partition of the remaining mineral estate. For that simple

reason, McCall has no bearing on the Quinns’ pooling agreement.

20
 Moreover, Professor Horner criticized McCall for reaching the wrong result.

First, the opinion defined the term “appurtenance” too narrowly in the royalty

context. Horner, 145 OIL & GAS REP. at 420.

Second, the opinion disregarded Harris v. Currie, 176 S.W.2d 302 (Tex.

1943), and Day & Co., Inc. v. Texland Petroleum, Inc., 786 S.W.2d 667 (Tex.

1990), which provide that a grantor conveys the greatest estate owned absent a

reservation to the contrary. Horner, 145 OIL & GAS REP. at 418-19. According to

Professor Horner, “where the owner of a tract included in a pooled unit sells his

tract, then his conveyance also includes his interest in the production from the

pooled unit, which production may come from another tract in the unit.” Id. at 418-

19.

While Hoskins discounts Professor Horner and the other Texas

commentators, their observations offer valuable insight into Texas law. Regardless,

Hoskins himself proves why McCall has no precedential value here. When

discussing McCall, Hoskins concedes that Sam’s tract was “burdened by a royalty

interest in favor of the owners of the other tracts.” See Clifton’s Brief at 25

(emphasis added).

McCall rejects burdens as appurtenances, which conflicts with this Court’s

recognition of burdens as appurtenances. Killam Ranch, 376 S.W.3d at 156 n.4.

21
Moreover, McCall is narrowly focused on appurtenances and fails to address the

contractual rights reflected in the Quinns’ pooling agreement.

VI. Recitations in the House and Aery chain of title have no effect.

In his factual statement, Hoskins mentions the “subject to” language in the

House and Aery chain of title. Clifton’s Brief at 6-8. This language acknowledges

the recording of Sam’s deed to L.R. Hoskins (dated after Sam’s deed to House),

but the reference does not acknowledge the validity of the second deed. See Teal

Trading & Dev., LP v. Champee Springs Ranches Prop. Owners Ass’n, 432

S.W.3d 381, 391 (Tex. App.—San Antonio 2014, pet. denied). In light of this

authority, Hoskins makes no argument based on his factual recitation.

VII. Hoskins’ position is not logical.

Although Hoskins insists his position is logical, it is not. See Clifton’s Brief

at 15, 17. In Texas, if a landowner enters an ordinary oil and gas lease and

subsequently conveys the land by warranty deed without reserving any mineral

interests, then the grantee takes the land and any royalty due under the lease. Bibb

v. Nolan, 6 S.W.2d 156, 157 (Tex. Civ. App.—Waco 1928, writ ref’d). The same

result must occur if the land is subject to a pooled lease — all the more so in this

case, where the grantors expressly pooled their royalty interests by agreement

before entering any oil and gas leases.

22
 Conclusion

This case illustrates the blending of contract and property law. The Quinns

agreed to partition their jointly owned mineral estate, but for their royalty interests,

which they expressly agreed to pool in perpetuity. Whether Hoskins characterizes

the Quinns’ pooled royalty interest as an NPIR or NPRI or a cross-conveyance is

irrelevant. Nor does it really matter whether the pooled royalty interest can be

spatially divided as Hoskins wrongly asserts.

The bottom line is that the Quinns’ pooled royalty interest was both a

contractual right and interest in real property. The pooled royalty interest in the

entire Rose Teal Quinn Ranch also necessarily (and admittedly) burdened all of the

tracts committed to the pool and affected their value. As a result, the pooled

royalty interest in the entire Rose Teal Quinn Ranch was appurtenant to Sam’s

tract.

When Sam transferred and conveyed the “described premises, together with

all and singular the rights and appurtenances thereto in anywise belonging” to

House, Sam’s pooled royalty interest passed to House (and subsequently to Aery).

The trial court erred in concluding otherwise.

As outlined in more detail in the prayer of their opening brief, Aery and

House ask the Court to reverse the trial court’s summary judgment in favor of

Clifton Hoskins, as well as the other summary judgments and final judgment upon

23
which it is based. Aery and House ask the Court to render judgment on their cross-

motion, and they pray for all other relief to which they may be entitled.

Respectfully submitted,

By: /s/ Rosemarie Kanusky

Norton Rose Fulbright US LLP
Rosemarie Kanusky
State Bar No. 00790999
rosemarie.kanusky@nortonrosefulbright.com
John W. Weber, Jr.
State Bar No. 21046500
john.weber@nortonrosefulbright.com
Jeffrey A. Webb
State Bar No. 24053544
jeff.webb@nortonrosefulbright.com
300 Convent, Suite 2100
San Antonio, Texas 78205
Telephone: 210.224.5575
Fax: 210.270.7205

Counsel for the House Family

Law Offices Of Dan Pozza
Dan Pozza
State Bar No. 16224800
danpozza@yahoo.com
239 E. Commerce Street
San Antonio, Texas 78205-2923
Telephone: 210.226.8888
Fax: 210.224.6373

Counsel for Brad and Randi Aery

24
 Certificate Of Compliance & Service

I certify that this brief complies with type-face and type-volume

requirements. The document contains 4,788 words, not including the tables.

I certify that a copy of this brief was emailed or mailed to the following:

Dan Pozza Marc K. Whyte
danpozza@yahoo.com marcwhyte@gmail.com
239 E. Commerce Street Whyte, PLLC
San Antonio, Texas 78205-2923 209 Tuttle
Appellate Counsel for Aery Family San Antonio, Texas 78209
Counsel for Aery Family

David L. Ylitalo Ellen B. Mitchell
dylitalo@coatsrose.com emitchell@dykema.com
Coats Rose PC C. David Kinder
1020 Northeast Loop 410, Suite 800 dkinder@dykema.com
San Antonio, Texas 78209 Dykema Cox Smith Matthews
Counsel for Leonard Hoskins 112 East Pecan, Suite 1800
San Antonio, Texas 78205
Counsel for Hoskins, Inc., C. Clifton
Hoskins, and Trudy Day

Michael C. Sartori Peter E. Hosey
State Bar No. 17655500 phosey@jw.com
michael@msartori.com Julia W. Mann
Law Office of Michael C. Sartori jmann@jw.com
P.O. Box 1222 Jackson Walker L.L.P.
502A Houston Street 112 E. Pecan Street, #2400
George West, Texas 78022 San Antonio, Texas 78205
Counsel for Hoskins, Inc., C. Clifton Counsel for Lee Ann Kulka, Lee Roy
Hoskins, Trudy Day Hoskins, III and Andrea Jurica
and Hazel Q. Hoskins

25
Ezra A. Johnson David W. Navarro
ejohnson@ufjblaw.com dnavarro@hsfblaw.com
Uhl, Fitzsimons, Jewett & Brendon C. Holm
Burton, PLLC bholm@hsfblaw.com
4040 Broadway, Suite 430 Hornberger Sheehan Fuller
San Antonio, Texas 78209 Beiter Wittenberg &
Counsel for Blake C. Hoskins Garza Incorporated
The Quarry Heights Blding
7373 Broadway, Suite 300
San Antonio, Texas 78209
Counsel for Brent C. Hoskins

Benjamin F. Youngblood III Jason A. Newman
bfy@prodigy.net Jason.newman@bakerbotts.com
Benjamin F. Youngblood III, P.L.L.C. Baker Botts L.L.P.
8207 Callaghan Road, Suite 100 One Shell Plaza
San Antonio, Texas 78230 910 Louisiana Street
Counsel for Jane W. Hoskins Houston, Texas 77002-4995
Counsel for Texoz E&P I, Inc.

Bruce D. Oakley Roberta S. Dohse
bruce.oakley@hoganlovells.com rdohse@hfdlaw.com
Robert L. Pillow Conner R. Jackson
Robert.pillow@hoganlovells.com cjackson@hfdlaw.com
Hogan Lovells US LLP Hoblit Ralls Hernandez & Hudlow,
700 Louisiana St., Suite 4300 LLP
Houston, Texas 77002 2000 Frost Bank Plaza
Counsel for Armadillo E&P, Inc., 802 North Carancahua
Sea Eagle Ford, LLC, and Corpus Christi, Texas 78401
Sundance Energy, Inc. Counsel for Aurora Resources
Corporation

/s/ Rosemarie Kanusky
Rosemarie Kanusky
Dated: June 19, 2015

26
 1-6 Kuntz, Law of Oil and Gas § 6.1
Kuntz, Law of Oil and Gas > CHAPTER 6 PARTITION

§ 6.1 Voluntary partition
1

By virtue of the power of a cotenant to convey his undivided interest, particularly his power to convey such interest to another
cotenant and to acquire an interest from his cotenant,2 joint tenants, tenants in common and coparceners may accomplish a
voluntary partition of the common property by cross conveyances, without judicial decree.3 One cotenant cannot accomplish a
unilaterial partition, and the granting of an oil and gas lease upon a specific part of the jointly-owned land by one cotenant
cannot accomplish a partition,4 but a conveyance of a specific part by a cotenant may operate as a voluntary partition if
acquiesced in by the other cotenants.5 If less than all of the cotenants enter into voluntary partition, it is not binding upon
cotenants who do not join,6 and, where it is not ratified or acted upon,7 it is also said not to be binding upon those who do
participate unless it is binding upon all cotenants.8 It would follow that a voluntary partition cannot be accomplished if one or
more of the parties be incompetent.9 A voluntary partition is void if the purpose of such partition is to defraud third persons by
an attempt to defeat their rights under mortgages or leases on the undivided interests involved.10

A parol voluntary partition followed by possession of the allotted portions by the designated cotenants is valid.11 In a
voluntary partition, it is possible for the cotenants to partition the surface only and not the minerals, and if only the surface is
partitioned, an attempt by one of the cotenants to reserve all of the oil and gas rights in a subsequent conveyance would not
serve to divest his cotenants of their rights in the oil and gas.12 In a voluntary partition, the cotenants may partition the surface
and part of the minerals and retain the status of cotenancy with respect to certain incidents of ownership in the minerals. Thus,
each owner may retain an undivided royalty interest in tracts allocated to other cotenants while taking ownership of all other
incidents of mineral ownership, including the power of leasing his own partitioned tract. A subsequent conveyance by the
owner of such a partitioned tract will carry with it all mineral rights in that tract, subject to the outstanding royalty interests, but
it will not convey any of the grantor’s royalty interest in the other tracts.13

Where two cotenants own the surface estate and a third cotenant owns an interest in the minerals, a partition deed by the two
surface owners partitioning the land on the basis of the surface ownership will be construed to partition the

1See generally, American Law of Property (1952), §§ 6.19, 6.20; Powell, The Law of Real Property (1954), P610; Tiffany, The Law of Real
Property (3rd ed. 1939), §§ 468–472.
2 See § 5.5.
3 Griffin v. Reilly (Tex CivApp 1925), 274 SW 242.
But see Zapatero v. Canales, 730 S.W.2d 111, 96 O&GR 178 (Tex. App.—San Antonio 1987, writ ref’d n.r.e.), wherein it was held that a
partition deed is not a conveyance.
4 Medina Oil Development Co. v. Murphy (TexCivApp 1921), 233 SW 333. But see § 6.7.
5 Fugate v. Smith, 290 Ky 115, 160 SW(2d) 328 (1942).
6 Sparks v. Union Manufacturing &c. Co., 121 SC 220, 114 SE 322 (1922).
See Barfield v. Holland, 844 S.W.2d 759, 120 O&GR 556 (Tex. App.—Tyler 1992, writ denied).
7 Sutton v. Porter, 119 Mo 100, 24 SW 760, 41 AmStRep 645 (1893) .
See Barfield v. Holland, 844 S.W.2d 759, 120 O&GR 556 (Tex. App.—Tyler 1992, writ denied).
8 Cochran v. Cochran, 277 Ill 244, 115 NE 142 (1917); Carter Oil Co. v. McQuigg (7th Cir. 1940), 112 F(2d) 275.
See Barfield v. Holland, 844 S.W.2d 759, 120 O&GR 556 (Tex. App.—Tyler 1992, writ denied).
9 Carter Oil Co. v. McQuigg (7th Cir. 1940), 112 F(2d) 275.
10 Id.
11 See Tiffany, The Law of Real Property (3rd ed. 1939), § 469.
12 Griffin v. Reilly (TexCivApp 1925), 275 SW 242.
13 Avery v. Moore, 150 WVa 136, 23 O&GR 1012, 144 SE(2d) 434 (1965).
McCall v. McCall, 24 S.W.3d 508 (Tex. App.—Houston [1st Dist.] 2000) (distinguishing Day & Co. Inc. v. Texland Petroleum, Inc., 786
S.W.2d 667 (Tex. 1990)).
 1-6 Kuntz, Law of Oil and Gas § 6.1

surface only. This result and the underlying reasons are clearly described in the following concise statement by Justice Smith:

“This case is controlled by our decision in Hutchinson v. Sheppard, supra. There we held that where the parties to a
partition deed owned two estates in the land, one in common and in the same ratio as the division and the other not
in common and therefore not in that ratio, the deed should be construed as a conveyance only of the estate held in
common. And that conclusion was reached even though the deed purported to convey all the grantor’s ‘right, title,
interest and claim’ in and to the land. The governing rule is obviously both sensible and just, for it prevents either
party from gaining an advantage at the other’s expense.”14

Whether or not the voluntary partition was intended to partition the mineral as well as the surface interest raises a problem of
construction of the partition deeds. In the case of deeds not involving a partition, it is uniformly held that upon a conveyance of
land, the ownership of or the rights to oil and gas pass to the grantee unless they are expressly reserved or excepted.15 Partition
deeds are not subject to all of the formalities required of other conveyances, but the usual rules of construction apply, and it
may be found that it was intended to partition the minerals as well as the surface, although the minerals are not specially
mentioned.16 Partition deeds which cover both mineral and surface interests by mistake can, because of the mutual mistake, be
reformed to cover only the surface and not the mineral interest.17

If an oil and gas lease is outstanding on the entire tract owned by the cotenants at the time of the voluntary partition of the
surface and mineral estates, it is not necessary that the oil and gas lessee be a party to the partition,18 but such partition can not
impair the rights of the lessee who is entitled to develop the entire tract as a unit and not as separate tracts.19

A voluntary partition may be rescinded for mutual mistake, but it cannot be rescinded for a unilateral mistake unless the other
party knew of the mistake or induced it. Zapatero v. Canales, 730 S.W.2d 111, 96 O&GR 178 (Tex. App.—San Antonio 1987,
writ ref’d n.r.e.).

In Louisiana, natural gas produced from a compulsory unit is subject to partition, and the Conservation Commissioner is
authorized to order a partition. Amoco Production Co. v. Thompson, 516 So. 2d 376, 98 O&GR 273 (La. App. 1987), writ
denied, 520 So. 2d 118 (La. 1988). Because of the authority to partition gas produced from a unit, the commissioner also has
the authority to direct balancing and to order an accounting either in cash or in kind. Amoco Production Co. v. Thompson, 566
So. 2d 138, 112 O&GR 65 (La. App. 1990), writ of cert. denied, 571 So. 2d 627, 628 (La. 1990).

In re Estate of Slaughter, 305 S.W.3d 804 (Tex. App.—Texarkana 2010), provides a good example of a partition in which each owner
retained a royalty interest in the tracts allocated to the other cotenants, but acquired all other incidents of mineral ownership. The court
rejected the claims of two of the original three cotenants that they were entitled to share in all rights in the mineral estate under the third tract,
which had been leased. The court ruled that the provision in their father’s will that left land to his three sons and that stipulated that they
were to “share and share alike production royalty” clearly referred only to royalty and the effect of the sons’ voluntary partition was to give
each son all the other incidents of the mineral estate in the tract that he received.
14 Johnson v. Ford, 16 O&GR 508, 510, 233 Ark 504, 345 SW(2d) 604 (1961).
15Moshiek v. Lininger, 130 Colo 266, 274 P.2d 965, 4 O&GR 121 (1954); Mark v. Bradford, 315 Mich 50, 23 NW(2d) 201 (1946);
Northern Pac. R. v. Advance Realty Co. (ND), 8 O&GR 232, 78 NW(2d) 705 (1956); Cutright v. Richey, 208 Okla 413, 257 SW(2d) 286,
2 O&GR 980 (1953); Schlittler v. Smith, 128 Tex 628, 101 SW(2d) 543 (1937); McCoy v. Lowrie, 44 Wash(2d) 483, 268 P(2d) 1003, 3
O&GR 858 (1954).
16 Bradley v. Teague (ArkApp 1979), 64 O&GR 419, 589 SW(2d) 200; Garza v. De Montalvo, 147 Tex 525, 217 SW(2d) 988 (1949).
17 Farris v. Moore (TexCivApp 1956), 6 O&GR 864, 293 SW(2d) 683.
18 Garza v. De Montalvo, 147 Tex 525, 217 SW(2d) 988 (1949).
19Garza v. De Montalvo, 147 Tex 525, 217 SW(2d) 988 (1949). See Pierce Oil Co. v. Schacht, 75 Okla 101, 181 Pac 731 (1919); Carter Oil
Co. v. McQuigg (7th Cir. 1940), 112 F(2d) 275.
 1-6 Kuntz, Law of Oil and Gas § 6.1

The cases are not uniform as to the rights of the cotenants under an outstanding lease after a partition of the mineral estate.
Under the rule applied in the majority of states with decisions on the point, unless the partition agreement or decree
specifically provides otherwise, each cotenant is entitled to benefits under the lease only insofar as they pertain directly to his
partitioned portion of the tract. He is entitled to all of the royalty payments for production from his portion of the partitioned
tract and is not entitled to a share of royalties for oil or gas produced elsewhere on the larger tract under the lease.20 Under the
rule applied in a minority of the jurisdictions having decisions on the point, royalties and payments under the lease would be
apportioned, that is, royalties payable for oil or gas produced at any point on the larger tract would be divided among the
various owners of the tracts into which it was partitioned. This result has been explained on the basis that oil and gas are
fugitive in nature and that production must be apportioned among the partitioned owners because it is being drained from the
entire tract.21 In Kentucky, if nothing is said about the outstanding lease and royalties payable thereunder, the rule of
apportionment applies on the theory that the royalties and other payments under a lease are not only payment for oil extracted
but also serve as rentals by which the entire tract is held under the terms of the lease.22 Such cotenants may, however, partition
the minerals and rights under the lease so as to prevent such apportionment.23

The effect of a partition of land that is subject to an oil and gas lease may depend upon the provisions of the oil and gas lease.
Thus, in Texas, where the nonapportionment rule is followed and it is held that royalty payable under an outstanding lease will
not be apportioned after a partition of the mineral rights of the lessors, a federal court has concluded that a different result
should be reached if the outstanding lease is a community lease. In reaching the conclusion that royalty payable under the
community lease should continue to be apportioned after a voluntary partition of the mineral rights by the lessors, the court
made a careful analysis of Japhet (applying the nonapportionment doctrine) and Parker (applying apportionment under the
community lease concept), and made the following perceptive comment:

“As we pointed out previously, Japhet and Parker have been distinguished on two grounds. First, a purchaser of a
subdivided section of land under a lease is deemed to have purchased with ‘his eyes wide open to the rights of the
various parties.’ Second, a single lessor is different from joint lessors because he cannot form a community with
himself. Strict adherence to the second distinction perhaps even compels continuance of the apportionment
presumption in a partition after unitization. Before the partition the parties have formed the community which was
lacking in Japhet. The first distinction requires that no presumption be placed either for or against apportionment.
With their eyes wide open, the parties joined a community and allowed one lessee to treat the lands as a unit. Their
act of cooperation was based on a profit incentive, and each expected to reap benefits. Can it be said that each
party to the partition then abandoned his assurance of royalties in favor of a gamble that the lessee would drill on
his contributed land? At least no presumption to that effect can be defended when the instruments do not so
provide. There can be a defiance of community by partition where the transaction is capable of being construed as
an act of liberation; however, either the words or the incidence of the transaction must demonstrate some
disavowal of former relationships.”24

20 Texas. Garza v. De Montalvo, 147 Tex 525, 217 SW(2d) 988 (1949).
West Virginia.Musgrave v. Musgrave, 86 WVa 119, 103 SE 302, 16 ALR 564 (1920).
See Osborn v. Arkansas Territorial Oil &c. Co., 103 Ark 175, 146 SW 122 (1912); Hurst v. Paken Oil Co., 287 Ky 257, 152 SW(2d) 981
(1941); Northwestern Ohio Nat. Gas Co. v. Ullery, 68 OhioSt 259, 67 NE 494 (1903); Pierce Oil Co. v. Schacht, 75 Okla 101, 181 Pac 731
(1919); Lehew v. Lehew (TexCivApp 1958),314 SW(2d) 146, 9 O&GR 754.
21 Wettengel v. Gormley, 160 Pa 559, 28 Atl 934, 40 AmStRep 733 (1894); 184 Pa 354, 39 Atl 57 (1898).
22 McIntire v. Bond, 227 Ky 607, 13 SW(2d) 772, 64 ALR 630 (1929).
23 Hurst v. Paken Oil Co., 287 Ky 257, 152 SW(2d) 981 (1941).
24 Howell v. Union Producing Co. (5th Cir 1968), 392 F(2d) 95, 28 O&GR 238, 253.
 1-6 Kuntz, Law of Oil and Gas § 6.1

An agreement to partition land which contained no provision regarding mineral rights will not be enforced where the land was
acquired subject to numerous mineral reservations.25
Kuntz, Law of Oil and Gas
Copyright 2014, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

25Roberson v. Hollis (LaApp 1981), 71 O&GR 347, 403 S(2d) 845. For the creation of servitudes in Louisiana by voluntary partition, see §
10.7.
 3-42 Kuntz, Law of Oil and Gas § 42.6
Kuntz, Law of Oil and Gas > CHAPTER 42 THE ROYALTY CLAUSE OF OIL AND GAS LEASE—PAYMENT OF
ROYALTY

§ 42.6 Effect of transfer by lessor.

[a] Conveyance of entire interest by lessor.

In considering what the effect will be upon the payment of royalty under an oil and gas lease if the lessor conveys the entire
interest in the minerals, it is necessary to take into account two different facets of the problem. One such facet involves the
respective rights of the lessor and the grantee as between themselves. The other fact involves the respective rights of the lessor
and grantee as against the lessee. An analysis of both facets of the problem is aided by a consideration of certain fundamentals.

The right to receive royalties under an oil and gas lease is one of the separately alienable incidents of ownership of the
minerals.1 Although such right is capable of being alienated separately, the right to receive royalties will pass with a
conveyance of the minerals, unless such right is expressly reserved or excepted.2 Further, although the right to receive royalty
bears some resemblance to the right to receive rent and there have been instances where the law relating to rent has controlled
the results reached with respect to the right to receive royalty,3 there is an important difference which must be recognized.
Ordinarily, rent is not apportionable as to time and does not accrue from day to day but is payable to the owner of the reversion
on the date that the rent becomes payable. Oil and gas royalties, on the other hand, ordinarily accrue from day to day and are
regarded as being apportionable as to time even though provision may be made in the lease for an accounting period.

In the instance of the royalty which is payable as the result of oil production, the oil and gas lease commonly provides that the
lessee shall deliver, to the lessor or to the lessor’s credit in a pipeline, a portion of the oil produced and saved.4 In the instance
of the royalty which is payable as the result of gas production, the lease commonly provides that the lessee shall pay to the
lessor an amount to be determined either by the value of gas produced or by the proceeds of the sale of such gas.5 In both such
instances, the payment of royalty is not made on the basis of the passage of time. The payment is made to compensate the
lessor for the lessor’s share of a substance that has been removed, and except in the rare instance where a fixed periodic gas
rental might be used,6 the amount of the royalty bears no relation to the passage of time. Provision is occasionally made for the
lessee to make payments or to account periodically, but such a provision does not change the nature of the payment. Such a
provision is obviously designed to solve a mechanical problem incident to payment and is not designed to alter substantive
rights.

Accordingly, although the analysis suggested above has not necessarily been applied in the cases as a basis for decision, it has
been uniformly held or assumed in connection with a related holding that, if after an oil and gas lease has been granted, the
lessor should convey the minerals without exception or reservation or should otherwise make a complete disposition of the
right to receive royalty payments, such lessor is entitled to receive those royalty payments which have accrued to the date of
the conveyance.7 With very rare exception,8 it has likewise been held or assumed that the right to receive royalty passes with a
devise or conveyance or inheritance of the mineral interest

1 See § 15.1.
2 See § 14.1.
3See, e.g., Handlan v. Bennett (4th Cir 1931), 51 F(2d) 21; McIntire v. Bond, 227 Ky 607, 13 SW(2d) 772, 64 ALR 630 (1929). See also §§
44.4(e) and 44.6.
4 See § 39.1.
5 See § 40.4.
6 See § 40.2.
7 Clark v. Richfield Oil Co. of Cal., 127 CalApp 495, 16 P(2d) 162 (1932); McIntire v. Bond, 227 Ky 607, 13 SW(2d) 772, 64 ALR 630
(1929); Duvall v. Stone, 54 NM 27, 213 P(2d) 212 (1949); White v. McVey, 168 Okla 19, 31 P(2d) 850, 94 ALR 656 (1934); Handlan v.
Bennett (4th Cir 1931), 51 F(2d) 21.
8See the second appeal in Wettengel v. Gormley, 184 Pa 354, 39 Atl 57 (1898), in which the court regarded the right to receive royalty
under an oil and gas lease as a personal right of the lessor which did not pass with a devise of the land upon the death of the lessor.
 3-42 Kuntz, Law of Oil and Gas § 42.6

and that royalty which accrues after the date of passage of title properly belongs to the grantee, devisee, or heir of the lessor, as
being incident to the interest which was acquired by virtue of the conveyance, devise, or inheritance.9

The problem of determining which parties are entitled to receive royalty after the lessor has made a conveyance has a different
appearance when considered from the standpoint of the lessee. From the standpoint of the lessee, the problem is one of
determining what is required to discharge a liability. The lessee must pay the royalty to the party entitled to receive it, and a
payment to the wrong party is no defense in an action by the party who is entitled to receive the royalty.10 Consequently, it is
of considerable importance to the lessee to be able to establish the effective date of a change in the parties entitled to receive
royalty.

Although the effective date of the passage of title will control the right to receive royalty as between the lessor and the person
to whom the mineral interest was conveyed, such date may or may not be the controlling date for purposes of determining the
lessee’s liability. Such date may be controlled by statutory provisions for notice. More likely, such date will be controlled by
the presence of a provision in the oil and gas lease which provides that no change of ownership of the lessor’s interest is
binding on the lessee until a prescribed form of notice is given to such lessee.11

According to the operation of the change of ownership clause, the lessee is not required to recognize any change in ownership
of the lessor’s right to receive royalty until after receipt of the notice prescribed by such clause. Accordingly, until there is
compliance with such charge of ownership clause, the lessee may discharge the liability to pay royalty by making payment in
accordance with the status of title prior to any such change.12

[b] Conveyance of undivided interest by lessor.

Similar to the situation where the lessor conveys the entire interest after having granted an oil and gas lease,13 if the lessor
conveys an undivided interest in the minerals after having granted an oil and gas lease, the resulting problem has two facets.
One facet involves the respective rights of the lessor and the grantee toward one another. The other facet involves the
respective rights of the lessor and the grantee as against the lessee.

With respect to the first facet of the problem, the principles which are applicable to a conveyance by the lessor of the entire
interest may be applied with equal validity to the situation where the lessor conveys an undivided interest after having granted
an oil and gas lease. With respect to the undivided interest conveyed, the grantor is entitled to all royalties attributable to such
interest which have accrued up to the date of passage of title, and the grantee is entitled to all royalties attributable to such
interest which are payable as the result of production on and after such date. The parties are cotenants after title has passed to
an undivided interest in the minerals, and the remedies incident to such cotenancy are available to each cotenant if the other
cotenant has received and retained more than a proper share of the royalty payable under the lease.14 A cotenant is not,
however, limited to such remedies against another cotenant but is entitled to proceed directly against the lessee.

9 See Osborn v. Arkansas Territorial Oil & Gas Co., 103 Ark 175, 146 SW 122 (1912); Agajanian v. Cuccio, 141 CalApp(2d) 828, 6 O&GR
1, 297 P(2d) 755 (1956); Central Pipe Line Co. v. Hutson, 401 Ill 447, 82 NE(2d) 624 (1948); Chandler v. Pittsburgh Plate Glass Co., 20
IndApp 165, 50 NE 400 (1898); McIntire v. Bond, 227 Ky 607, 13 SW(2d) 772, 64 ALR 630 (1929); Succession of Woods (LaApp 1985),
480 S(2d) 444, 87 O&GR 298; Merrill Engineering Co. v. Capital Nat. Bank, 192 Miss 378, 5 S(2d) 666 (1942), Northwestern Ohio Natural
Gas Co. v. Ullery, 68 OhioSt 259, 67 NE 494 (1902); Goetter v. Manahan, 192 Okla 600, 138 P(2d) 113 (1943); Japhet v. McRae
(TexCommApp 1925), 276 SW 669; Campbell v. Lynch, 81 WVa 374, 94 SE 739 (1918).
10 Clark v. Richfield Oil Co. of Cal., 127 CalApp 495, 16 P(2d) 162 (1932).
11 See § 45.3.
12 Id.
13 See § 42.6(a).
14 See § 5.6.
 3-42 Kuntz, Law of Oil and Gas § 42.6

To a great extent, the rights of a grantee of a lessor who acquires an undivided interest and thereby becomes a cotenant with
the grantor are similar to the rights of the grantee of the entire interest in the minerals.15 If such grantee complies with the
provisions of the lease with respect to notice of change of ownership, the lessee is required to recognize such change of
ownership and becomes liable to the new owner for performance of the covenants in the lease. The special problem which is
introduced when an undivided interest is conveyed is the problem of whether the lessee is required to pay each cotenant
separately, is entitled to pay them jointly, or is entitled to discharge the liability by paying the entire amount to one of them as
joint obligee.

In a very early case, the right to receive royalty was treated as the right to receive rent, and it was recognized that if a single
lessor should grant an oil and gas lease and subsequently convey an undivided interest, an apportionment is necessary. It was
held, however, that if cotenants grant a single lease they become joint obligees and if one of the cotenants conveys an interest,
there is no apportionment and the lessee may pay the entire royalty to any one of the lessor’s as a joint obligee, either before or
after the conveyance.16 Under the principles applied in such case, if a sole lessor conveyed an undivided interest in the
minerals after having granted an oil and gas lease, each cotenant lessor would be entitled to a share of royalty, and a payment
by the lessee to one of them as a joint obligee or to their joint account as joint obligees would not discharge the lessee’s
obligation. If, however, the oil and gas lease were granted by joint lessors, then they would be joint obligees, and a payment of
royalty to any one of the lessors or to all lessors jointly would satisfy the lessee’s obligation. Further, a conveyance by any one
of such joint obligees would not change the lessee’s right to discharge the liability to the lessors as joint obligees.

Even though the principles just described would otherwise apply, it must be assumed that the modern oil and gas lease, with its
provisions for assignments and notice of change of ownership, and the common practices used in the delivery and sale of
royalty oil17 and royalty gas18 demonstrate an intention that each owner of an undivided interest in the minerals is entitled to
the receipt of such owner’s share of the royalty, even though the lease was originally granted by joint lessors. If, after an oil
and gas lease has been granted, the lessor or one of the lessors should convey an undivided interest in the minerals or otherwise
disposes of the right to receive a part of the royalties payable under such lease, the lessee is required to make future royalty
payments in the correct proportions to the new owners, after having received proper notice of such change in ownership.19

[c] Conveyance of interest in subdivided part of leased premises by lessor.20

If, after having granted an oil and gas lease, the lessor should convey an interest in a subdivided part of the leased premises, a
question may arise with respect to the rights of such grantee to share in production realized under such lease. Specifically, the
question which may arise is whether the grantee of such subdivided interest should share proportionately in the royalty on all
production under the lease regardless of the locations of the wells or whether such grantee is entitled to participate only in the
royalty on production which is realized from wells drilled on the subdivided part in which an interest is owned. Stated as
general matter, the problem is whether or not royalties are apportioned among the owners of mineral interests in subdivided
parts of the leased premises if the subdivision occurred after the lease was granted. If, for example, the owner of an eighty-acre
tract of land should grant an oil and gas lease and then convey to another the entire interest in a forty-acre portion of the leased
premises, will such grantee be entitled to one-half of the royalty on production from any well on the eighty acres, or will such
grantee

15 See § 42.6(a).
16 Swint v. McCalmont Oil Co., 184 Pa 202, 38 Atl 1021, 63 AmStRep 791 (1898) .
17 See § 39.5.
18 See § 40.6.
19See Carter Oil Co. v. Crude Oil Co. (10th Cir 1954), 201 F(2d) 547; Hafeman v. Gem Oil Co., 163 Neb 438, 80 NW(2d) 139, 7 O&GR 41
(1956).
20 See Hardwick, “Apportionment of Royalty to Separate Tracts: the Entirety Clause and the Community Lease,” 32 TexLRev 660 (1954);
Huie, “Apportionment of Oil and Gas Royalites,” 78 HarvLRev 1113 (1965); Masterson, “Division Order Problems Created by
Apportionment of Royalty,” 10 OklaLRev 289 (1957); Mosburg, “Effect of Lessor’s Assignment of Part of Leased Premises upon Right to
Receive Oil and Gas Royalties,” 11 OklaLRev 149 (1958); Annos, “Respective rights of owners of different parcels into which land subject
to an oil and gas lease has been subdivided,” 5 ALR 1162, 16 ALR 588, 64 ALR 634. See also § 16.4.
 3-42 Kuntz, Law of Oil and Gas § 42.6

be entitled to all of the royalty on production from the acquired forty acres and none of the royalty from production on the
other forty acres?

The question of whether or not royalties payable under an oil and gas lease should be apportioned when there has been a
subdivision of the lessor’s interest in the leased premises after the granting of the lease has been the subject of a considerable
volume of litigation,21 and it has been the subject of a considerable amount of learned discussion.22As matters now stand, the
state in which the question was first decided, Pennsylvania, is the only state in which the most recent decision applies a rule of
apportionment under which royalties would be apportioned among all owners after a subdivision of the lessor’s interest.23 In
all other jurisdictions with decisions on the point, although in some instances there has been an early tendency to follow the
rule of apportionment, the most recent decisions adopt and apply a rule of non-apportionment under which the owner of a
subdivision of the leased premises is entitled to all of the royalty on production from such owned tract and is not entitled to any
of the royalty on production from any other part of the leased premises.24

In Ohio where the lease contained an entirety clause that provided for non-apportionment of royalty, a unit was created
including the leased premises pursuant to a statute enacted and regulations promulgated after the lease was granted. It was held
that the non-apportionment could not be changed retroactively. Burtner-Morgan-Stephens Co. v. Wilson Co., 586 N.E.2d 1062,
118 O&GR 484 (Ohio 1992). The following statement was included in the syllabus by the court:

“Pursuant to Section 28, Article II of the Ohio Constitution, R.C. 1509.27(D) may not be retroactively applied to
determine the distribution of royalties that are provided for in an oil and gas lease that was entered into and
recorded prior to the enactment of the statutory provision.”

It has been observed that the non-apportionment rule is applicable regardless of the manner in which the subdivision of the
leased premises was accomplished;25 and in jurisdictions which follow such rule, the rule of non-apportionment has been
applied indiscriminately in instances where the subdivision was the result of conveyance of a part of the leased premises by
deed,26 where the subdivision was accomplished by will,27 and where the subdivision was the result of a partition,28 unless the
minerals were not divided by the partition.29 The non-apportionment rule will be applied

21See Annos, “Respective rights of owners of different parcels into which land subject to an oil and gas lease has been subdivided,” 64 ALR
634, 16 ALR 588, 5 ALR 1162.
22 See Huie, “Apportionment of Oil and Gas Royalties,” 78 HarvLRev 1113 (1965), for a particularly fine statement and incisive analysis of
the arguments which have been urged or might be urged on the subject.
23 Wettengel v. Gormley, 160 PaSt 559, 28 Atl 934, 40 AmStRep 733 (1894) ; on later appeal, 184 PaSt 354, 39 Atl 57 (1898).
24 Osborn v. Arkansas Territorial Oil & Gas Co., 103 Ark 175, 146 SW 122 (1912); Moshiek v. Lininger, 130 Colo 266, 274 P(2d) 965, 4
O&GR 121 (1954); Central Pipe Line Co. v. Hutson, 401 Ill 447, 82 NE(2d) 624 (1948); Fairbanks v. Warrum, 56 IndApp 337, 104 NE 983
(1914); Carlock v. Krug, 151 Kan 407, 99 P(2d) 858 (1940); Hurst v. Paken Oil Co., 287 Ky 257, 152 SW(2d) 981 (1941), Merrill
Engineering Co. v. Capital Nat. Bank, 192 Miss 378, 5 S(2d) 666 (1942); Hafeman v. Gem Oil Co., 163 Neb 438, 80 NW(2d) 139, 7 O&GR
41 (1956); Raley v. Moore, 60 NM 200, 289 P(2d) 957, 5 O&GR 355 (1955); Northwestern Ohio Natural Gas Co. v. Ullery, 68 OhioSt 259,
67 NE 494 (1902); Kimbley v. Luckey, 72 Okla 217, 179 Pac 928 (1919); Hinds v. McCord (TexCivApp 1931), 45 SW(2d) 442, Musgrave
v. Musgrave, 86 WVa 119, 103 SE 302, 16 ALR 564 (1920).
25 Central Pipe Line Co. v. Hutson, 401 Ill 447, 82 NE(2d) 624 (1948).
26Osborn v. Arkansas Territorial Oil & Gas Co., 103 Ark 175, 146 SW 122 (1912); Moshiek v. Lininger, 130 Colo 266, 274 P(2d) 965, 4
O&GR 121 (1954); Fairbanks v. Warrum, 56 IndApp 337, 104 NE 983 (1914); Carlock v. Krug, 151 Kan 407, 99 P(2d) 858 (1940);
Hammond v. Hammond, 292 Ky 659, 167 SW(2d) 865 (1943); Northwestern Ohio Natural Gas Co. v. Ullery, 68 OhioSt 259, 67 NE 494
(1902); Kimberly v. Luckey, 72 Okla 217, 179 Pac 928 (1919); Hinds v. McCord TexCivApp 1931), 45 SW(2d) 442.
27 Musgrave v. Musgrave, 86 WVa 119, 103 SE 302, 16 ALR 564 (1920).
28Hoffman v. Sohio Pet. Co., 179 Kan 84, 292 P(2d) 1107, 5 O&GR 979 (1956); Coates v. DeGarcia (TexCivApp 1956), 286 SW2d 691, 5
O&GR 1351. See Atwood v. Humble Oil & Ref. Co. (5th Cir 1964), 338 F(2d) 502, 21 O&GR 402, cert. denied, 381 US 926, 22 O&GR 393
(1965).
 3-42 Kuntz, Law of Oil and Gas § 42.6

even though the lessee makes an effort to overcome the effect of such rule by an unsuccessful attempt to drill on the boundary
line.30 Further, such rule will be applied despite the fact that the unproductive subdivision is used to provide sufficient acreage
to permit drilling of a well on the productive subdivision under spacing regulations,31 and despite the fact that the
unproductive subdivision is attributed to the productive subdivision for purposes of determining the volume of production
allowable under proration regulations.32

In a jurisdiction which follows the non-apportionment rule, the royalty may nevertheless be apportioned if the parties express
an intention that it should be apportioned. Such an intention may be found expressed in a provision in the lease or in a
provision of the deed or other instrument by which the subdivision was accomplished. A division order may serve as a
memorandum of a prior oral agreement for apportioning royalty and render such agreement enforceable.33

The provision which is deliberately placed in an oil and gas lease to overcome the non-apportionment rule and to provide for
an apportionment of royalty in the event of a subdivision of the lessor’s interest is the entirety clause. The effect of such clause
is discussed elsewhere herein.34 A provision which is not placed deliberately in the lease to overcome the non-apportionment
rule but which might have such effect is the lesser interest clause. The effect of such clause is also discussed elsewhere
herein.35

In the instance where the intention to apportion royalties is found in the deed or other instrument by which the subdivision is
accomplished, the grantor may convey the mineral interest in a specified tract and also convey a royalty interest in the entire
leased premises. Thus, if an owner of an eighty-acre tract of land grants an oil and gas lease and then subsequently conveys a
one-half interest in a forty-acre tract but also provides that the interest is subject to a described outstanding lease and further
states that the grantee is to be entitled to receive one-half of the royalty payable under such lease, the grantee of such deed will
receive a conveyance of a one-half mineral interest in forty acres subject to a lease covering eighty acres and also a royalty
interest in the entire eighty acres for the duration of such lease. The following quoted provision was construed to have such an
effect:

“It is understood and agreed that this sale is made subject to said lease, but covers and includes one-half of all the oil royalty
and gas rental or royalty due to be paid under the terms of said lease …”36

A similar provision appeared in the deed which was involved in another reported case, but the point was not discussed.37

A mere mention of the outstanding oil and gas lease should not be sufficient to have the effect of a conveyance of a royalty
interest in the entire leased premises. Such a provision is easily accounted for as a protective measure to

29See Stratton v. Kentucky & West Virginia Gas Co., 298 Ky 651, 183 SW(2d) 817 (1944). See also Collins v. Inland Gas Corp. (Ky 1964),
382 SW(2d) 194, 21 O&GR 141, in which the court held that the grantor did not intend to partition the mineral estate where subdivided
portions of the land were conveyed to the grantor’s children and the following provision was made for the mineral estate:
“The first parties reserving the oil and gas and to tend some of the tenable (sic) land on this tract or parcel of land when necessary for his
support… . At the death of the first parties the oil and gas shall fall to the owners of the land.”
30 Galt v. Metscher, 103 Okla 371, 229 Pac 522 (1924).
31 Hitchcock v. Sojourner Drilling Corp. (TexCivApp 1962), 360 SW(2d) 444, 17 O&GR 565.
32Republic Natural Gas Co. v. Baker (10th Cir 1952), 197 F(2d) 647, 1 O&GR 1142; Coates v. DeGarcia (TexCivApp 1956), 5 O&GR
1351, 286 SW(2d) 691.
33 See Briggs v. Gaddis (IllApp 1985), 479 NE(2d) 350, 87 O&GR 10, wherein the owners of interests in subdivided portions of the land
subject to the lease made an oral agreement for apportioning the royalty and then signed a division order specifying that the division would
be effective until secondary recovery methods were put into operation on the premises. The parties stipulated in a pre-trial conference order
that the division order constituted a legal and binding contract.
34 See § 45.4 and 48.2.
35 See § 45.5 and 52.4.
36 Hoffman v. Magnolia Pet. Co. (TexCommApp 1925), 273 SW 828. See also § 16.4.
37 See Republic Natural Gas Co. v. Baker (10th Cir 1952), 197 F(2d) 647, 1 O&GR 1142.
 3-42 Kuntz, Law of Oil and Gas § 42.6

avoid liability on a covenant of warranty or to make specific a representation as to title. Thus, the language which is quoted
below and which was contained in a deed was held not to require an apportionment of royalties under the outstanding lease
mentioned.

“It is expressly understood and agreed that there is an oil, gas and mineral lease now in effect covering the above described
tract together with other acreage, and the Grantors hereby convey and assign unto Grantees all their right, title and interest as
Lessors under said lease so far as it applied to the above described tract of land, save and except the one-sixteenth (1/16th)
royalty interest hereinabove provided … to have and to hold the above described premises together with all and singular the
rights and appurtenances thereto in anywise belonging subject, however, to the royalty reservation hereinabove provided.”38

Specifically, the court held that the use of the term “appurtenances” in the habendum clause of the deed did not reveal an
intention to convey a royalty interest in the entire tract covered by the lease. Similarly, it has been observed that such an
intention may or may not be expressed in the following language:

“This sale is made subject to the above mentioned oil and gas lease and to the above mentioned royalty deed but covers and
includes the above described land in fee simple together with all rentals and royalties due under said lease together with all
reversionary rights and other rights of every kind and character owned by grantor.”39

If the oil and gas lease or related agreement make provision for payments other than the conventional delay rental and royalty
payments, problems might be encountered in determining whether such payments should be treated as delay rentals and
apportioned as to acreage or should be treated as royalty and not apportioned. It is to be expected that the degree to which the
payment in question resembles either a delay rental or a royalty payment will govern the decision. Thus, in one instance
payments which, according to an agreement, were made in lieu of further development after an initial producing well had been
drilled were regarded as bearing more resemblance to a delay rental than a royalty and hence were apportioned among the
mineral owners of subdivisions of the land under lease.40 On the other hand, in another instance, payments to be made under a
minimum production covenant were regarded as bearing more resemblance to royalty payments and hence were not subject to
apportionment.41

After a lessor has conveyed interests so that there are separate owners of subdivided portions of the land subject to the lease,
there is nothing to prevent such owners from entering into any arrangement among themselves for pooling their interests or
apportioning the royalty payable under such lease. There is no reason why they cannot make cross-conveyances of royalty
interests with the duration of such interests limited to the duration of the lease. Further, upon termination of the existing lease,
there is no reason why the parties cannot then enter into a community lease and provide for an apportionment of the royalty
payable under such a lease.42 Difficulties might arise, however, when the parties enter into a transaction after they have
acquired their subdivided interest and do not make their intentions clear.

If, after the existing lease terminates, the owners of interests in the subdivided tracts were to join in the granting of a common
oil and gas lease covering all of such tracts, such conduct would be regarded as revealing an intention to enter into a
community lease in many jurisdictions.43 It is doubtful, however, that a ratification or extension of an existing oil and gas lease
by the owners of the subdivided tracts would be similarly regarded. Such conclusion is

38 McElvain v. Texas Co. (TexCivApp 1954), 273 SW(2d) 676, 4 O&GR 293.
39 Frost v. Stanolind Oil & Gas Co. (TexCivApp 1957), 307 SW(2d) 136, 8 O&GR 818.
40 Robinson v. Milam, 125 WVa 218, 24 SE(2d) 236 (1942).
41 Atwood v. Humble Oil & Ref. Co. (5th Cir 1964), 338 F(2d) 502, 21 O&GR 402, cert. denied, 381 US 926, 22 O&GR 393 (1965).
42 See § 42.5(b).
43 Id.
 3-42 Kuntz, Law of Oil and Gas § 42.6

particularly safe if there is another explanation for the ratification44 or if the jurisdiction is one in which the fact of joint
execution of a lease is not regarded as being of controlling significance.45

[d] Conveyance by lessor of community lease and by lessor after unitization or pooling.46

The situations which are involved where a community lease has been granted and where lessors grant separate leases but enter
into a unitization or pooling agreement are sufficiently similar that they may be discussed together. The principle circumstance
which distinguishes such transactions is the matter of timing. The parties may pool their interests by entering into a community
lease, or they may grant the leases and thereafter accomplish the same objective by subsequent agreement. There has been no
demonstrated tendency on the part of the courts to treat such circumstance of timing as a significant factor. The view has been
expressed that the situation where the lessors join in a community lease is not distinguishable from the situation where the
lessors subsequently enter into a pooling or unitization agreement after granting separate leases.47

If, after having joined in a community lease or in a pooling or unitization agreement, a lessor should convey all or part of the
mineral interest subject to such lease or agreement, a question is likely to arise with respect to the right of the grantee to
participate in the royalty on production which is realized from wells drilled on other land covered by the transaction. The
answer to such question will depend upon the theory entertained with respect to the effect of entering into a community lease
or pooling agreement, and if the theory is entertained that the parties exchange conveyances, the answer will also depend upon
the further theory as to the nature of the interests which are acquired by the cross-conveyances.

In those jurisdictions inclined toward the theory that community leases or pooling or unitization agreements do not result in
cross-conveyances but create contractual rights among the parties, it is helpful in analyzing their rights and duties to identify
the contractual provision involved. The contractual provision under consideration is the royalty clause in the lease granted, as
it may be modified by a pooling or unitization agreement. Regardless of any such modification, such clause remains the source
of the rights and duties. Accordingly, a lessor who conveys an interest in the minerals will, to the extent of the interest granted,
part with the right to participate in royalty from production on the land covered by the agreement. The grantor parts with the
right to participate in royalty produced from the owned land because such right follows the title.

Such grantor also parts with the right to royalty on production from the other land covered by the community lease or
unitization agreement because the right to such royalty stems from the covenant in the lease that runs with the land or mineral
interest conveyed.

It may also be reasoned that the grantor parts with the right to participate in royalty from the other land because such right
arises by virtue of the contribution of land to the community of interest, and a lessor who disposes of an interest in land that
was contributed to such community is no longer making the contribution required for participation. The successor in interest is
the one making the contribution and should receive the compensating benefits.48

44 See Seal v. Banes, 183 Okla 203, 80 P(2d) 657 (1938).
45 See Raley v. Moore, 60 NM 200, 289 P(2d) 957, 5 O&GR 355 (1955).
46See Mosburg, “Effect of Lessor’s Assignment of Part of Leased Premises upon Right to Receive Oil and Gas Royalties,” 11 OklaLRev
149, 154 (1958).
47 “We are unable to conceive of any sound basis for a distinction between a case where the respective owners of several tracts of land join in
a single lease for the purpose of having the whole area developed as a unit for oil and gas, with the right to share in royalties according to the
area of land owned by each, and a case where such owners have executed separate leases to the same lessee and thereafter enter into a
pooling or community agreement for sharing the royalties on such basis from a well that may be produced anywhere on the pooled area.”
Merrill Engineering Co. v. Capital Nat. Bank, 192 Miss 378, 5 S(2d) 666, 671 (1942).
48See Hover v. Cleveland Oil Co., 150 Kan 531, 95 P(2d) 264 (1939); Merrill Engineering Co. v. Capital Nat. Bank, 192 Miss 378, 5 S(2d)
666 (1942); Garvin v. Pettigrew (OklaSupCt 1958), 350 P(2d) 970, 13 O&GR 992; Coolbaugh v. Lehigh v. Wilkes-Barre Coal Co., 218 Pa
320, 67 Atl 615 (1907).
 3-42 Kuntz, Law of Oil and Gas § 42.6

It has been pointed out that the interest acquired by such successor in interest is correspondingly burdened with the right of
other owners whose land is included within the community lease or pooling agreement.49 Under the theory that the community
lease or unitization agreement creates contractual rights, it would be more consistent to reason that the lessee’s liability to pay
royalty on the owned tract is reduced to compensate for the lessee’s increased liability as a result of the agreement to pay
royalty on production from other land.

In those jurisdictions which are inclined toward the theory that a community lease or a pooling or unitization agreement
involves cross-conveyances by the parties, it is necessary to identify the interests which have been cross-conveyed and to
determine whether such interests are in gross or are appurtenant to the interest originally owned.

In California, it has been held that each owner who joins in a community lease acquires a profit in the land of the other owners,
that such profit is in gross and does not pass with a conveyance of the land,50 and that such profit is not covered by an option
to purchase a part of the land included in the community lease unless it is expressly mentioned.51 A conveyance may be
reformed so as to include and cover such profit in gross, if the parties intended to convey such interest but were not aware of
the peculiarity of California law on the subject.52 Further, the outstanding profit in gross may be extinguished by foreclosure
of a pre-existing lien on the land contributed to the community lease and may be restored in the new owner by a subsequent
execution of counterparts of the community lease.53 It has been observed that the creation of a profit in gross, as distinguished
from an interest which is appurtenant to the contributed land, is determined by the agreement of the parties; and it has been
held that the right to share in production on other land is appurtenant to the contributed land and will pass with a conveyance
of such contributed land in the instance of pooling pursuant to statutory conservation provisions.54

In Texas, the theory has been applied that the execution of a community lease results in cross-conveyances of royalty interests
among the lessors.55 A rigid application of the cross-conveyance theory for all purposes would lead to the same problems
encountered in California, unless the royalty interests conveyed by the cross-conveyances were regarded as being appurtenant
to the mineral interest contributed. There are reasons to believe, however, that the cross-conveyance theory will not be applied
rigidly. It has been held that production from one tract covered by a community lease will prevent the termination of a
terminable mineral interest in another tract covered by such community lease. In so holding, the court made the explanation
which is set forth below and which reveals an attitude that each lessor enjoys a share of royalty on production from another
tract because it is agreed that production shall be treated as coming from all parts of the leased premises. Under such
reasoning, the right to receive royalty from production which is realized from wells located on other land covered by the
community lease would necessarily follow the ownership of each tract of land contributed to the community lease.

“As between the lessors themselves, each relinquishes his right to have his own tract separately developed, his right to receive
all of the royalties from production from wells on his own tract, and his right to have wells drilled on his tract off-setting other
wells on the leased premises, and each gains the right to share proportionately in royalties from wells on the other included
tracts. In short, the parties by the execution of a unitized lease agree that production

49 Thomas v. Ley, 177 Okla 150, 57 P(2d) 1186 (1936).
50 “By executing the community lease, the respondents and each of the other lessors assigned or conveyed to his colessors a percentage
interest in all oil produced on his land by the lessee during the continuance of the lease. The consideration for that transfer was the similar
mutual assignments of the other lessors. The royalty interest thus transferred by each landowner to his colessors is an incorporeal
hereditament in gross … and the grantee’s interest in the oil produced upon the property of one of the colessors is entirely separate and
distinct from the royalty interest retained by him in oil which might be produced from his own premises.” Tanner v. Title Ins. & Trust Co.,
20 Cal(2d) 814, 129 P(2d) 383, 386 (1942).
51 Agajanian v. Cuccio (CalApp 1956), 297 P(2d) 755, 6 O&GR 1.
52Sutter Youth Organization, Inc. v. Borsen (CalApp 1963), 29 CalRep 628, 18 O&GR 273. But see Vantress Farms, Inc. v. Sydenstricker
(CalApp 1970), 90 CalRptr 251, 37 O&GR 1, wherein reformation was denied because the party seeking reformation accepted the other
party’s performance with knowledge that the contract as written was being relied upon.
53 See Gillis v. Royalty Service Corp., 91 CalApp(2d) 365, 204 P(2d) 968 (1949).
54 LeBard v. Richfield Oil Corp., 15 CalRep 617, 15 O&GR 1, 364 P(2d) 449 (1961).
55 See, e.g., Brown v. Smith, 141 Tex 425, 174 SW(2d) 43 (1943).
 1-6 Kuntz, Law of Oil and Gas § 6.1

of oil or gas from wells located on any tract included in the lease will be regarded during the life of the lease as production
from each and all other tracts included therein. French v. George, supra.

“The leased premises here could not have been utilized without the joinder of the Powells. By joining in the lease they
necessarily agreed to the legal consequences that production from any of the tracts would be regarded as production from all
other included tracts. More specifically, by joining in the lease the Powells agreed with the other parties thereto, including
Southland, that production from the 50 acre tract would be regarded during the life of the lease as production from the 160 and
the 40 acre tracts.”56

In Texas, it has been held by a federal court that the royalty payable under a community lease should continue to be
apportioned after a voluntary partition of the mineral rights by the lessors, unless some special provision is made for
discontinuing the apportionment of royalty.57 It has also been held that where the granting clause of the mineral deed covers
the entire tract covered by the outstanding pooled leases and the grantor does not own an interest in all parts of the tract, the
mineral deed has the effect of conveying the described mineral interest in the tracts owned, and the “subject to” clause has the
effect of conveying the described fraction of royalty under the existing leases.58
Kuntz, Law of Oil and Gas
Copyright 2014, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

56 Southland Royalty Co. v. Humble Oil & Ref. Co., 151 Tex 324, 249 SW(2d) 914, 1 O&GR 1431, 1435 (1952).
57 Howell v. Union Producing Co. (5th Cir 1968), 392 F(2d) 95, 28 O&GR 238. See also § 26.1.
58 Kelln v. Brownlee (TexCivApp 1974), 517 SW(2d) 568, 50 O&GR 548.
VOLUNTARY POOLING
and
UNITIZATION

OIL and GAS
by

LEO J. ~OFFMAN
Membe r of the Texas Bar

1954
MATTHEW BENDER ~ COMPANY
INCORPORATED
ALBANY, N. Y.
JOHN R. MARA LAW BOOKS .
DALLAS, TEXAS
 SEPARATE POOLING AGREEMENT
169
not arriv e at a cont rary effec t by their own priva te con-
tract . Henc e, it may be antic ipate d that such provisions
as thos e ment ione d abov e will ultimately be cons trued
for their effec t upon the doct rine of law which would
other wise appl y in the abse nce of such provisions.

Section 3. Effect of Subsequent Conveyances
One of the legal problems which is particularly crea ted
by the doct rine that the act of pooling or unitization
effec ts a cross -con veya nce of the real prop erty inter ests
{royalty or working interest} in the various tract s com-
prising the unit is that of dealing with conv eyan ces of
the sepa rate tract s mad e after the form ation of the
unit. This prob lem generally arises where the conv ey-
ance of the sepa rate tract , or of some inter est in the
sepa rate tract , is acco mpli shed by a deed or othe r form
of conv eyan ce which makes no rrent ion of the unit or
of the statu s of the tract in the unit. It is part of the
very natu re of the prob lem that it will ordinarily relat e
to the ownership of the unit royalty interests, since if
there is a multiple working inter est ownership and a con-
veya nce is mad e of working inter est in a segr egat ed
tract the parti es to such a trans actio n will generally pro-
vide expr es.sly and in sufficient detai l for the inten ded
effec t of the conv eyan ce with resp ect to the unit. As
time goes on an increasing num ber of roya lty trans ac-
tions are hand led in the same manner. But it is inherent
that roya lty trans fers will not always be tend ed with
care, and it is also inhere~+ that even after a unit is
form ed the parti es are naturally inclined to rega rd their
legal titles as occu pyin g the same statu s as their statu s
170 VOLUNTA RY POOLING AND UNITIZA TION

prior to pooling or unitization, burdene d · only with the
addition al contrac t covenan t. of sharing of product ion.
Thus many subsequ ent conveya nces inevitab ly are pre-
pared on an individual tract basis, without mention of the
prior pooling or unitization of the particul ar tract with
other tracts. In a produci ng unit this type of convey-
ance imposes a substan tial burden upon the purchas er
of the product ion or other party paying the royalties
since he must determi ne, if he can, the legal effect of the
purport ed c.o nveyan ce of an entire tract, or of some speci-
fied interest in the tract, represen ting only a portion of
the unit area.

Illustration of the Problem
In this instance again the problem is perhaps best illus-
trated by simplified hypothe tical facts. It may be as-
sumed that A , B, C, and D each leases his separate ly-
owned I 0-acre tract to the same lessee, X. Subsequ ently
A, B, C, and. D enter into a pooling agreem ent with X in
which the four tracts are pooled to form the 40-acre
drilling unit required by the spacing rules for the field
for the drilling of one well. X then drills a well on the
tract contrib uted to the unit by A and it is an oil pro-
ducer. Subsequ ently B conveys his I 0-acre tract to E
under the usual form of warr_a nty deed which describ es
only that tract and makes no referenc e to the pooling
agreem ent. This, of course, represen ts the most sim-
plified version of the problem , but it is typical of trans-
actions occurrin g constan tly within the boundar ies of
oil and gas units and involving fieldwide units as well as
single-well drilling units.
 SEPARATE POOLING AGREEMENT 171

Application of the Cross-Conveyance Theory
The most pressing question in the situation illustrated
above is that of what royalty interest, if any. E has ac-
quired in the productio n from the well on A's tract by
virtue of the simple warranty deed describin g B's tract.
If the cross-con veyance doctrine of pooling is applied
without modificat ion, as it seemingly should be in juris-
dictions which purport to follow the theory of the Veal
and Belt cases, the act of pooling resulted in the owner-
ship by each A, B. C. and D of ! of the royalty interest
in each of the four tracts. Since B could convey to E
no more than he owned in the tract described in the
deed he. may have conv.eyed to E at most the surface,
the reversion ary interest, and only *of the royalty interest
in that tract. Such an analysis leaves B. even after the
conveyan ce, with ownership of ! of the royalty in eoch
of the tracts contribut ed to the unit by A , C. and D.
This results, then, in the continued ownership by B of ! of
the royalty on the productio n from A's tract, while E.
the grantee, 9oes not participa te in such productio n ot
all. It is probably . although not necessarily, true that
B and E did not at all contempl ate such a result. They
no doubt intended that with the unconditional convey-
ance of B's tract would go all interest in the unit produc-
tion which was initially derived from the ownership of
that tract. But in the light of such doctrine as that of
the Veal and Belt cases are they defeated in their pur-
pose by the failure of the deed expressly to convey, not
only the ·t ract described , but all of B's royalty interest
in the entire unit? Moreover , can the latter conveyan ce
be accompH shed by anything less than an adequate legal
descriptio n, by reference or otherwise, of all of the land
172 VOLUNTARY POOLING A~'l> UNITIZATION

comprising the unit? Or, on the other hand, . without all
this, does all" of B's parti.cipation in the unit follow the
ownership of his tract? .
It is apparent that a strict application of the Veal and
Belt decisions to the situation illustrated above results in
the acquisition by the grantee of no participation in the
royalty on the unit production while the grantor, having
conveyed his entire ownership in the tract which consti-
tuted his sole initial contribution to the unit, nevertheless
retains · as great a royalty participation in the unit pro-
duction as he had absent the conveyance. The situa-
tion is, of course, aggravated by the location of the unit
well on a tract other than that conveyed. Were the
unit well located on the tract conveyed the grantee, by
virtue of his having acquired by the deed all of B's ~ of
the royalty in that tract, would have no immediate ground
for complaint, since at best he is entitled to only ~ of
the royalty production. However, the legal question ex-
ists to the same degree in either case. It is only by a
coincidence of circumstances that the grantee sustains
no actual loss in the latter case on account of the seem-
ingly defective deed so long as the unit production is
from the tract conveyed to him. .
There are infinite variations of the situation illustrated
above. The conveyance to E might have been of a
fractional undivided interest in the tract or in the miner-
als or royalties in the tract. "Such variations serve to
complicate the facts but the basic issue remains the same.
In other circumstances the tract conveyed may represent
only a small part of a fieldwide unit, complicating the
matter still further. But still the fundamental problem
~s the same.
 SEPARATE POOLING AGREEMENT 173
Available Interpretations
Even in the situation illustrated above there is a pos-
sible interpret ation beyond those stated-i .e., the in-
*
terpretat ion, on the one hand, which gives E of the
royalty in the tract conveyed with no royalty interest in
the ref!1aining tracts in the unit and the interpret ation,
on the other hand, which gives E all of B's participa tion
in the unit which was initially derived from the tract con-
veyed as an incident of the ownership in such tract.
The third interpret ation is a comprom ise, perhaps one of
merit. This interpret ation would recognize that by vir-
tue of the cross-assignment theory of pooling B owned
*
only of the royalty in the tract conveyed and that only
such royalty interest in only such tract is conveyed to
E under the deed-bu t subject immediat ely to the pool-
ing agreemen t, so that the ! interest of E in the single
tract is pooled with the retained ~ interest of B in the
remaining tracts. If this interpreta tion were applied and
the pooling had been in proportio n to acreage as illus-
trated, E would become the owner of I I 16 of the roy-
alty on the productio n from the unit well, while B would
retain 3/16 of such royalty. It !s not likely that this third
suggeste d interpret ation is actua.lly within the contem-
plation of the grantor and grantee, but this interpret a-
tion is perhaps as reasonab le as i-he interpret ation which
denies the grantee practicall y all of the royalty owner-
ship in the unit which was initially attributa ble to the
tract presently conveyed .
 174 VOLU NTAR Y POOL ING AND UNIT IZAT ION

California Decisions
Wit h this back grou nd it is well to cons ider the deci ded
case s relating to the effe ct of the conv eyan ce of a
seg-
rega ted trac t afte r pooling or unitization has been
ac-
complished. The California cour ts· have adop ted
the
mos t restr icted view of thos e s.ugg este d abov e.
The
leading California decision in this rega rd is that of
the
Supr eme Cou rt in Tanner v. Title Insurance & Trust Co., 44
previously cited here in othe r connections. For this
pur-
pose the state men t of the case can be simplified.
The
case involved a community lease of several lots whic
h
cont aine d express pooling provisions. One of the
les-
sors who had cont ribu ted two trac ts to the lease
later
exec uted a deed of trust on his trac ts and still later
the
prop erty was sold at a trust ee's sale. The lessee drill
ed
two prod ucin g oil wells on the lease, nei~her of which
was
loca ted on the trac ts sold at the trust ee's sale. In
this
case the purc hase r of thes e trac ts claimed · the roya
lty
inter est of the lessor-mortgagor in the prod uctio n
from
othe r part s· of the community lease. The cour t,
how-
ever, reje cted the claim. The cour t first ruled, as
has
previously been note d, that when two or more landown
ers
join in a community lease of their sepa rate trac ts
each
of ther:n assigns or conveys to each of the othe rs {dur
ing
the term of the lease) a royalty inter est in his trac t whic
h
is an esta te in real prop erty . ''The roya lty inter est
thus
tran sferr ed by each landowner to his colessors is an
in-
corp orea l here ditam ent in gross and the gran tee's inter
-
est in the oil prod uced upon the prop erty of one of
the
colessors is entirely separate and distinct from the
roy-
44 20 Cal. 2d 814, 129 P. 2d 383, 387 {1942).
 SEPARA TE I•OOLIN G AGREE~!ENT 175
. alty interes t retaine d by him in oil which might be pro-
duced from his own premises." The court then ruled
that "the incorp oreal heredi tament owned by the granto r
in the oil produc ed from the land of the colessors, exist-
ing in gross, obviously does not follow the convey ance
of the lessor's land, but can only be conveyed by a speci·
fie transfe r of that interest." 46 (Emphasis is supplied :n
the quotati ons.) Since the trust deed did not purpor t
to convey specifically the granto r's incorp oreal heredi-
tamen t in gross in the produc ing tracts of the commu-
nity lease these interes ts did not pass to the purcha ser at
the trustee 's sale. 46

4& I 29 P. 2d 383, 387 ( 1942).
48 Several more recent California decisions have confirmed
and applied this rule of the Tanner cas~. See Howard v. General
Petroleum Corp., 108 Cal. App. 2d 25, 238 P. 2d 145, 148 (1951),
on second appeal. I I 4 Cal. App. 2d 91, 249 P. 2d 585: Brown v.
Copp, 105 Cal. App. 2d I, 232 P. 2d 868, 871 ( 1951); Friedrich
v. Roland, 95 Cal. App. 2d 543, 213 P. 2d 423, 427 ( 1950):
Gillis v. Royalty Service Corpora tion, 91 Cal. App. 2d 365, 204
P. 2d 968, 969 ( 1949). It is interesting, however, to compar e the
decision in the much earlier California case of Higgins v. Cali-
fornia Petroleum & Asphalt Co., 109 Cal. 304, 41 P. 1087, 1088
(I 895). There orie of the community lessors had conveye d his
separat e tract to the lessee. Since the only product ion was
from the tract conveye d and the lessor-grantor was not a party
to the suit the point involved in the cases cited above was not
actually in issue. But in noteworthy dictum the court seemed
to constru e the effect of the conveya nce of the separat e tract in
the same manner as if the grantor had been a tenant in common
in both tracts covered by the community lease and had conveye d
all of her interest in the whole to the lessee. The courts in the
later cases obviously did not choose +o follow th is analysis.
 1'76 VOLUNT A.R Y POOLIN G AND UNITIZA TION

Decision of Federal Court - Oklahoma
Perhap s in accord with the result of the Tanner de-
cision, but employing an entirely differe nt means of ar-
riving at such result, is the decision of the Federa l court
in Oklaho ma in Boren v. Burgess. 47 There an undivided
mineral interest in a segreg ated tract was convey ed after
the tract had been included with other land in a community
lease. Production was secure d by· the lessee only on the
land in the community lease which was not descri bed in
the convey ance. The grante e of the mineral interes t in
the segreg ated tract asserte d his right to partici pate on
a pro rata acreag e basis in the royalty on the produc -
tion elsewhere on the community lease. The court re-
jected this claime d partici pation, reasoning that the ques-
tion presen ted was whethe r the owner of an interes t in
a subdivision of a tract of land covere d by a single
lease has a right to partici pate in the royalty from oil
produc ed on other subdivisions and holding that under
Oklahoma law the royalty belongs solely to the owners
of the land on which the well is locate d. It is not
clearly appare nt from the opinion whethe r the court
held that the community lease did not effect a pooling
of the tracts for royalty purposes in the first instanc e or
that the initial pooling was accom plished . but that the
cc;:mveyance of an interes t in a separa te tract subseql:Jent
to the pooling comple tely segreg ated that interes t.
Howev er, the author ities cited by the court have no
relatio n to the first propos ition of no pooling in the first
instance, but suppor t only the propos ition that when
the land covere d by. the ordina ry lease is later subdiv ided

47 97 F. Supp. 101~ (E. D. Okl. 1951).
 SEI'A RA'l 'E rOO LIN G AGR EEM ENT
177
· in ownership the own er of eac h subdivi
sion owns only
the roy alty on pro duc tion from his subdivi
sion and the re
is no app orti onm ent of such royalties. 48
If the cou rt
inte nde d to rule tha t the re was no pooling
acc om plis hed
in the making of the com mun ity lease.
the n it pro per ly
held tha t a sub seq uen t gra nte e was not
ent itle d to an
app orti onm ent of royalties any mo re tha
n wer e the orig -
inal lessors, but in so doi ng the cou rt nec
essarily ign ore d
imp orta nt Okl aho ma law to the effe ct
tha t the re is a
pre sum ptio n of pooling in the making
of a com mu nity
leas e. 49 On the oth er hand, if the cou
rt inte nde d to
rule tha t the trac ts wer e poo led as to the
inte rest s of the
lessors by the making of the com mun ity
leas e but tha t
the sub seq uen t con vey anc e of an inte rest
in a sep ara te
trac t effe ctiv ely "un poo led " tha t inte rest
, the re is sub-
stan tial dou bt tha t the auth orit ies cite
d as pre ced ent
for tha t result actu ally lend any sup por
t at all. The
autn orit ies cite d rela te to the ord inar y
leas e of a single
are a having a
com mon ownership thro ugh out and the
late r subdivision of the land into sep ara
te ownerships.
The re the par ties are pre sum ed as a ma tter
of law, und er
the majority · rule, to inte nd tha t eac h
\ shall own only
the royalties on pro duc tion · from his
own land . It is
an enti rely diff ere nt ma tter to atte mp
t to app ly this
rule to trac ts which wer e seg reg ate d
in own ersh ip in
the first inst anc e and the n con soli date d
by an agr eem ent
of pooling. It is as reas ona ble to assu
me und er the
48 These auth oriti es supp ort the rule corr
espo ndin g to the
principle of Ja'p het v. Mc.Rae fn Texas. See
Not e I0, supra, Cha r-
ter 2.
4 9 See
Not e 33, supra, Cha pter 2.
12
 178 VOLUNT ARY POOLIN G AND UNITIZA TION

latter facts that the granto r and grante e of a separa te
tract, unless they expressly agree to the contra ry, intend
for the grant to be subjec t to the pooling agreem ent
and to contin ued apport ionme nt thereu nder. Here
there is no cause for creatin g and imposing by law an
apport ionme nt of royalties but only cause for continuing
an existing ·appor tionme nt in effect, a result which the
parties might reasonably be expect ed to anticip ate.

Mississippi Decision - Contra ry Rule
The leading decision propounding the contra ry rule
that the convey ance of a tract compri ~ing part of a
unit, even though made without mention of the unit,
will pass the granto r's interes t in all royalties derive d
from his ownership of that tract is by the Suprem e Court
of Mississippi in Merrill Engineering Co. v. Capita l Nat.
Bank of Jackso n.60 It is worthy of note that the case
involved not the ordina ry pooled commu nity lease but
the pooling of a numbe r of separa te tracts and the prior
leases thereo n by a separa te and indepe ndent pooling
agreem ent entere d into by the landowners and the les-
see. This is the more typical situation. After the va r-
ious tracts were thus pooled a produc ing gas well was
drilled on one of them. With respec t to one of the
nonpro ducing tracts there were a numbe r of convey anc-
ing transac tions, including a deed of trust and trustee 's
sale, but suffice it to say here that in none of the con-
veyanc es ·was the unit or the pooling agreem ent men-
tioned and in none was more than the indivi·dual tract of

&o 192 Miss. 378, 5 SoA 2d 666 (1942).
 SEPARATE POOLING AGREEMENT
179
land des cri bed . On e of the int
erm edi ate gra nto rs
con ten ded in the cas e tha t its con
vey anc e of the tra ct
did not pass titl e to any sha re of
the royalties on the
pro duc tio n fro m ano the r tr~ct in
the unit. The Missis-
sip pi cou rt ove rru led this con ten tion
and held tha t a
pro por tio nat e sha re in trye royalti
es on the pro duc tio n
fro m one tra ct in the unit pas sed
with a con vey anc e of
a non pro duc ing tra ct eve n tho ugh
no mention of the
unit or the pooling agr eem ent was
ma de in the con vey -
ance.61 The cou rt ind ica ted tha t
this rule would app ly
in eve ry cas e in the abs enc e of a
spe cifi c res erv atio n in
the con vey anc e to the con trar y.
Although the cou rt
was not pre cis e in sta tin g the legal
eff ect of the pooling
agr eem ent in the first instance, it
ind ica ted tha t a pro -
por tio nat e sha re of the royalties
thr oug hou t the unit

&I The cou rt stat ed that . " 6 • • we
are of the opinion tha t
in the abs enc e of a reservation
to the con trar y a sub seq uen t
gra nte e of any par t of the poo led
area would be enti tled to
the ben efit s to flow from the
pooling or community agr ee-
men t so long as it rem aine d in forc
e ond effe ct aga inst his land;
and tha t this :.vould be true with
out reg ard to whe ther or not
such agr eem ent mad e pr-&vision for
the sharing of the rayalties
by any one oth er than the original
part ies ther eto. " The last
clause of the abo ve- quo ted opinion
was in response to a con-
tent ion tha t . the pooling agr eem ent
was a personal con trac t for
the sole ben efit of the pro per ty
owners ther ein men tion ed and
that" i·he sharing ben efit s of the poo
ling could not pass to any
sub seq uen t gra nte e. In this con
nection see Hov er v. Cle ve-
land Oil Co. , ISO Kan . 531, 95
P. 2d 264 ( 1939). holding tha t
the par ticu lar pooling agr eem ent
th'9re involved was a personal
con trac t of the lessors and tha t
a con vey anc e of his poo led
trac t by one of the lessors· automat
ically term inat ed the pooling
arra nge men t.
180 VOLUN TARY POOLI NG AND UNITI ZATIO N

passe s with the title to one of the separ ate tract s within
the unit as a cove nant runniQg with the title to that tract .
This, of course, is direc tly contr ary to the ruling · in the
Tann er decision that the royalty intere st of the grant or
in other tract s in the unit is an in~erest in gross and will
not pass to the grant ee of one of the tract s unless speci-
fically conv eyed. It must be recog nized , of course, that
the Mississippi court has not held, as has the California
court , that the act of pooling effec ts a cross -conv eyanc e
of the real prope rty intere sts amon g the royal ty owners.
Thus the Mississippi court found it some what easie r to
arrive at the result which it did by treati ng the sharing
arran geme nt impo sed by the pooling agree ment as a
simple coven ant running with the title to the respe ctive
tract s comprising the unit.
It is notew orthy that the Mississippi court in the Merrill
Engineering Co. case expressly consi dered the majority
rule that where the owner of a tract of land lease s it as a
whole and there after subdivides the land into several
tract s by conv eyanc es which do not reser ve the royalty,
each owne r of a subdi vided tract is there after entitl ed
to the royal ty on the produ ction from his tract alo.ne.
But, in contr ast with the Federal decision in the Boren
case, ·the Mississippi court held that that doctr ine has no
appli catio n to the situat ion where the pooling agree ment
of two or more landowners is made in adva nce of the
subdividing conv eyanc e in question and where the shar-
ing of royalties thus impo sed is in effec t a cove nant
running with the land. There is sound basis for such a
distin ction in the two situations and the decision of the
 SEPA RATE POOL ING AGRE EM.E N'l'
181
Mississippi cour t in this rega rd appe ars the mor e reas
on-
able and logic al. 52

Pennsylvania Decision
The sam e gene ral conclusion reac hed in the Merrill
En-
gine ering Co. case was arriv ed at by the Supr eme
Cou rt
of Pennsylvania in the much earli er deci sion in Coo
lbau gh
v. Lehigh & Wilkes-Barre Coa l Co., 53 previously cited
in
anot her conn ectio n. The sepa rate own ers of adjo
ining
lots 28 and 29 had ente red into a com mun ity coal
min-
ing lease of the two lots in which they had agre
ed to
shar e the roya lties . Subs eque ntly lot 28 was sold
but
the adm inist rato r of the esta te of the lessor of that
lot
cont ende d that the inter est of that lessor in the
royal-
ties in lot 29, existing by virtu e of the com mun ity
lease ,
did not pass to the purc hase r of lot 28. The cour
t held,
how ever , that the pooling did not effe ct a tran sfer
of
estat~s in real prop erty but that only the
roya lty coal
prod uctto n had been put in hotc hpot by the lesso
rs.
Since the inter est of the lessor of lot 28 in the pot
cam e
solely from his own ersh ip in lot 28, when that was
sold
the purc hase r took all the lessor had in both lots.
For
its simplicity and logic the opinion in this deci sion
meri ts
the <;:lose scru tiny of thos e inter e5te d in the anal
ogou s
oil a·nd gas lease s.

82
See also Thomas v. Ley, 177 Okl. 150, 57 P.
2d 1186
{1 936); Shell Petro leum Corp . v . Calca sieu Real
Estat e & Oil
Co., 185 La. 75 I . 170 So. 785 ( 1936}.
153
Note 41, SJJpra. ·
 182 VOLUN TARY POOLI NG AND uNITIZ ATION

Suggested Analysis
In the light of the many · aspec ts of this probl em it
would appe ar that the bette r reaso ning lies in favor of
the gener al rule which cause s all of the unit royal ty par-
ticipa tion initially deriv ed from a tract in a unit or an
intere st in such tract to pass to the purch aser of such
tract or such intere st, wheth er or not speci ficall y men-
tione d in the conve yance , unless, of cours e, there is a
contr ary reser vatio n in the conv eyanc e. It requi res a
much lesser mental burde n to arrive at this conclusion
wher e the found ation rule of cross -conv eyanc es of real
prope rty intere sts as effec ted by pooli ng or unitization
is avoid ed in the first instan ce. If this rule of law be
avoid ed then the effec t of pooling or unitization is to
leave the estat es in real prope rty as they exist prior to
pooling or unitization but to impo se upon each such
estat e the propo rtion ate burde n and benef it of the shar-
ing of unit produ ction after produ ction is achie ved.
Thus the pooli ng or unitization agree ment creat es a shar-
ing cove nant which runs with the land and other intere sts
in real prope rty. Any conv eyanc e of any such intere st,
whet her expre ssly state d or not, would then be subje ct
to the terms of the pooling or unitization agree ment
(assuming actua l or const ructiv e notic e to the grant ee
of the existe nce of such agree ment ) and would carry
with it the propo rtion ate benef its and burde ns of the
sharin g arran geme nt speci fied in the agree ment . This
appe ars to be the conclusion reach ed by the Mississippi
court and appe ars to const itute the bette r reaso ning.
As previously state d, howe ver, even in jurisdictions
which gener ally recog nize the rule of cross -conv eyanc es
 SEPA RAT E POO LING AGR EEM ENT
183
as app lied to pooling or unitization the rule
can possibly
be avo ided in part icul ar case s by the reco gnit
ion of lan-
gua ge of the agr eem ent indi cati ng the inte
ntio n of ef-
fect ing a con trar y result. As previously
poin ted out,
such provisions in pooling or unitization agre
eme nts as
thos e specifically neg ativ ing all tran sfer s
of real pro p-
erty inte rest s und er the agre eme nt or thos
e prov idin g
for the allo cati on of unit prod ucti on to the
resp ecti ve
trac ts and the pay men t of inte rest s within
eac h trac t
just as if the allo cate d prod ucti on had
actu ally bee n
pro duc ed ther efro m, clearly indi cate tha
t und er S.uch
agre eme nts no cros s-co nve yan ces or tran sfer
s should be
reco gniz ed. Any sub seq uen t con vey anc e
of ·a trac t or
inte rest within a unit so c~eated should pass
with it all the
cov ena nts of the pooling or unitization agr
eem ent which
wer e initially attr ibu tabl e to that trac t or
inte rest . The
gra ntee should then shar e pro por tion atel y in
all unit pro -
duc tion , whe ther from the trac t acq uire d by
him or oth er
trac ts in the unit.
The sam e result can be reac hed eve n whe re
the doc -
trin e of cros s-co nve yan ces is imp osed ,
alth oug h th~
rout e is not yet com plet ely clear. One met
hod of ar-
riving at such result would be to con side r tha
t all roya lty
inte rest s crea ted in the unit by virtue of the
pres ume d
cross-co nve yan ces are inci den t or app urte
nan t to the
inte rest s from which they were deri ved and
tha t any
tran sfer of any inte rest in the latt er cate gor
y pass es with
it all of the incidental or app urte nan t inte
rest s in the
othe r trac ts in the unit. 54 Thus th.e lessor
who con tri-
54 See Walker, Developments · in the Law of
Oil and Gas in
Texas During the War Yea rs-a Resume,
25 Texas Law Re-
184- VOLUNTARY POOLING AND UN'ITIZATION

butes a I 0-acre tract to a 40-acre drilling unit and sub-
sequently conveys his I0-acre . tract without mention of
the unit would pass title with his conveyance ·t o all of
his present interest in the tract described and * of the
royalty interest in each of the other tracts as an incident
of or appurtenant to the tract described. Proportion-
ately smaller interests in the royalty in the other unit
tracts would pass with a smaller interest conveyed in
the tract described. The description of the other tracts
in the unit would necessarily be implied from the unit
agreement of which the grantee will almost invariably
have actual or constructive notice. Such reasoning as
this conflicts with the ruling of the California court that
the royalty interest of the lessor in the land of his co-
lessors in the unit is a right or interest in gross and is,
therefore, not transferred unless specifically conveyed.
However, it is believed that such interest in land of the
colessors is better treated as a right or interest appur-
tenant, rather than in gross.
The principal objective, where overriding considera-
tions of public policy are not involved, is to give effect
to the probable intention of the parties in the transac-
tion. And in this type of situation the actual intention
of the grantor and grantee is normally to convey all of
the grantor's ownership in the unit which he acquired
by virtue of the contribution to the unit of the interest
described in the conveyance. Where the parties have
not specifically expressed themselves in the instrument

view I, 14 ( 1946); Shank, Pooling Problems, 28 Texas Law Re-
view 662, 678 (1950); Case note, 25 Texas Law Revie~ 274
( 1947).
 SEPARATE POOLING AGREEMENT
185
the cou rts should pre sum e such
an intention and g1ve
eff ect to it. Wh ere the gra nto
r and gra nte e hav e
clearly exp res sed themselves in ~he
instrument, however,
the cou rts should giv e eff ect to
the ir int ent ion as ex-
pre sse d, wh eth er it enl arg es or res
tric ts the con vey anc e.
But in this res pec t it is necessary
to det erm ine wh eth er
or not the roy alty owners in the uni
t should be per mi tte d,
as a ma tte r of policy, by the ir ow
n pri vat e con tra cts or
con vey anc es, to "un poo l" any int
ere st wit hou t the con -
sen t of the lessee or lessees in the
unit.55

Co mp ari son to Jap he t v. McRae Sit
uat ion
It has bee n sta ted tha t the doc trin
e of Jap he t v. Mc-
R~e66 as app lie d in Texas and
mo st oth er oil and gas
jurisdictions should have no app lica
tio n to the pro ble m
dis cus sed her e since the situatio
ns are clearly distin-
gui sha ble . Th ere is justification for
presuming as a ma t-
ter of law tha t the gra nto r and
gra nte e do no t int end
an app ort ion me nt of the royalti
es where the con vey -
anc e of a seg reg ate d pa rt of a sin
gle lease is ma de and
tha t the gra nte e del ibe rat ely pur
cha ses the par tic ula r
seg reg ate d tra ct or int ere st for spe
cul ativ e reasons. But
wh ere sev era l sep ara te leases are
con sol ida ted by pool-
ing or sep ara tel y ow ned tra cts are
poo led und er a com -
munity lea se and a sub seq uen t con
vey anc e of a single
tra ct is ma de while an agr eem ent
of app ort ion me nt is
in for ce it is in the ver y nat ure
of the pooling arr ang e-
ss See Gar za v. DeMontalvo , 147
Tex. 525, 217 S. W. 2d
988, 992 ( 194 9).
68
No te I0, supra, Ch apt er 2.
 186 VOLUN TARY l'OOLIN G AND UNITIZ ATION

ment that the grant or and grant ee would proba bly in-
tend and expec t the appor tionm ent of royalt ies there-
under to contin ue in force. A:1d the same reason s for
presum ing a delibe rate specu lative desire on the part
of the grant ee are absen t in the case of the usual poole d
unit. It will ordina rily consis t of prove n or semip roven
acrea ge throu ghout and the wildc atting instin ct finds
no basis for existe nce. Moreo ver, in the case of the
drilling or allowable unit neithe r the grant or nor the
grant ee can reason ably antici pate that any furthe r
drilling after the first well will be done. In the case of
the larger units the unit area is ordina rily either fully
devel oped or at least fully prove n prior to the creati on of
the unit so that there is no logical place for the specu lation
which is foster ed by the doctri ne of the Japhe t case.

Comparison to Entirety Clause
It should also be added thdt the situat ion of the
creati on of the poole d unit ·and the subse quent conve y-
ance of a separ ate tract within the unit is actual ly more
nearly akin to the situati on create d by the "entir ety
clause " which appea rs freque ntly in the lease forms used
in some areas and which was design ed to avoid the
somet imes harsh injustice of the Japhe t doctri ne. 67 The

67 The typical entiret y clause appear s in the lease as fol-
lows: "If the leased premises shall hereaf ter be owned sever-
ally or in separa te tracts, the premises nevertheless shall be de-
velope d and operat ed as one lease and all royalties accruing
hereun der shall be treated as an entiret y and shall be divided
among and paid to such separa te owners in the propor tion that
the acreag e owned by each such separa te owner bears to the
entire leased acreag e."
 SEP ARA'l'E l 'OOLIN G .AGREE MENT 187
entire ty clause in effect provid es that if the owner ship
of the land cover ed by the lease is segre gated during
the term of the lease the royalties shall nevert heless be
appor tipned to all owners in propo rtion to their acrea ge.
Wher e subse quent to the making of such a lease the
lessor conve ys a smaller tract cover ed by the lease by
an instru ment which descri bes only the tract conve yed
and does not specif ically provid e for an appor tionm ent
to the tract of a pro rata portio n of all royalt ies pro-
duced from any part of the original lease, it has been
held that the appor tionm ent or entire ty clause of the
lease nevert heless applies and is bindi~g upon both the
grant or and grante e of the tract involved as a coven ant
burde ning the land and the intere sts therei n. 58 The en-
tirety clause has been partic ularly enfor ced where the
conve yance contai ns no provision purpo rting to negat ive
its effect and where no groun d for reform ation of the
instru ment of conve yance exists. The situat ion of the
conve yance of a segre gated tract in a unit after an ex-
press pooling agree ment has been made is analog ous

68 See Carter Oil Co. v. Crude Oil Co., 20 I F. 2d 547 (I Oth
·cir. 1953): Gypsy Oil Co. v. Schonwald, I07 Okl. 253, 23 1 P.
864 (1924): Eason v. Rosamond, 173 Okl. I0, 46 P. 2d 471
( 1935): Schrader v. Gypsy Oil Co., 38 N. M. 124, 28 P. 2d 885
( 1934). But compa re lskian v. Consolidated Gas Utilities Corp..
207 Okl. 615, 251 P. 2d 1073 (1952): Coyne v. Simrall Cor
poration, 140 F. 2d 574 (6th Cir. 1944): Shell Petroleum Corpo-
ration v. Carter ; 187 La. 382, 175 So. I ( 1937): Harley v. Mag-
nolia Petroleum Co., 378 Ill. 19, 37 N. E. 2d 760 ( 1941). These
cases are discussed in Hardwicke, Jr., Problems Arising out of
Royalty Clauses in Oil and Ga,s Leases in Texas, 29 Texas Law
Review 790, 806 ( 1951 ). See also discussion note, I Oil and Gas
Reporter 12 I B {19 52).
188 VOLUNTARY FOOLING ·AND UNITIZATION

to that of the conveyance under an entirety clause in
the original single lease. H<;>wever, the case of the con-
veyance after pooling will ordinarily provide even a
stronger case in logic for the continued enforcement of
the apportionment under the pooling agreement since
the pqoling agreement in this situ"ation is obviously in-
tended as a covenant which will run with the land and bind
all future purchasers and is just as .obviously a reasonable
restraint on the future alienation of the lands comprising
the unit.

Procedure for Purchaser
From what has been said it is apparent that this prob-
lem has not yet been fully developed and decided by
the courts in most of the oil and gas jurisdictions. It is
likewise apparent that the problem will furnish the basis
for future litigation and that the purchasers or other
parties charged with the duty of making payment for unit
production meanwhile can not feel wholly secure in mak-
ing such payments to the grantor or grantee in the type
of situation envisaged here in those jurisdictions in which
the matter has not been fully dealt with in the appellate
courts. It would behoove such parties charged with pay-
ing for unit production to suspend payments attributable
to the interests involved in such situation until the grantor
and grantee have both agreed more fully with respect to
the effect of their transaction, preferably by a further
instrument in recordable form so that the title question
may be permanently cleared for all purposes. If the in-
strument of further agreement is not recorded (as is true
in the case of the usual transfer order) a similar instrument
 SEPARA'l'E POOLIN G AGREEM ENT 189
should be require d of the granto r and grante e each time
the interes t involved change s hands, since the unreco rded
agreem ent will not provid e constru ctive notice to innoce nt
purcha sers for value.

Sectio n 4. The Nonco nsentin g Mineral or
Royalty Owner
One of the import ant catego ries of legal proble ms
in the field of voluntary pooling and unitization is the
catego ry which center s on the position of the mineral or
royalty owner who refuses to join in the pooling or uni-
tizatio n agreem ent. The proble m of nonjoinder is a
trouble some one for the nonjoining party himself, since he
may feel sincerely that his individual interes t and rights
will be seriously jeopar dized by his partici pation in the
pooling or unitization arrang ement, yet he must recogn ize
at the same time that in many instances his interes t will
be affecte d by the operat ion of the unit even though he
does not partici pate. In the case of the operat or or
lessee in the unit, on the other hand, the proble m create d
by the refusal of mineral or royalty owners to join can
be even more trouble some. The nonjoinder create s the
necess ity in many instances for a separa te accoun ting for
produc tion--o ne accoun ting to the pooled interes ts and
yet anothe r type of accoun ting to the unpool ed interes ts.
Moreover, the metho d of operat ion of the unit may be
substantially affecte d by the existen ce of unpool ed in-
terests , and may give rise to the necess ity for drilling
interio r offset wells, one of the very things the pooling
or unitization is design ed to eliminate. The proble m of
the operat or where there are unpooled interes ts in the
OIL and GAS
Report er
VOLUME 145

Edited by

The Southwestern Legal Foundation

2001

lEXIS Publishing™
LEXI ~N EXI s-• MARTI NDALE-HU BBELL•
MATIHEW BENDE~ • MICHIE"• SHEPARD's-

FROM THE LIBRARY OF
FULBRIG~:r0
JAWORSKI L.l.P.

JAN 3 1 2001
HOUSTON, TEXAS
 McCALL v. McCALL 415

tracts. 9 We find the trial court did not err in holding the McCall
deeds were unambiguous as a matter of law.
W here there is no ambiguity, disagreement over the interpreta-
tion of the reservation wHl not make it ambiguous, Sun Oil Co.
v. Madeley, 626 S.W.2d 726, 727 [73 O&GR 106] (Tex. 1981),
for a patty's construction is immaterial. Id. at 732.
The court's primary duty when construing an unambiguous
deed is to ascertain the intent of the parties from the "four
corners" of the deed. Luckel, 819 S.W.2d at461. Under the "four
corners rule," the intention of the parties, especially that of the
grantor, will be gathered from the instrument as a whole and not
from isolated parts of the instrument. Plainsman Trading Co. v.
Crews, 898 S.W.2d 786, 789 [129 O&GR 280] (Tex. 1995);
Texas Pac. Coal & Oil Co. v. Masterson, 160 Tex. 548, 334
S.W.2d 436, 439 [12 O&GR 1198] (Tex. 1960).
Under our interpretation of the 1975 Partition, and applying
the four comers rule to the McCall deeds, we find the trial court
did not err in holding that the royalty interests at issue were not
conveyed in the McCall deeds.
We affirm the judgment of the trial court.

DISCUSSION NOTES
Deeds: Partition-Miner al and Royalty Interests.
The facts as stated in the court's opinion are not entirely
clear to the writer. The confusion is about the facts sun·ound-
ing Lila's claim to a royalty share in the Taub and Dwyer
production. Shortly after the execution of the partition agree-
ment, Mrs. McCall, by four separate deeds, conveyed three
9 We will not address Lila's summary judgment proof affidavit of Mrs.
McCall's attorney, who claims Mrs. McCall intended to convey all her royalty
interests relating to the 3,300 acre tract. Even assuming this affidavit is accurate,
this proof is inadmissible because, where there is no claim of any fraud, accident
or mistake, parol evidence is inadmissible to vary, add to, or contradict the
terms of an unambiguous agreement. Nowlin v. Frost Nat'! Bank, 908 S.W.2d
283, 286 (Tex.App.-Houston [1st Dist.] 1995, no writ) (citing Kuper v.
Schmidt, 161 Tex. 189, 338 S.W.2d 948, 952 (Tex. 1960)).
(Mauhcw Bender & Co.• Inc.) [14S O&OR Report No 2 (2-01)]
416 145 OIL & GAS REPORTER

tracts to her daughters Mildred and Patricia, ber son Verner,
and her daughter-in-law Lila. The writer believes it is this
deed to Lila under which she is basing her claim for royalty
on the Tuub ond Dwyer tracts. h is stated afterward that tJ1e
three children and Lila conveyed their interests to MCDCO.
What is not clear from the facts as stated is that if Lila claims
the interest under a deed executed by Mrs. McCall, why did
Lila not convey this interest to MCDCO? It is not apparent
to the writer how Lila could claim an interest in production
from new wells on the Taub and Dwyer tracts.
These Discussion Notes are based on the assumption
U1at Lila never sold her interest acquired from Mrs. McCall.
The appellees apparently maintained that LiJa never acqui1·ed
an interest in the Taub and Dwyer tmcts-Lhe ones that did
not belong to Mrs. McCall. lt is assumed tbat all the tracts
involved had been a part of the 3,298 acres partitioned.
There are several ways in which a person may acquire
a mineral or royalty interest in another's Lrocts other than by
a straight "buy and sell" transaction. It is stated in the facts
that the 3,296-acre tract was common ly owned by Taub,
Dwyer, and Mrs. McCall before its partition into sixteen
sep CHAPTER 6 The Oil and Gas Lease—Express Provisions >
Topic 6. The Royalty Clause and Related Provisions

§ 660 Classification of Royalty Interest as “In Gross” or as “Appurtenant”
Reference has been made elsewhere to a number of classifications applicable to royalty and other
nonoperating interests in production. Thus for certain purposes it has been necessary to classify such
interests as realty or as personalty,1 as corporeal or incorporeal,2 or as principal or in-come.3
Classification of shut-in royalty has been required for the purpose of ascertaining the person or persons
entitled to the receipt thereof under some circumstances.4

Yet another classification problem has given rise to some difficulty, viz., whether a royalty interest
created by a lease is in gross or is appurtenant to the lessor’s mineral interest. Specifically, where a
lessor conveys his interest in the premises (or in the minerals therein) without specific mention of the
royalty interest arising under a previously executed lease, does such royalty interest pass with the
conveyed interest?
Quite infrequently this matter may be resolved by an express lease provision to the effect that the
benefits of the lessor under the lease shall be appurtenant to the land of the lessor.5 In other instances
an express “subject-to” clause in the conveyance itself may make it clear that the conveyance is
intended to cover and include the grantor’s benefits under the lease. We have discussed elsewhere
certain of the construction problems arising from the employment of this clause.6
Current authority supports the position that a lessor’s lease benefits, including his royalty interest, are
appurtenant to his mineral interest and pass with a conveyance of such mineral interest even though
1
See §§ 212–214, supra.
2
See §§ 208–211, supra.
3
See §§ 512.2, 514.1, supra.

This problem of classification has arisen in a number of states by reason of constitutional or statutory provisions allocating various types
of receipts from state-owned lands. See, e.g., State ex rel. Fatzer v. Board of Regents, 176 Kan. 179, 269 P.2d 425, 3 O.&G.R. 1280
(1954). The question here was whether bonus, rentals and royalties were “moneys derived from the sale of lands,” as that term was used
in a statute allocating such moneys to a particular purpose. It was held that royalties were such moneys, but that bonus and rentals were
not.
4
Morriss v. First Nat’l Bank, 249 S.W.2d 269, 1 O.&G.R. 1371 (Tex. Civ. App. 1952, error ref’d n.r.e.) (controversy over whether
persons entitled to delay rentals or persons entitled to royalty were entitled to receipt of shut-in royalty; held, owners of royalty were
entitled to receive such payment).
5
E.g., the following provision of a California lease form:

“The benefits of each Lessor under this lease, including rent and royalty accruing hereunder from the entire demised
premises are appurtenant to the land of such Lessor included in this lease, and any transferee or subsequent owner of the
title to the land of any Lessor shall, as between the parties to this lease, their successors or assigns, be entitled to receive
such appurtenant benefits under this lease except to the extent that such benefits be expressly reserved or shall have been
theretofore transferred in whole or in part.”

6
See §§ 340–340.4, supra.

SUSAN BOVA
 Page 2 of 4
3-6 Williams & Meyers, Oil and Gas Law § 660

neither the lease nor the deed contains such clauses.7 Earlier authority in Texas to the contrary8 has
been overruled.9 By appropriate language in a deed or other conveyance, of course, a royalty interest
may be severed from the mineral estate.10

[Effect of pooling or unitization]
A somewhat more difficult problem concerns the effect of pooling or unitization. Where a lessor is
bound by pooling or unitization, he gives up a portion of his royalty interest in his own premises
(Blackacre) and receives a portion of the royalty in the other premises (e.g., Whitacre) included in the
unit. Or stated somewhat differently, he becomes entitled to an apportioned share of the royalty on
7
See, e.g., the following:

Hardcastle v. McCluskey, 139 Kan. 757, 33 P.2d 127 (1934) (holding that mortgagor’s royalty interest arising under a lease passes with
a mortgage of the leased premises even though the mortgage contains no reference to the lease or royalty);

Williams’ Adm’r v. Union Bank & Trust Co., 283 Ky. 644, 143 S.W.2d 297, 131 A. L. R. 1364 (1940) (same);

Merrill Engineering Co. v. Capital National Bank, 192 Miss. 378, 5 So. 2d 666 (1942) (same);
White v. McVey, 1934 OK 234, 168 Okla. 19, 31 P.2d 850, 94 A. L. R. 656 (1934).

See also Duquesne Natural Gas Co. v. Fefolt, 203 Pa. Super. 102, 198 A. 2d 608, 20 O.&G.R. 595 (1964) (treating the lessor’s reserved
royalty interest as appurtenant to his mineral or surface estate).
Oil payments and overriding royalties should also be viewed as appurtenant rather than in gross. See Minchen v. Fields, 162 Tex. 73,
345 S.W.2d 282, 14 O.&G.R. 266 (1961) (oil payment).
8
Caruthers v. Leonard, 254 S.W. 779 (Tex. Com. App. 1923) (holding that a mineral grantee acquired his grantor-lessor’s possibility
of reverter but no interest in delay rentals).
9
Harris v. Currie, 142 Tex. 93, 176 S.W.2d 302 (1943).
10
See § 301 et seq., supra.

A related problem was treated in Avery v. Moore, 150 W. Va. 136, 144 S. E. 2d 434, 23 O.&G.R. 1012 (1965). In the partition of a larger
tract, plaintiff’s predecessor in interest (the owner of a 1/5 undivided interest) received the 50-acre parcel involved in this action. The
partition deed reserved coal and mining rights and provided that on the expiration of the existing oil and gas lease, the owner of each
partitioned parcel would have leasing rights but the owners of the other partitioned parcels would share in the royalty on the basis of
their interests prior to the partition. Plaintiff conveyed the 50-acre parcel to defendant by a deed reciting that it was subject to a provision
in the partition deed with reference to leasing and development. In this declaratory judgment action, it was held that the deed from
plaintiff to defendant conveyed plaintiff’s entire interest in the oil and gas within and under the 50-acre parcel, subject to the rights of
other claimants under the partition deed to share in the royalty, but that the deed did not convey to defendant any royalty interest in the
other four partitioned parcels. In other words, the court held that plaintiff’s interest in the royalty in the other four partitioned parcels
was not appurtenant to his interest in the parcel he received by the voluntary partition.
In McCall v. McCall, 24 S.W.3d 508, 145 O.&G.R. 401 (Tex. App.—Houston [1st Dist.] 2000, writ denied), the court was faced with
a similar problem as in Avery. After a partition deed, Ms. McCall was given a royalty interest in the mineral estates that had been given
to third parties. She later conveyed to some of her children and a family-owned corporation the mineral estates she received from the
partition along with the “appurtenances.” One of the children asserted that the deeds conveyed the royalty interests burdening the third
parties’ mineral estates. The court disagreed, noting that these royalty interests were not “appurtenant” to the conveyed mineral estates.
To be appurtenant, a thing must be incidental to or indispensable to the conveyed interest. The court thus distinguished Day & Co. v.
Texland Petroleum, Inc., 786 S.W.2d 667, 105 O.&G.R. 590 (Tex. 1990), that had found an executive power appurtenant to a conveyed
mineral estate. Because the royalty interests were not appurtenant, they did not pass in the general warranty deeds and were retained by
Ms. McCall.

The rationale of McCall was not followed in Anadarko Petroleum Corp. v. BNW Property Co., 393 S.W.3d 846 (Tex. App.—El Paso
2012, rev. denied), and Chesapeake Exploration, LLC v. BNW Property Co., 393 S.W.3d 852 (Tex. App.—El Paso 2012, rev. denied),
where the court concluded that a “naked” executive right appurtenant to a third party-owned non-executive mineral interest was conveyed
when a fractional mineral interest containing all of the attributes of a mineral interest were conveyed.

SUSAN BOVA
 Page 3 of 4
3-6 Williams & Meyers, Oil and Gas Law § 660

production from the unit whether such production is from a well or wells located on the premises he
leased or on some other portion of the unit. The question may arise in this instance whether his royalty
interest in such other premises included within the unit (e.g., Whiteacre) is appurtenant to his interest
in Blackacre so that it will pass by a conveyance of his interest in Blackacre. California authority is
to the effect that the royalty interest in Whiteacre under these circumstances is in gross and will not
pass by a conveyance of Blackacre unless specially mentioned therein.11 The preferable view is to the
contrary, viz., that the royalty interest in production from Whiteacre is appurtenant to the lessor’s
interest in Blackacre and passes with a conveyance of Blackacre unless specially reserved from such
conveyance.12 There is uncertainty in some states as to the applica-ble law on this matter. It is
advisable, therefore, to include in any conveyance affecting premises included in a pooling, unitization
or joint operating agreement express provision concerning the grantor’s interest in production from
other premises included in such agreement. The following clause has been suggested for this purpose:

“It is agreed and made a part of this grant that if the interest hereby conveyed, in whole or in part,
is now or hereafter, either or both, included in a valid pooling agreement or agreements, either or
both, which includes all or any part of the above described land covered by this deed, then grantee,
his heirs and assigns, shall be entitled to all payments and other rights accruing by reason of any
such agreement or agreements as to the interest hereby conveyed; that is, this grant includes the
right to participate in and under any such agreement insofar as it covers or may include the interest

11
See Tanner v. Title Insurance & Trust Co., 20 Cal. 2d 814, 129 P.2d 383 (1942). A community lease was executed by several
landowners. The court declared that:

“The royalty interest thus transferred by each landowner to his colessors is an incorporeal hereditament in gross … and the
grantee’s interest in the oil produced upon the property of one of the colessors is entirely separate and distinct from the
royalty interest retained by him in oil which might be produced from his own premises. … Although the cases clearly
establish that the percentage of the royalty reserved by a lessor in oil produced from his own land passes to a grantee of
the fee as an incident of the conveyance …, except as such rights are reserved by the deed, the incorporeal hereditament
owned by the grantor in the oil produced from the land of the colessors, existing in gross, obviously does not follow the
conveyance of the lessor’s land, but can only be conveyed by a specific transfer of that interest.” 129 P.2d at 386–387.
Another California case has held that a contract to sell land does not include the vendor’s royalty interest under a community oil and
gas lease covering such land. Agajanian v. Cuccio, 141 Cal. App. 2d 828, 297 P.2d 755, 6 O.&G.R. 1 (1956).

In Sutter Youth Organization, Inc. v. Borsen, 214 Cal. App. 2d 676, 29 Cal Rptr. 628, 18 O.&G.R. 273 (1963), a deed was reformed to
include the rights of the grantor in a community oil and gas lease that covered the land in question.

See also Howard v. General Petroleum Corp., 108 Cal. App. 2d 25, 238 P.2d 145, 1 O.&G.R. 10 (1951), (Blackacre and Whiteacre were
included in community lease; subsequent conveyance of Blackacre did not include the owner’s interest in royalty on production from
Whiteacre), on later appeal,, 114 Cal. App. 2d 91, 249 P.2d 585, 1 O.&G.R. 1579 (1952) (holding that the lease had been terminated
and therewith any right to royalty).

But cf. LeBard v. Richfield Oil Corp., 56 Cal. 2d 532, 15 Cal. Rptr. 617, 364 P.2d 449, 15 O.&G.R. 1 (1961) (California statute
prohibiting drilling by owner of small tract entitled the owner of such tract to share in proceeds of oil and gas production from adjoining
lands; held that such interest was appurtenant and passed with a conveyance of the land without express mention therein).
12
See, e.g., Merrill Engineering Co. v. Capital National Bank, 192 Miss. 378, 5 So. 2d 666 (1942) (holding that unitization agreement
gave each lessor a royalty interest in other premises included in the unit and that such royalty interest was appurtenant to the lessor’s
mineral interest and passed with a conveyance thereof).

Huie, “Apportionment of Oil and Gas Royalties,” 78 Harv. L. Rev. 1113, 1137 n.65 (1965), also urged that the preferable view is that
the royalty interest in unit production is appurtenant.

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3-6 Williams & Meyers, Oil and Gas Law § 660

hereby conveyed to exactly the same extent as grantor would have such right as to such interest in
the absence of this grant.”13

The pooling clause of the lease may itself include a provision to the effect that the payments made shall
ordinarily be appurtenant to the premises.14
Williams & Meyers, Oil and Gas Law
Copyright 2014, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

13
Discussion Notes, 1 O.&G.R. 17 (1952).
14
See § 669.21, infra.

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 6-9 Williams & Meyers, Oil and Gas Law § 929
Williams & Meyers, Oil and Gas Law > CHAPTER 9 Pooling and Unitization > Topic 5. Voluntary
Pooling and Unitization

§ 929 Pooling or Unitization Agreement as Cross-Conveyance or Contract: Introduction

Stated in simplest terms, a pooling or unitization agreement authorizes the exploration and/or
development of separate parcels of land as if there were a single owner thereof and provides for the
allocation of the expenses and proceeds of such operations among the owners of interests in the several
parcels. Thus, if the agreement affects Blackacre and Whiteacre, the owners of each tract will share in
production on a basis specified in the agreement, whether such production is from Blackacre or
Whiteacre.

A number of cases and writers1 have raised the question whether a pooling or unitization agreement
is a cross-conveyance of interests in land or is a mere contract; that is, does the agreement have the
effect of conveying to the owner of Blackacre some interest in Whiteacre and of conveying to the
owner of Whiteacre some interest in Blackacre, or does the agreement have the effect merely of giving
each owner a contract right to share in the production from premises other than those he has
contributed to the agreement. Upon the answer to this question, a number of important consequences
are said to depend. In the subsections which follow we indicate the consequences said to flow from
the answer given this question and the effect of lease provisions expressly negating any intent to effect
a cross-conveyance. Thereafter, we examine the case authority on the matter in a number of states.

§ 929.1 Pooling or unitization agreement as cross-conveyance or contract: Consequences
A number of important legal consequences have been said to turn upon the answer to the question
whether a pooling or unitization agreement effects a cross-conveyance of interests in the affected
premises among the parties to the agreement or merely creates contract rights in such parties. The more
important of these consequences sometimes viewed as turning upon this question relate to the
following matters:

[Indispensable parties to suit]

(1) Indispensable parties to title or other suits involving premises included in a pooling or unitization
agreement.

The problem of indispensable parties to litigation affecting land included in a pooling and unitization
agreement has been discussed herein.1 For many years in Texas, the case of Veal v. Thomason,2
established the proposition that a pooling or unitization agreement effects a cross-conveyance and that,
1
See, e.g., the following:

Hoffman, Voluntary Pooling and Unitization 144–189 (1954) (strongly opposing the cross-conveyance theory);

French and Elliott, “Legal Effect of Voluntary Pooling and Unitization: Theories and Party Practice,” 35 Tex. L. Rev. 401 (1957);

Masterson, “The Nature of Unitized Title,” 10 Sw. L.J. 146 (1956).
1
See §§ 928–928.5, supra.
2
Veal v. Thomason, 138 Tex. 341, 159 S.W.2d 472 (1942).

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 Page 2 of 7
6-9 Williams & Meyers, Oil and Gas Law § 929

therefore, all persons having an interest in the pooled or unitized premises are necessary parties to an
action involving one such parcel included in the agreement. As was noted earlier, the Veal rule can have
a debilitating effect on the substantive rights of the parties. A change in the Texas Rules of Civil
Procedure, however, has cast a doubt on the continuing validity of that part of the Veal rule that finds
such parties indispensable. While not challenging the cross-conveyance doctrine, a recent Texas court
of appeals decision refused to apply the necessary and indispensable party part of the Veal rule to a suit
brought by a royalty owner seeking to invalidate a pooling of its interest without requiring the joinder
of all other pooled royalty owners.2.1

[Consent to agreement]

(2) Necessity of consent to a pooling or unitization agreement.

The theory that a pooling or unitization agreement effects a cross-conveyance of interests among the
parties thereto was viewed in Brown v. Smith3 as requiring the joinder of royalty owners in a pooling
or unitization agreement if such agreement was to be fully effective. The plaintiffs in this action sought
to recover the bonus agreed to be paid for the execution of a unitized lease but plaintiffs had failed to
obtain the joinder of the owner of a royalty interest in a 20-acre portion of the 62.75-acre tract covered
by the lease. In holding that plaintiffs were not entitled to recover since the tendered lease did not
measure up to the unitized lease contracted to be given, the court noted that without joinder of the
royalty owner, the lease would not divest the owner of her interest in the 20-acre tract nor vest in her
any interest in the royalty in the 42.75 acres; as a result, the lessee’s freedom of operation on the
62.75-acre tract would be materially affected. We discuss elsewhere herein (§§ 925–925.6 supra) the
state of authority regarding parties whose consent to a voluntary pooling or unitization agreement is
necessary. It suffices here to observe that the cross-conveyance theory is said to make necessary the
consent of all persons having operating or nonoperating interests in premises affected by a pooling or
unitization agreement.4

[Conveyancing requirements]

(3) Application of the statute of frauds or conveyancing statutes to voluntary pooling or unitization
agreement.

Obviously if the cross-conveyance theory is followed, then a voluntary pooling or unitization
agreement involves the conveyance of interests in land and the requirements of the statute of frauds

2.1
Sabre Oil & Gas Corp. v. Gibson, 72 S.W.3d 812, 815 (Tex. App.—Eastland 2002).
The Sabre Oil rationale was extended to cover Federal Rule of Civil Procedure 19 joinder issues in HS Resources, Inc. v. Wingate, 327
F.3d 432 (5th Cir. 2003).
3
Brown v. Smith, 141 Tex. 425, 174 S.W.2d 43 (1943).
4
See Minchen v. Fields, 162 Tex. 73, 345 S.W.2d 282, 14 O.&G.R. 266 (1961).

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 Page 3 of 7
6-9 Williams & Meyers, Oil and Gas Law § 929

and of conveyancing statutes must be satisfied.5 In states rejecting the cross-conveyance theory, it may
be held that pooling and unitization agreements are not within the statute of frauds.6

[Rule against Perpetuities]

(4) Application of the Rule against Perpetuities to the pooling clause of a lease.

In Phillips Petroleum Co. v. Peterson,7 the court apparently accepted the view that a pooling clause of
a lease might be invalid under the Rule against Perpetuities if the cross-conveyance view were adopted
but that such clause was valid under the contract view of the effect of a pooling or unitization
agreement. This matter will be discussed in a later section.8

[Venue questions]

(5) Application of venue statutes to actions involving the construction or validity of a pooling or
unitization agreement.

Adoption of the cross-conveyance or of the contract theory as to the effect of a pooling or unitization
agreement may affect the application of a venue statute to various controversies. Thus, in Texas, a
venue statute provided that “suits for the recovery of lands or damages thereto, or to remove
encumbrances upon the title to land, or to quiet the title to land, or to prevent or stay waste on lands,
must be brought in the county in which the land, or a part thereof, may lie.”9 In Renwar Oil Corp. v.
Lancaster10 it was held that this statute was applicable to a declaratory judgment action in which an
adjudication was sought concerning the effectiveness of a unitization agreement. The court noted that:

5
See, e.g., Kuklies v. Reinert, 256 S.W.2d 435, 2 O.&G.R. 794 (Tex. Civ. App.—Waco 1953, error ref’d n.r.e.) (dealing with the
question of the sufficiency of the description of the affected premises in the unit agreement);

Paddon Hughes Dev. Co. v. Pancontinental Oil Ltd., [1992] 5 W.W.R. 106 at 123 (Alta. Q.B. 1992) (the court implicitly adopted the
contract, rather than the cross-conveyance, theory of pooling by ruling that the pooling agreement there in question “was not a deed for
which physical delivery of the document is required”).
6
See, e.g., the following:
Griswold v. Public Service Co., 1951 OK 342, 205 Okla. 412, 238 P.2d 322, 1 O.&G.R. 108 (holding a lessor bound by an oral pooling
agreement; the opinion contains no mention of a statute of frauds problem);

Brazell v. Brown, 1934 OK 520, 169 Okla. 623, 38 P.2d 17 (oral agreement by lessors of separate tracts to share in royalties paid by
lessee).
7
Phillips Petroleum Co. v. Peterson, 218 F.2d 926, 4 O.&G.R. 746 (10th Cir. 1954), cert. denied, 349 U.S. 947, 75 S. Ct. 871, 99 L.
Ed. 1273, 4 O.&G.R. 1178 (1955).
8
See § 936, infra.
9
Vernon’s Annotated Texas Civil Statutes, Article 1995, subdivision 14.
10
Renwar Oil Corp. v. Lancaster, 154 Tex. 311, 276 S.W.2d 774, 4 O.&G.R. 697 (1955).
Renwar was distinguished in In re Riata Energy, Inc., 2001 Tex. App. LEXIS 7806 (Tex. App.—Houston [1st Dist.] Nov. 21, 2001)
(unpublished opinion), where the operator under a joint operating agreement unsuccessfully argued that Tex. Civ. Prac. & Rem. Code
§ 15.011 (venue provision for actions affecting real property) required a suit challenging various operator actions and seeking removal
of the operator to be brought in the county where the well was located. The court interpreted the non-operator’s pleadings as seeking
monetary damages for breach of the JOA, fraud remedies, and conversion of the production based on a wrongful allocation under the
JOA.

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6-9 Williams & Meyers, Oil and Gas Law § 929

“[P]laintiffs seek an adjudication that certain unitization agreements are void and ineffective as to
them. Since these agreements are essentially a conveyance of an interest in realty, Veal v.
Thomason, 138 Tex. 341, 159 S.W.2d 472, this constitutes an effort to remove cloud from title, even
though alleged as an effort to construe a contract.”11

[Conveyance not mentioning agreement]

(6) Effect of conveyance by lessor which does not mention the pooling or unitization agreement.
A possible impact of the cross-conveyance theory upon the construction of certain instruments has
been suggested by one able writer, Leo J. Hoffman. He raises the possibility that should the owner of
a separate tract included in a unit conveyance convey such tract without mention of his rights in the
unit agreement, such conveyance would not affect his interest in such other premises.12 In other words,
if Blackacre is included in a pooling or unitization agreement affecting Blackacre and Whiteacre, a
subsequent conveyance of Blackacre which made no reference to the agreement would not convey the
grantor’s interest in royalty on pooled production from Whiteacre.
Although mention of this suggestion must be made for purpose of completeness of discussion of
possible impact of the cross-conveyance theory in various contexts, we must also emphasize our
disagreement with the suggestion itself. In our view the question is one of intent of the parties, not
whether pooling or unitization effects cross-conveyances. The court should give effect to a properly
manifested intent of the parties as to whether the grantor’s interest in unit production from Whiteacre
is conveyed with Blackacre. But where the parties have failed adequately to manifest their intent in this
regard, the question becomes one of judicially ascertained intent and, in our opinion, the courts should
usually take the position that the grantor’s interest in unit production is included in a conveyance of
the premises he has committed to the unit. In other words, the interest of a party in unit production
should ordinarily be viewed as appurtenant to his interest in premises committed to the unit rather than
“in gross.”13 Decisions on this matter do not appear to have been affected by the adoption or rejection
of the cross-conveyance theory; thus, both in California and in Mississippi the cross-conveyance
theory appears to have been adopted, but the two states differ in answering the question whether a
party’s interest in unit production is appurtenant or in gross.14

[Operation of recordation statutes and bona fide

purchaser doctrine]

(7) Effect of pooling or unitization agreement upon prior unrecorded interests in affected lands.

If a pooling or unitization agreement is viewed as a conveyance it may be contended that execution
of such an agreement brings into play doctrines relating to the operation of recordation statutes and the
11
Renwar Oil Corp. v. Lancaster, 4 O.&G.R. at 700.
12
Hoffman, Voluntary Pooling and Unitization 169–172 (1954).
13
See § 660 at notes 11–14, supra.
14
Application of the cross-conveyance theory in California and in Mississippi is discussed in §§ 930.1, 930.4, infra. The cases dealing
with the effect of a conveyance which fails to mention the pooling or unitization agreement are discussed in § 660 at note 11 and 12,
supra.

SUSAN BOVA
 Page 5 of 7
6-9 Williams & Meyers, Oil and Gas Law § 929

bona fide purchaser doctrine. Thus, if subsequent to the creation of unrecorded legal or equitable
interests in Blackacre, the record title owner commits Blackacre to a pooling or unitization agreement,
will such unrecorded legal or equitable interests be defeated insofar as inconsistent with the interests
of other parties claiming under the agreement? In Sohio Petroleum Co. v. Jurek,15 it was urged that by
virtue of the pooling of Blackacre, the lessors of other pooled tracts became the owners of undivided
interests in Blackacre, thereby cutting off the equitable interests of the plaintiffs therein under the bona
fide purchaser doctrine. The court in this case refused to apply the cross-conveyance theory. This
holding is contrary to the weight of Texas authority,16 but in the instant case it enabled the court to
avoid addressing itself to this issue. As indicated by a student note, the logic of the cross-conveyance
theory requires application of the bona fide purchaser doctrine and the recording statutes to pooling
agreement.17

[Tax consequences]

(8) Tax treatment of participant in pooling or unitization agreement.
The characterization of a unit agreement is also of significance for federal tax purposes. One theory
is that the unitization agreement effects a series of nontaxable exchanges and another is that no
exchange of depletable properties takes place upon unitization but that the parties merely agree
contractually to devote their depletable properties to common use and to share in the common product.
The problem is discussed in the papers noted below.18 It suffices here to observe that the conclusion
whether a particular state has adopted the cross-conveyance or the contract theory as to the effect of
a pooling or unitization agreement should not be determinative of federal tax consequences.19

In Wyoming State Tax Commission v. BHP Petroleum Company,19.1 the court held that delinquent ad
valorem property taxes on mineral production could not be assessed and collected from the unit
operator of a federal exploratory unit, as opposed to the working interest owners. The court
distinguished an earlier case, BHP Petroleum Company v. Wyoming Tax Commission,19.2 which had
held that the unit operator could be assessed the delinquent severance tax on all production attributed
to working interest owners. It concluded that the ad valorem tax was levied on the owner of the mineral
15
Sohio Petroleum Co. v. Jurek, 248 S.W.2d 294, 1 O.&G.R. 977 (Tex. Civ. App.—Ft. Worth 1952, writ ref’d n.r.e.).
16
See § 930.8, infra.
17
German, “Oil and Gas—Formation of Pooling Unit Does Not Defeat Outstanding Equitable Interests,” 31 Tex. L. Rev. 340 (1953).
18
See the following papers discussing the tax consequences of treating unitization as an exchange or a contract:

Benjamin, “A Different View of the Nature of Unitization,” 9 Oil & Gas Tax Q. 212 (1960);
Chodorow, “Federal Tax Consequences of an Oil and Gas Unitization,” 37 Tex. L. Rev. 877 (1959);
Benjamin, “Recent Developments in Field of Taxation Affecting Oil and Gas Transactions,” 9 Sw. Legal Fdn. Oil & Gas Inst. 549 at 573
et seq. (1958).
19
This is the conclusion of the court in Killam v. Comm’r, 39 T.C. 680, 18 O.&G.R. 406 (1963).
19.1
Wyoming State Tax Commission v. BHP Petroleum Co., 856 P.2d 428, 125 O.&.G.R. 207 (Wyo. 1993) .

In Amoco Production Co. v. Board of County Commissioners of County of Sweetwater, 2002 WY 154, 55 P.3d 1246, 154 O.&G.R. 559,
the court held that the non-operator waived its rights to contest the assessment of its share of unitized real property when it failed to
appeal the notice of assessment sent to the unit operator for which the non-operator had actual or constructive notice.
19.2
BHP Petroleum Co. v. Wyoming Tax Commission, 784 P.2d 621, 105 O.&.G.R. 661 (Wyo. 1989) .

SUSAN BOVA
 Page 6 of 7
6-9 Williams & Meyers, Oil and Gas Law § 929

products produced, while the severance tax was levied on the person (i.e., the unit operator) extracting
the mineral products. The unit agreements were held to create an agency relationship rather than to
transfer an ownership interest. Thus, the unit operator was not an owner but, rather, was the extractor
of the share of production attributable to the working interest owners.

Unit operators also are responsible for dealing with the problems associated with multiple taxing
jurisdictions.19.3

Another tax problem relating to exemption from taxation of certain Indian lands in Oklahoma is
discussed hereinafter.20

[Application of “two-grant” theory to conveyance]

(9) Application of the two-grant theory to a conveyance “subject-to” an existing lease.

In §§ 340–340.5, the effect of a “subject to” clause in a mineral conveyance is discussed at length. As
is there noted, some courts have viewed the clause in a mineral deed reciting that the conveyance is
“subject to” an existing lease but covers and includes a specified interest in lease benefits has the effect
of conveying an interest in existing lease benefits which may be different from the benefits which pass
under the habendum clause of the mineral deed.

A Texas case, Kelln v. Brownlee,21 applied the two-grants theory to a conveyance of minerals “subject
to” an existing lease which had been pooled with other leases in Section 59 to form a pooled unit for
the entire section. The grantor owned undivided interests in portions of the section but not in other
portions. The court applied the cross-conveyance theory and concluded that the grantee was entitled
to an apportioned share of royalty on unit production from any portion of Section 59, but on
termination of the pooling pursuant to the pooling clauses of the grantors’ lease, the grantee’s rights
would be measured by the habendum clause of the mineral deed as applied to the interests in the
section owned by the grantors.

§ 929.2 Pooling or unitization agreement as cross-conveyance or contract: Effect of express
provision negating intent to make cross-conveyance

By reason of fear of certain consequences thought to follow from treatment of a pooling or unitization
agreement as a cross-conveyance rather than as a mere contract, many such agreements contain express
19.3
In Shell Western E & P, Inc. v. Dolores County Board of Commissioners, 948 P.2d 1002 (Colo. 1997), the unit operator mistakenly
failed to attribute a portion of unit production to lands located within a certain county. Therefore, it did not make the required production
reports or the proper payments. The unit operator was found liable for the unpaid taxes and could not use the statute of limitations as
a defense, because it had an affirmative duty to report the production to the county tax officers. See also Amoco Production Co. v.
Wyoming State Board of Equalization, 7 P.3d 900 (Wyo. 2000) (challenge to the unit operator’s allocation of unit production between
two counties). On remand, the Board reaffirmed its earlier decision that Amoco, the unit operator, had misallocated production so that
it would be paying a lower tax rate in one of the two counties straddled by the unitized oil and gas reservoir. The Wyoming Supreme
Court affirmed the Board decision in BP America Production Co. v. Department of Revenue, 2006 WY 27, 130 P.3d 438.
20
See the discussion in § 930.6, infra, of Sinclair Crude Oil Co. v. Oklahoma Tax Commission, 1958 OK 110, 326 P.2d 1051, 9
O.&G.R. 613.
21
Kelln v. Brownlee, 517 S.W.2d 568, 50 O.&G.R. 548 (Tex. Civ. App. 1974, error ref’d n.r.e.).

SUSAN BOVA
 Page 7 of 7
6-9 Williams & Meyers, Oil and Gas Law § 929

clauses designed to negate or prevent cross-conveyances. Examples of such provisions are collected
elsewhere herein.1

The effect of such a provision in the agreement remains uncertain. There is some authority for the
contention that it will be given effect by the courts. In Phillips Petroleum Co. v. Peterson,2 for example,
in holding that the Rule against Perpetuities was inapplicable to a pooling clause in an oil and gas
lease, the court emphasized certain language in the pooling clause said to indicate that “the effect of
unitization was to be only with respect to allocation of production and the computation of royalties and
was not to effect cross-transfers of royalty interests.”3 It further noted that the unitization agreement
itself clearly provided that “[n]othing herein … shall be construed to transfer title to any land or to any
lease or operating agreement.”4 And a distinguished writer on the law of unitization has essayed the
following conclusions:

“There can hardly be any objection in the law to such an express agreement that the pooling or
unitization shall not constitute an exchange or transfer of real property interests. Presumably such
a provision is valid and, therefore, effective for the purpose of nullifying any cross-conveyancing
which could otherwise result.”5

The authors hereof are not so sanguine on the matter. Although parties to an agreement may “make
their own law” in many respects by contract, they may not do so for all purposes. If, for example,
application of the Rule against Perpetuities to a lease pooling clause or to a pooling or unitization
agreement or if the question of indispensable parties in a title or other suit involving unitized premises
turn upon whether the agreement effects a cross-conveyance or is a “mere” contract, it seems difficult
to believe that a characterization given by the parties to their agreement will be effective to determine
such important legal consequences.
Williams & Meyers, Oil and Gas Law
Copyright 2014, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

1
See § 921.6, supra.
2
Phillips Petroleum Co. v. Peterson, 218 F.2d 926, 4 O.&G.R. 746 (10th Cir. 1954), cert. denied, 349 U.S. 947, 75 S. Ct. 871, 99 L.
Ed. 1273, 4 O.&G.R. 1178 (1955).
3
4 O.&G.R. at 750. See also the discussion in § 928.2, supra, of Stumpf v. Fidelity Gas Co., 294 F.2d 886, 16 O.&G.R. 139 (9th Cir.
1961).
4
Ibid.
5
Hoffman, Voluntary Pooling and Unitization 168 (1954).
See also, to the same effect, Doggett, “Practical Legal Problems Encountered in the Formation, Operation and Dissolution of Fieldwide
Oil and Gas Units,” 16 Okla. L. Rev. 1 at 10 (1963).

SUSAN BOVA
TEXAS LAW OF OIL
AND GAS
SECOND EDITION
VOLUME 1
Ernest E. Smith
Rex G. Baker Centennial Chllir in Natural Resources lAw
University of Texas School of Law

Jacqueline Lang Weaver
A.A. White Professor of Law
University of Houston Law Center

2014
Filed Through:
RELEASE NO. 16, JUNE 2014

• LexisNexis·
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(Rei 1 ~ 14 Pub.8~72)
2-61 Types of Interests in Oil and Gas 2.4[AJ

2.4 ROYALTY AND SIMILAR INTERESTS

A. In General
The word "royalty" is a chameleon-hued term. It changes meaning with
the context in which it is used. As commonly understood, a royalty is a real
property interest with two distinguishing characteristics. It is nonpossess01y
and it is free of production and operating expenses. The owner of such an
interest has no right to explore, drill, or produce oil and gas; similarly, he
normally has no right to execute oil and gas leases. T he principal benefit
conferr-ed by royalty ownership is the right to a fraction of oil, gas, or
mineral production free of drilling, mining, and operating expenses. 287·1
This common understanding of the term "royalty" is correct in a general
sense, but it is both underinclusive and overinclusive. It is underinclusive
because it does not fully encompass all contexts in which the word is used.
Hybrid interests can be created. The separation of all possessory rights from
a mineral fee interest will not automatically transform it into a royalty, 288
and, conversely, rights normally attached to a mineral fee interest, even
including the right to patticipate in leases,289 can be attached to a royalty.
More commonly the royalty owner is given specified rights to use the
surface and subsurface or rights to share in lease benefits in addition to
production. 290 Although instruments creating such interests almost invari-
ably create problems of interpretation and lead to litigation over whether the
interest is a royalty or a fractional interest in the mineral fee, 291 they are
encountered with surprising frequency.
Additional ly, the word "royalty" is used in oil and gas leases and

287 1
· There is an exception for some overriding royalties carved from leases subject to a
joint operating agreement. See. e.g., Boldrick v. BTA Oil Producers, 222 S.W.3d 672 (Tex.
App.-Eastland 2007) and refer to Section 17.3(E) of this treatise.
288 See, e.g., Buffalo Ranch Co. v. Thomason, 727 S. W.2d 331 (Tex.. App.-Houston
[1st Dist.] 1987, writ refd n.r.e.).
289
Elick v. Champlin Petroleum Co.,-697 S.W.2d I (Tex. App.-Houston [14th Dist.]
1985, writ refd n.r.e.).
290 See. e.g., Brady v. Security Home lnv. Co .. 640 S.W.2d 731 (Tex. App.-Houston

(14th Dist.] 1982, n.w.h.); Nee! v. Alpar Resources. Inc., 797 S.W.2d 361 (Tex.
App.-Amarillo 1990, n.w.h.).
291 See, e.g.. Altman v. Blake, 712 S.W.2d 117 (Tex. 1986); Diamond Shamrock Corp.

v. Cone, 673 S.W.2d 310 (Tex. App.- Amarillo 1984, writ refd n.r.e.). Problems of
interpreting such instruments are discussed at Section 3.5(8) of this treatise. See also Bruce
M. Kramer, Conveying Minerallllterests- Mastering the Problem Areas, 26 TULSA L.J. 175
( 1990).

(l!
§ 2.4[B][2] Texas Law of Oil and Gas 2-64

decades of this century297 and then became standardized at 1/8 during the
1920s and early 1930s. Landowners' royalties that are larger than 1/8
became increasingly common in oil and gas leases executed after the
mid-1970s. It is unusual to find a lease executed within the last 20 years that
provides for a royalty of less than 1/6, and many now provide for a royalty
of 115 or even 1/4. On state-owned lands the royalty is commonly set at 1/4.
The landowner's royalty is dealt with in detail in Chapter 4 of this treatise.
2. The Nonparticipating Royalty
Royalties are also frequently created in deeds of real estate, by either grant
or reservation. A royalty created in such a transaction is sometimes referred
to as a "nonparticipating royalty." 2 9 8 Its duration may be perpetual or, as
discussed in Section 2.5 of this chapter, it may be limited to a defined period.
A royalty owner's right to share in production accrues monthly as oil and gas
are produced, and the statute of limitations begins to run when the owner
receives information that puts him on notice that there is production from or
attributable to the land subject to his royalty. 299
The size of this type of royalty may be stated in two different ways. The
deed may either specify a stipulated fraction of gross production, such as
1/16,300 or it may specify a fraction of the royalty reserved in an oil and gas
lease. 301 The owner of a royalty stated as a set fraction of gross production
will be entitled to that fraction, regardless of the terms of any existing or
future oil and gas lease.302 If, however, the interest creates a right to a
fraction of royalty, the owner's share of production will vary with the size of
the royalty reserved in an oil and gas lease. Thus, the owner of a right to
"one-fourth of royalty" will receive 1/32 of the gross production from a lease
providing for a l/8 royalty, but he will receive l/24 of the gross production
from a lease providing for a 1/6 royalty.
An unfortunately common formulation combines these two basic methods

297
Compare Southern Oil Co. v. Colquitt, 69 S.W. 169 (Tex. Civ. App. 1902) (1110
royalty) with Consumers' Gas Trust Co. v. Littler. 162 Ind. 320, 70 N.E. 363 (1904) (1/6
royalty).
298
This term as applied in this context is obviously undcrinclusive. for all royalties are
nonparticipating in the sense that they bear no share of the capital or operating costs.
299
Harrison v. Bass Enters. Prod. Co., 888 S. W.2d 532 (Tex. App.-El Paso 1994).
300
E.g., the instrument in Watkins v. Slaughter, 144 Tex. 179. 189 S.W.2d 699 (1945).
301
See, e.g., the deed in Schlitller v. Smith, 128 Tex. 628. 101 S.W.2d 543 (1937).
302 See, e.g., Winslow v. Acker, 781 S.W.2d 322 (Tex. App.-San Antonio 1989, n. w.h.);
Tiller v. Tiller, 685 S.W.2d 456 (Tex. App.-Austin 1985. n.w.h.).

!Rd 14·612012 ru~ .82~721
2-65 Types of Interests in Oil and Gas § 2.4[B][3]

of stating the size of the nonparticipating royalty. An example is the
reservation of "an undivided one-half interest in and to all of the royalty that
may be payable under any and all oil and gas leases, by which royalty is
meant one-eighth of production.'' Language such as this, which clearly states
that the parties were thinking in terms of a 118 landowner's royalty, has the
effect of limiting the royalty to the specified fraction of 1/8. Thus the grantor
is entitled to only 1116 of the gross production, even though an oil and gas
lease provides for a royalty larger than the standard 118.303 Variations on this
language often lead to litigation over the intent of the parties to the deed.sou
Regardless of size or the manner of describing the fractional interest, the
owner of a nonparticipating royalty is limited to receiving a share of gross
production. Other lease benefits, such as bonus and delay rentals, are not
shared with the owner of a nonparticipating royalty unless the instrument
creating the royalty expressly provides for participation in these benefits.304
3. The Overriding Royalty
The term "overriding royalty" has at least two, somewhat different
meanings. In earlier years it was occasionally used in referring to any portion
of a landowner's royalty which exceeds 1/8. For example, the lease litigated
in Martin v. Glass 305 provided for a 1/8 royalty and an additional "overriding
royalty in the aggregate amount of 1132nd of 7/8ths of all oil, gas and other
minerals saved, produced or sold from the premises." This use of "overrid-
ing royalty'' is quite uncommon today, however, and the term is typically
used in referring to a gross production interest created in a transaction
between an oil and gas lessee and a person other than the landowner. Thus
an oil and gas lessee may assign all or part of its leasehold interest and
reserve an overriding royalty in any production obtained from the assigned
acreage. In some instances, a condition may be attached to the overriding
royalty, such as a provision that if it is not paid within a specified period after
production commences, the assignor has the right to terminate the assign-
ment.305·1
Alternatively, an overriding royalty may be carved out of the leasehold

303
See, e.g., Ray v. Truitt, 751 S.W.2d 205 (Tex. App.-El Paso 1988, n.w.h.).
303 1
· See Section 3.7[A] of this Chapter.
304 Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543 (1937).
305
571 F. Supp. 1406 (N.D. Tex. 1983).
sou Circle Ridge Prod. v. Kittrell Family Minerals, LLC, 2013 Tex. App. LEXIS 8790
(Tex. App.-Texarkana July 17, 2013).

(Rei. 16-612014 Pllb.82S72)
§ 2.4[B][3] Texas Law of Oil and Gas

estate and assigned to a third party. sou Assignments of overriding royalties
are commonly used to obtain financing and as a method of compensating
landmen, geologists, and other persons for services or information provided
to the oil and gas company.305.3
Because an overriding royalty is created from the lessee's interest, it will
not outlast the lease.308 unless there is an express savings clause, such as a
provision that the overriding royalty will apply to all amendments, exten-
sions, renewals, or new leases taken out within a specified period after
termination of the current lease. Although there may be some occasional
exceptions where deliberate fraud is involved, in the absence of an express
savings clause all interests which are dependent upon the lease will normally
terminate when the lease terminates. For example, in one situation, tbe lessee
allowed a lease subject to overriding royalties to terminate by not spending
a rather minimal amount of money to repair the well's broken rod and then
obtained a new lease which would not be subject to the overriding royalties.
The court conceded that there was some support for the proposition that a
lessee that deliberately engages in conduct in order to wash out an overriding
royalty is subject to liability, but went on to point out that Texas courts have
generally been reluctant to impose any type of duty-either an implied
contractual covenant or a fiduciary obligation-on a lessee in favor of the
holder of an overriding royalty. 306..1
Whether reserved or assigned, the fraction of gross production included in
the overriding royalty should be clearly specified. Because overriding
royalties are created from the lessee's working interest, which is always less

305 2
· For special issues connected with overriding royalties carved from a working
interest that is subject to a joint operating agreement, refer to Section 17.3(E) of this treatise.
305 3
• See, e.g., Mobil Exploration and Producing, U.S., Inc. v. Dover Energy Exploration,
L.L.C., 56 S.W.3d 772 (Tex. App.-Houston [14th Dist.) 2001), where a drilling company
received access to a second company's proprietary information concerning offshore drilling
prospects in exchange for an agreement to grant an overriding royalty to the second company
if it acquired a lease on any of the second company's prospects: and Quigley v. Bennett, 227
S.W. 3d 51 (Tex. 2007), involving a geologist whose compensation was typically based on
an overriding royalty of the leases be agreed to evaluate.
305
See, ·e.g., Sunac Petroleum Corp. v. Parkes, 416 S.W.2d 798 (Tex. 1967); The
Exploration Co. v. Vega Oil & Gas Co., 843 S.W.2d 123 (Tex. App.-Houston [14th Dist.J
1992, writ denied); Sasser v. Dantex Oil & Gas, lnc.• 906 S.W.2d 599 (Tex. App.-San
Antonio 1995, writ denied); SM Energy Co. v. Sutton, 376 S.W.3d 787 (Tex. App.-San
Antonio 2012). Problems involving duration of overriding royalties are discussed in Section
16.5(A)(3) of this treatise.
306 1
· Stroud Prod., L.L.C. v. Hosford, 405 S.W.3d 794 (Tex. App.-Houston [lst Dist.]
2013).
(Rei 16-612014 Pllb.82S72)
2-66.1 Types of Interests in Oil and Gas § 2.4[C]

than 100 percent of production, the language creating the overriding royalty
must be carefully drafted to indicate the size of the fraction. There may be,
for example, confusion whether a 1/16 overriding royalty entitles its owner
to 1/16 of total production or only 1116 of the production to which the lessee
was entitled, e.g., 1/16 of 7/8.
C. Benefits Included in a Right to a Fraction "of Royalty"
Unless the word "royalty" is defined, a grant or reservation of a fraction
"of royalty" may lead to disputes over the royalty owner's right to share in
a variety of lease benefits. The Texas courts have generally construed the
word "royalty" when used in this context to mean payments from production
which will continue throughout the life of an oil and gas lease. Hence, the
owner of "one-fourth of royalty" will receive her stated fraction from all
royalty reserved in an oil and gas lease, even though the payments from
gross production exceed one-eighth, which was the standard royalty
throughout much of the twentieth century, and are labeled "excess royalty"
or "bonus."307 This definition excludes from royalty a lease benefit payable
from production which will terminate when a specified sum has been
received. Such payments, commonly designated "oil payments" or "produc-
tion payments," are sometimes used to provide additional or deferred bonus
money, and the owner of a fraction "of royalty" is not entitled to share
them.308
The Texas courts have frequently dealt with other lease benefits on an ad
hoc basis, without express reference to a general definition. Thus a
"compensatory" royalty that a lessee paid from production of a well draining
the leased tract in settlement of its obligation to drill an offset well was
deemed a royalty within the meaning of a prior deed which had conveyed a
right to one-fourth "of the oil royalty, gas royalty and royalty in casinghead
gas, gasoline, and royalty in other minerals in and under, and that may be
produced and mined" from the premises.309 The same treatment has been
accorded "minimum royalty," which is a sum payable under a lease clause

307
Griffith v. Taylor, 156 Tex. 1, 291 S.W.2d 673 (1956); Lane v. BJkins, 441 S.W.2d
871 (Tex. Civ. App.-Eastland 1969, writ refd n.r.e.).
308 See, e.g., State Nat'l Bank v. Morgan, 135 Tex. 509, 143 S.W.2d 757 (Tex. Comm'n

App. 1940, opinion adopted).
309
Andretta v. West, 415 S.W.2d 638 (Tex. 1967).

(R.612014 Pub.82S72)
Types of Interests in Oil and Gas 2.4(0)

is used off the premises or those based on the market value of natural
gas.
The right of an owner of a fraction "of royalty" to share shut-in
payments is more problematic. Although one appellate court has
indicated that the royalty owners would share in such payments,311 the
language was dictum, because that issue was not before the court.
Shut-in payments do not fall within the concept of payments based on
production because they are expressly paid in lieu of production.
Moreover, treating shut-in payments as royalty is arguably inconsistent
with the long line of cases holding that shut-in payments do not maintain
a term royalty interest beyond its initial specified term. 312

D. Interests Similar to Royalties
There are several types of interests in gross production that, although
not generally called royalties, are similar to them.
A "production payment" is a right to a specified fraction of
production until a specified sum has been received. Occasionally the
parties creating it may provide for its termination upon some other
event. 3l3 Because a production payment is almost always carved out of
the lessee's interest in an oil and gas lease, the terminating event must
be something other than lease termination, or the interest in production
will be classified as a royalty. 314 Like a royalty, it does not bear any of
the costs of drilling. completing, or operating the well. A production
payment may be limited to certain categories of production, such as oil,
gas well gas, or casinghead gas, and may be payable in kind rather than
in cash. Such an interest may be given to a lessor as a means of providing
him with an additional bonus,315 to a lender as a means of repaying or
providing security for a loan, or to a person, such as a geologist, who has
performed services for the lessee and receives the production payment
as compensation. It may also be consideration for the assignment of an
oil and gas lease.316

311. Id.
312. Archer County v. Webb, 161 Tex. 210, 338 S.W.2d 435 (1960). Refer
also to the discussion in Section 2.5 of this chapter.
313 See, e.g., First City Nat'l Bank v. Concord Oil Co., 808 S.W.2d 133 (Tex.
App.-El Paso 1991) (production payment terminates when 10% of the oil
beneath the tract remains unproduced).
314. Griffith v. Taylor, 156 Tex. 1, 291 S.W.2d 673 (1956).
315. See State Nat'l Bank v. Morgan, 135 Tex. 509, 143 S.W.2d 757 (Tex.
Cornm'n App. 1940, opinion adopted).
316. See, e.g., First City Nat'l Bank v. Concord Oil Co., 808 S.W.2d 133 (Tex.
App.-El Paso 1991).

TEX. OIL AND GAS 2d od.Issue 0 (1998) 2-67
2.4(0) Texas Law of Oil and Gas

A "net profits" interest is a right to a specified share of profits. It has
some similarity to a royalty in that its owner is not personally liable for
drilling or operating expenses. Unlike the royalty, however, it entitles
its owner only to a share of profits after expenses have been paid. The
method of computing net profits, lhe manner and time of payment, and
lhe costs to be taken into account are determined by the instrument
creating the interest. Because the term "net profits" has no fixed legal
definition, it is essential that the parties creating such an interest set out
in detail the method for determining net profits. For example, they
should specify whether the owner is entitled to payment only after
drilling and completion costs have been recouped, or whether his
interest is subject only to operating expenses. In lieu of a definition, the
parties may well have their rights determined by the same doctrines
which are applicable to a cotenant who does not participate in leasing
or developing. Such a co-owner has a form of net profits interest as a
matter of law, although he is more commonly spoken of as having a
carried interest.
The term "carried interest" is used in a variety of contexts. Such an
interest may arise by operation of law, as in the case of cotenants, or it
may arise through contractual agreement. The term is, therefore, only
generally descriptive of any interest which entitles its owner to a
specified fraction of production, while not subjecting him to personal
liability for certain expenses. The carrying party is responsible for lhose
expenses but is entitled to recoup them from the carried party's share of
production. Unlike lhe net profits interest, which normally continues
for the duration of the underlying oil and gas lease, the carried interest
terminates when the agreed-upon costs have been recouped by the
carrying party. At that point the carried interest is transformed into a
fractiona l share of the working interest, and its owner is liable for costs
and entitled to a share of production like other working interest owners.
Thus the point to which the interest is "carried" is crucial to a
determination of the parties' rights and liabilities. This point will vary
from agreement to agreement, but frequently the owner is carried either
"to the casing point," in which case he is not personally liable for the
drilling and testing costs but is subject to his proportionate share of
completion and operating costs, or "to the tanks or pipeline," in which
case he is freed from liability for virtually all expenses, including
operating expenses. Joint operating agreements commonly include a
provision whereby a party who does not wish to commit funds for
additional wells may be carried to well completion but is not entitled to
any share of production until the carrying parties have recovered some
multiple of the carried party's share of cost from his share of production.
This type of interest is sometimes referred to as a "Manahan" type of

2-68 TEX. OIL AND CAS 2d ed. Issue 0 (1998)
Types of Interests in Oil and Gas 2.4(E)

interest. 317 Like other common forms of carried interests, it received its
name from a case litigating tax implications.318

E. Nature and Incidents of Royalty Ownership
All varieties of royalties,319 overriding royalties, 320 and production
payments321 are nonpossessory interests in land, whether payable in
money or payable in kind.322 The same analysis is usually made of
carried interests323 and net profits interests.324 They are thus subject to
ad valorem taxes as interests in land,325 and an instrument creating or
transferring them must meet the requirements of the statute of frauds. 326
Because such interests are nonpossessory, their owners normally are not
entitled to compel a suit for partition327 or to invoke possessory
remedies, such as a trespass to try title.3 28 Moreover, because the owner

317. See Railroad Comm'n v. Olin Corp., 690 S.W.2d 628 (Tex.
App.-Austin 1985, writ refd n.r.e.).
318. See Manahan Oil Co. v. Commissioner, 8 T.C. 1159 (1947). See also
Commissioner v. Abercrombie, 164 F.2d 338 (5th Cir. 1947), overruled as to tax
consequences; United States v. Cocke, 399 F.2d 433 (5th Cir. 1968), cert. denied,
344 U.S. 922 (1969); Herndon Drilling Co. v. Commissioner, 6 T.C. 628 (1946).
319. Sheffield v. Hogs, 124 Tex. 290, 77 S.W.2d 1021 (1934), rehearing
denied, 124 Tex. 290, 80 S.W.2d 741 (1935).
320. Frost v. Standard Oil Co., 107 S.W.2d 1037 (Tex. Civ. App.-Galveston
1937, no writ); T-Vestco Litt-Vada v. Lu-Cal One Oil Co., 651 S.W.2d 284, 291
(Tex. App.-Austin 1983, writ refd n.r.e.).
321. Sheppard v. Stanolind Oil & Gas Co., 125 S.W.2d 643 (Tex. Civ.
App.-Austin 1939, writ refd); Tenannt v. Dunn, 130 Tex. 285, 110 S.W.2d 53
(1937); Roberts v. Lone Star Producing Co., 369 S.W.2d 373, 376 (Tex. Civ.
App.-Eastland 1963, no writ).
322. Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021 (1934), rehearing
denied. 124 Tex. 290, 80 S.W.2d 741 (1935).
323. See Paine v. Moore, 464 S.W.2d 477 (Tex. Civ. App.-Tyler 1971, no
writ).
324. LaRue v. Wiggins, 277 S.W.2d 808 (Tex. Civ. App.-Waco 1955, writ
ref'd n.r.e.).
325. Sheffield v. Hogg, 124 Tex. 290, 77 S.W.2d 1021 (1934), rehearing
denied, 124 Tex. 290, 80 S.W.2d 741 (1935).
326. LaRue v. Wiggins, 277 S.W.2d 808 {Tex. Civ. App.-Waco 1955, writ
ref'd n.r.e.). In refusing a writ of error in Hydrocarbons,lnc. v. Pecos Dev. Corp.,
797 S.W.2d 265 {Tex. App.-Corpus Christi 1990, writ denied), lhe Texas
Supreme Court issued a memorandum opinion stating that "a majority of the
court disapproves that portion of the court of appeals opinion holding that the
conveyance of an overriding royalty in future production from unleased land is
not subject to the statute of frauds." 803 S.W.2d 266,267 (Tex. 1991).
327. Chaffin v. HaJJ, 210 S.W.2d 191 (Tex. Civ. App.-Eastland 1948, writ
ref'd n.r.e.).
328. T-Vestco Litt-Vada v. Lu-Cal One Oil Co., 651 S.W.2d 284 (Tex.
App.-Austin 1983, writ refd n.r.e.).

TEX. OLL AND GAS 2d ed. Issue 2[2000) 2-69
2.4(E) Texas Law of Oil and Gas

of a nonpossessory interest has no power or right to affect the way in
which a well is drilled, operated, or maintained, he is not liable in tort
for personal injuries resulting from negligence or from the condition of
the premises. 329 Conversely, such interests should not be subject to loss
to an adverse possessor of the surface estate.
Traditionally, all forms of royalties and production payments have
been free of all costs of drilling, completing, and operating the well;
however, unless the instrument creating it specifies to the contrary, the
royalty must bear its proportionate share of costs incurred subsequent
to production.330 Occasionally, the instrument creating the royalty will
specify what these expenses are; more commonly, the instrument is
silent on the subject. Most of these disputes have arisen in the context
of the landowner's royalty created by an oil and gas lease and are treated
in Chapter 4 of this treatise.

2.5. TERM lNTERESTS

Royalty interests and interests in the mineral estate presumptively
last in perpetuity.331 Such interests may, however, be for a more limited
duration. Term interests, whether created by grant or reservation, are
quite common in Texas. The most typical term interest is for a specified
period of time, such as five years, and so long thereafter as oil, gas, or
other minerals are produced from the described lands. The interest
created by such language normally terminates at the end of the specified
period if there is no production at that time. If there is production, the
interest will extend beyond the specified period and terminate only
when production terminates.

A. What Constitutes Production
Probably the most frequently litigated issue that arises under an
instrument creating a term interest is the meaning of "production." In
the absence of language to the contrary in the instrument creating the
term interest, the payment of shut-in royalty under an oil and gas lease
does not constitute "production" that will extend the term interest past
its specified period. In Archer County v. Webb, 332 the Texas Supreme

329. Davis v. Esperado Mining Co., 750 S.W.2d 887 (Tex. App.-Houston
[14th Dist.] 1988, no writ).
330. Refer to Section 4.6(C) of this treatise.
331. Dubois v. Jacobs, 533 S.W.2d 149 (Tex. Civ. App.-Austin 1976), on
remand and appeal, 551 S.W.2d 147 (Tex. Civ. App.-Austin 1977, no writ).
332. 161 Tex. 210, 338 S.W.2d 435 (1960).

2-70 TEX. Oil. AND GAS 2d ed. Issue 2 (2000)
TEXAS LAW OF OIL
AND GAS
SECOND EDITION
VOLUMEl
Ernest E. Smith
Rex G. Baker Centennial Choir in Natural Resources Law
University of Texas School of Law

Jacqueline Lang Weaver
A.A. White Professor ofLaw
University of Houston Law Center

2014
Filed Through:
RELEASE NO. 16, JUNE 2014

• LexisNexis·
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(Jlcl 16-6/2014 Pub.82572)
§ 3.4 Texas Law of Oil and Gas 3-22

Abilene, N.A. v. Westwood Energy, Inc.,M a nonoperator bad signed an
unrecorded operating agreement giving the operator a lien on the nonopera-
tor's working interest to secure the payment of all sums due the operator.
The nonoperator subsequently borrowed money from MBank Abilene and
gave the bank a deed of trust as security. When the nonoperator defaulted on
his obligation to pay his share of the operating expenses, the operator sued
to foreclose its lien on the nonoperator's working interest. MBank, which
was made a party to the suit, alleged priority of its deed of trust over the
unrecorded operator's lien. The court rejected MBank's argument on the
ground that the bank was deemed to have taken its lien with notice of the
preexisting operator's lien. Under the rule of the Westland case, MBank was
on notice of every recital and reference in its chain of title, and recorded
assignments of the nonoperator's working interest had contained references
to the operating agreement.
3.4 STANDARD RULES OF CONSTRUCTION AND
CONSTRUCTIONAL PREFERENCES
Grants and reservations of mineral interests are frequently unclear. The
language used to describe the interest may be equally consistent with a
royalty and a mineral fee. The instrument may be silent on what substances
are included in the term "minerals." The size of the interest created may be
the subject of dispute. In resolving such issues, the parties' intent is
determined, if possible, by considering the instrument as a whole. ''The
primary duty of the courts in interpreting a deed is to ascertain the intent of
the parties. But it is the intent of the parties as expressed within the four
comers of the instrument which controls."87 Unless there is an irreconcilable
conflict, all provisions of an instrument will be given effect. Thus, apparently
contradictory and inconsistent language will be given a construction which
hannonizes all provisions in the instrument.61

66 723 S.W.2d 246 (Tex. App. -Eastland 1986, no writ).
67 Altman v. Blake, 712 S.W.2d 117, 118 (Tex. 1986). See also, e.g., Garrett v. Oils Co.,
299 S.W.2d 904, 906 (Tex. 1957); Lucke! v. While, 819 S.W.2d 459, 461 (Tex. 1991); IVA
Operating Co. v. Kaiser-Francis Oil Co., 11 S.W.3d 504, 506 (Tex. App.-Eastland 2000).
• Benge v. Schatbauec, 152 Tex. 447, 259 S.W.2d 166 (1953); DuBois v. Jacobs, 533
S.W.2d 149 (Tex. Civ. App.-Austin 1976), appeal after remand, 551 S.W.2d 147 (Tex. Civ.
App.-Austin 1977, no writ); Selman v. Bristow, 402 S.W.2d 520 (Tex. Civ. App. -Tyler
1966, writ refd n.r.e.); Neel v. Alpar Resources, Inc., 797 S.W.2d 361 (Tex. App.-AmariUo
1990, n.w.IL); Lucke! v. While, 819 S.W.2d 459 (Tex. 1991); Jupiter Oil Co. v. Snow, 819
S.W.2d 466 (Tex. 1991 ); Hunsaker v. Brown Distrib. Co., 373 S.W.3d 153 (Tex. App.-San
Antonio 2012); Dodd v. Wiatrek, 2012 Tex. App. LEXJS 8976 (Tex. App.-San Antonio
Oct 31 , 2012).

(Ret 16-()12()14 Pub.82S72)
3-22.1 Titles and Conveyances § 3.4

In many instances this process is aided by the use of standard rules of
construction and constructional preferences.69 There is, for example, a
general preference for construing a deed in favor of the grantee and for
interpreting it as transferring the largest estate that is consistent with the
language of the instrument.70 Thus a reservation will not be implied, and
must be stated in clear language.70•1 All the incidents and attributes of the
mineral estate are deemed transferred to a grantee unless they are expressly
reserved. In Lesley v. ~terans Land Bd.,7 o.z the court rejected an argument
that a subdivision developer bad impliedly retained the exclusive executive
right by making the deeds to the lots in the subdivision subject to a recorded
covenant prohibiting oil and gas development and bad thus stripped the
grantees of the right to execute oil and gas leases. Interests such as royalty
and executive right that are appurtenant to the granted estate will pass to the
grantee even though they are not specifically mentioned in the deed. 70.3 The
general rule against implying grounds for forfeiture71 is a logical extension
of this doctrine.
Of course the doctrine that all incidents of a mineral estate are transferred

89
Bruce M. Kramer, The Sisyphean Task of Interpreting Mineral Deeds and Leases: An
Encyclopedia of Canons of Construction, 24 TEx. TEcH L. REv. I (1993), is the definitive
discussion of the rules and canons of construction used and applied by Texas courts. The
same rules of construction used in construing conveyances of min.eral interests are also often
used in construing provisions of wills devis.ing mineral interests. See, e.g., the discussion in
Grisham v. Lawrence, 298 S.W.3d 826 (fex. App.-Tyler 2009).
70 See, e.g .• Day &Co., Inc. v. TexlandPetroleum, Inc., 786 S.W.2d 667 (felt. 1990); Lott

v. Lott, 370 S.W.2d 463 (fex. 1963); Telr.as Pac. Coal & Oil Co. v. Masterson, 160 Tex. 548,
334 S.W.2d 436 (1960); Monroe v. Scott, 707 S.W.2d 132 (fex. App.-Corpus Christi 1986,
writ refd n.r.e.); Temple-Inland Forest Prods. Corp. v. United States, 988 F.2d 1418 (5th Cir.
1993); GXG, Inc. v. Te.xacal Oil & Gas, 977 S.W.2d 403, 418-19 (fex. App.-Corpus
Christi, 1998, pet. denied); Eastin v. Dial, 288 S. W.3d 491 (fex. App.-San Antonio 2009);
MPH Prod. Co. v. Smith, 2012 Tex. App. LEXIS 3989 (fex. App.-Texarlcana May 18,
2012).
70· 1 Sharp v. Fowler, 252 S.W.2d 153 (fex. 1952); Melton v. Davis, 443 S.W.2d 605,608

(fex. Civ. App.-Tyler 1969, writ refd n.r.e.); Eastin v. Dial, 288 S.W.3d 491 (fex.
App.-San Antonio 2009). See Section 3.9(C), infra.
70· 2 352 S.W.3d 479 (fe.x. 2011).
70 3
· E.g., Day & Co., Inc. v. Telr.land Petroleum, Inc., 786 S.W.2d 667 (fex. 1990); Alfrey
v. Ellington, 285 S.W.2d 383 (fe.x. Civ. App.-Eastland 1955, writ ref'd n.r.e.). There is an
exception for a tax foreclosure deed, which will transfer only the interest in land subject to
the tax lien, even though the deed contains no exceptions or exclusions from the grant. Pounds
v. Jurgens, 296 S.W.3d 100 (fex. App.-Houston [14th Dist.] 2009).
71 cambridge Oil Co. v. Huggins, 765 S.W.2d 540 (fex. App.-Corpus Christi 1989, writ

denied).

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I 3.4 Texas Law of Oil and Gas 3-22.2

to a grantee will not be applied to transfers of an estate or interest entirely
different from that described in the instrument. For example, an instrument
assigning a grantor's lien on the surface estate will not operate to transfer the
grantor's interest in a severed mineral estate in the same land, even though
the granting clause states that it conveys "all liens and titles held by me in
and to said land. " 72 Similarly, interests such as nonparticipating royalties
that are appurtenant to other lands are not impliedly included in a
conveyance, even though such lands were once part of a larger, single tract
and the grantor received the interests when the larger tract was parti·
tioned. 72.1 The oil and gas lease is an important exception to the rule
favoring the grantee in deed construction, for it is usually construed against
the lessee and in favor of the lessor-grantor. 73 A related doctrine which
usually (although not always) results in a deed interpretation favorable to the
grantee is the rule that the granting clause prevails in the event of an
irreconcilable conflict with other deed clauses. The importance of this
doctrine as applied to mineral deeds has diminished, however, as a result of
the Texas Supreme Court's decision in Luckel v. White. 74 The Luckel opinion
overruled an earlier case, Alford v. Krum, 75 which involved a deed that
granted "one-half of the one-eighth interest" in the mineral estate, covered
and included "l/16th of all royalties due" under an existing lease, and
provided that under future oil and gas leases "the lease interests and all
future rentals . . . shall be owned jointly by [the grantor and grantee] each
owning a one-half interest." The Alford court held that the granting clause
should prevail because it was in irreconcilable conflict with the future-leases
clause. Prior to Lucke/, appellate decisions 7 ' interpreted Alford as mandating

72
Smitb v. Williams, 786 S.W.2d 665 (fex. 1990); Humphreys-Mexia Co. v. Gammon,
113 Tex. 247, 254 S.W. 296 (1923).
72 •1 McCall v. McCall, 24 S.W.3d 508 (fex. App.-Houston [1st Dist.] 2000).
73 See McMahon v. Christmann, 157 Tex. 403, 303 S.W.2d 341 (1957). This rule applies
only if the lease is ambiguous. TSB Exco, Inc. v. E.N. Smith, m Energy Corp., 818 S.W.2d
417 (Tex. App.-Texarkana 1991, no writ).
74 819 S.W.2d 459 (fex. 1991).
75 671 S.W.2d 870 (fex. 1984).
78 E.g., Snow v. Jupiter Oil Co., 802 S.W.2d 354 (fex. App.-Eastland 1990), rev'd. 819
S.W.2d 466 (fex. 1991). Hawkins v. Texas Oil & Gas Corp., 724 S.W.2d 878 (fex.
App.-Waco 1987, writ refd n.r.e.); Stag Sales Co. v. Flores, 697 S.W.2d 493 (Tex.
App.-San Antonio 1985, writ rerd n.r.e.). For critiques of the repugnant-to-the-grant
doctrine. see Snow v. Jupiter Oil Co., 802 S.W.2d 354 and Tevis Herd. Deed Constmction
and the "Repugnant to the Grant" Doctrine, 21 TEx. TEcH L. REv. 635 (1990).

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3-22.3 Titles and Conveyances § 3.4

use of the repugnant-to-the-grant doctrine when interpreting a deed granting
fractional interests.
In addition to the foregoing, there are, of course, many other rules of
construction that may be used in interpreting instruments creating royalty
and mineral interests. Thus handwritten or typewritten language which has
been added to a form deed will usually prevail over inconsistent printed
language in the body of the instrument." The presumption against intestacy
may lead a court to interpret a will as devising a mineral fee rather than
merely a royalty. 78 If there are multiple grantees, there is a presumption that
they have received equal undivided shares of the interest conveyed unless
the deed provides otherwise.79 The doctrine of estoppel by deed precludes
the parties to a deed from disavowing any of its provisions. Although the
doctrine has occasionally been invoked to prevent a grantee from disavow-
ing recitals or reservations in a deed be bas accepted, 79.1 it is used far more
commonly when a grantor attempts to assert a reservation in derogation of
the grant.. The cases that have arisen in this context are dealt with in a
separate section of the treatise.792
Rules of grammar may also be used to aid in deed construction.79.3
Whether a deed is ambiguous is a question of law, determined by an
examination of the entire document. 7u If it is impossible to resolve an
ambiguity through the use of rules of grammar or construction, extrinsic

77
McMahon v. Christmann, 157 Tex. 403, 303 S.W.2d 341 (1957); Gibson v. Watson,
315 S.W.2d 48 (Tex. Civ. App.-Texarkana 1958, writ rerd n.r.e.); Minchen v. Hirsch, 295
S.W.2d 529 (Tex. Civ. App.-Beaumont 1956, writ rerd n.r.e.); TSB Exco, Inc. v. E.N.
Smith, ffi Energy Corp., 818 S.W.2d 417 (Tex. App.-Texarkana 1991, no writ).
78
Drach v. Ely, 237 Kan. 654, 703 P.2d 746 (1985).
7" John Hancock Mut. Life Ins. Co. v. Bennett, 133 Tex. 450, 128 S.W.2d 791 (1939).
JU Sauceda v. Kerlin, 164 S.W.3d 892 (Tex. App.-Corpus Christi 2005); Freeman v.
Stephens Production Co., 171 S.W.3d 651 (Tex. App.---Corpus Christi 2005).
7 2
•· s~e Section 3.7(C).
7
•·See, ~.g., Stewman Ranch, Inc. v. Double M. Ranch, Ltd., 192 S.W.3d 808 (Tex.
3

App.-EasUand 2006), considering the rule of grammar that a restricting clause that is not set
off by commas modifies the word or phrase immediately preceding it, but rejecting its
application on the ground that it would render the restricting clause superfluous.
7 •.4 Morrison v. Robinson, 2006 Tex. App. LIDOS 7905 (Tex. App.- Waco Aug. 30,
2006).

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§ 3.S[A) Texas Law of Oil and Gas 3-22.4

evidence may be admitted to determine the parties' intent.IO
3.5 DISTINGUISHING A MINERAL INTEREST FROM A
ROYALTY INTEREST
A. Traditional Language
The language used in a grant or reservation determines whether a mineral
fee or a royalty bas been created The traditional language used to create a
mineral fee is a reference to the oil, gas, and other minerals in, on, and under
the described land.11 Specific rights of ingress and egress and surface and
subsurface easements are also commonly included.82 Although most of these
rights would be implied in favor of the mineral fee owner in any event,
setting them out specifically may accomplish three things. First, it makes
much clearer the intent to create a mineral fee with its concomitant rights to
explore, drill, and produce. Second, it reduces the possibility of disputes
with the surface owner over the rights held by the mineral fee owner. The
surface owner is more likely to be convinced by written language than by an
argument based on implied rights. Third, it gives the draftsman an
opportunity to list specific rights which might not be implied in the mineral
owner's favor or which are broader than implied rights.
A royalty is typically created simply by using the word ''royalty." Thus a
landowner may grant "a 1116tb royalty" or a right to "1114tb of royalty," and
in either event it is clear that the grantee will receive a fraction of gross
production.u The same result can be accomplished by using the form of
language in Barker v. Levy, 14 where a deed granting a "one/one hundred and
sixtieth (l/160tb) part of all oil, petroleum, sulphur and all other minerals
that may be produced and saved" was held to have unambiguously
transferred a royalty rather than an undivided interest in the mineral fee.
B. Deeds with Confticting or Atypical Language
Unfortunately, mineral and royalty deeds and wills devising such interests

80 Brown v. Havard, 593 S.W.2d 939 (Tex. 1980).
81 See, e.g., Altman v. Blake, 712 S.W.2d 117 (Tex. 1986); Richardson v. Hart, 143 Tex.
392, 185 S.W.2d 563 (1945).
82 E.g., Richardson v. Hart, 143 Tex. 392, 185 S.W.2d 563 (1945); Prairie Producing Co.
v. Schlachter, 786 S.W.2d 409 (Tex. App.-Texarkana 1990, writ denied).
83 Caraway v. Owens, 254 S.W.2d 425 (Tex. Civ. App.-Texarkana 1953, writ refd);
Neel v. Alpar Resources, Inc., 797 S.W.2d 361 (Tex. App.-Amarillo 1990, n.w.h.)
(reservation clause).
14 507 S.W.2d 613 (fex. Civ. App.-Houston [14tb Dist.] 1974, writ refd n.r.e.).

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