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VETgirl Q1 2022 Beat e-Magazine beat ISSUE 12 | APRIL 2022 CONTENTS APRIL 2022 ARTICLES When patient
National Association of Division Order Analysts January February March 2022
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Volume MMXXII • No 1
www.NADOA.org
Contents Feature
Articles
Legislative Watch.........................................................................8 Legal Updates Concho v Ellison – A Second Look...........................................10 Wagenschein v Ehlinger Revisited............................................12 Barrow Shaver Res v NETX Acquisitions................................14 Fixed vs Floating: Van Dyke v Navigator & Thompson v Hoffman..............................................................16 Institute Preview........................................................................19 Cybersecurity. ............................................................................33 World Petroleum Congress.........................................................35 National Niche...........................................................................36
NADOA 2022 Officers President Michele Lawton 1st Vice President Norma Dooley 2nd Vice Presiden t Vicki Danielson, CDOA Treasurer Valerie Wible, CDOA Corresponding Secretary Jason Alexander Recording Secretary Kimberly Bowman
In This
Issue
The NADOA News Magazine is a quarterly publication of the National Association of Division
President’s Corner. ............................................................. 1 Decimal Points................................................................... 2 Certification....................................................................... 3 Cob Webs............................................................................ 4 Future Institute Survey....................................................... 5 Follow NADOA. ................................................................. 5 15 Simple Life Improvements. ............................................ 5 Membership Recognition Nominations............................... 6 Division Order $al........................................................... 26 Ellis Rudy Memorial Scholarship...................................... 28 Counterpart Connection................................................... 29 New Members................................................................... 33 In Memory........................................................................ 34 2022 NADOA Board & Committee Chairs....................... 37 Calendar of Events. .......................................................... 38
Order Analysts P O Box 1656 Palm Harbor, FL 34682
Subscription: By membership to NADOA, at $75.00 per year. News Magazine Editor Rona L. Erickson, CDOA Kaiser-Francis Oil Company [email protected] 918.491.4319
Graphic Design, Paul Beach
On the Cover and President’s Corner Photos: Courtesy of the City of San Antonio
All rights reserved. No part of this publication may be reproduced/copied without written permission. Editorial disclaimer: The contents of this newsletter are intended for member use only and any other use without permission from the NADOA Board of Directors is strictly prohibited. Articles published herein represent the view of the authors; publication neither implies approval of the opinions expressed nor accuracy of the facts stated and NADOA accepts no liability for misprints.
President’s
Corner
Michele Lawton, CDOA 2022 NADOA President
The honor is to serve. And what an honor it is to lead this group as your NADOA president in 2022. The work with our board of directors is underway and we are focused on making this a successful year - one that manages opportunities to our members to obtain education and meaningful work relationships by thoughtfully planned events. A swift pace in the energy industry has made it vital for those in land administration roles to stay up to date through continuing education. Cost-free webinars, the quarterly newsmagazine’s content- relevant articles, and the CDOA certification program are all tools this organization provides its members to sharpen skills and develop an outstanding career. Acknowledgement must be made to our Institute committee members, a group that is passionate about bringing you noteworthy speakers and enjoyable accommodations for this annual event. I appreciate the dedication and countless hours of service from these volunteers. It simply cannot happen without their support. Updates by email and on social media will be made about special early bird rates for the 49th Annual Institute. This is a year you won’t want to miss! Beautiful San Antonio is where we will meet, in a recently renovated hotel located in the heart of the Riverwalk. Institute will be October 26-28, 2022, so we will be enjoying some beautiful Texas weather. As your president, I am enthusiastic about 2022 and the amazing educational opportunities we will experience together. I hope to see you all this year in person at Institute.
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NADOA
Decimal Points
Regional Reporters ABADOA Steptoe & Johnson PLLC [email protected] CAPDOA OPEN DADOA OPEN DALWORTH Lewis Box, CDOA [email protected] HADOA Emily Sheffield [email protected] PBADOA Rosanne Kidder [email protected] SADOA Joe Anderson [email protected] Arkansas Jackie Clotfelter, CDOA [email protected] Kansas Amy Flaming [email protected] North Dakota Kimberly A. Backman [email protected] New Mexico Zachary P. Oliva [email protected] Louisiana Margaret Patton [email protected]
Remember to keep your NADOA directory information updated. Due to all the changes taking place in our industry and the world, it is more important than ever to maintain professional contacts and receive the educational benefits of membership in NADOA. NADOA online Job Bank has new postings. Visit http://www.nadoa.wildapricot.org/page-662233
2022 NADOA Article Deadlines
February 11.................................. First Quarter May 13..................................... Second Quarter July 8........................... Special Institute Edition August 12................................... Third Quarter November 11............................ Fourth Quarter
If you have a suggestion for someone to act as a Regional Reporter to help NADOA keep abreast of current legislation and legal issues for your region, please submit the name or the name of the firm.
2022 News Magazine Team
Kim Bowman Associate Editor, Photography
Rona Erickson CDOA, Editor
Susan Bradley CDOA Associate Editor
Michelle Davila Associate Editor
Cheryl Hampton Associate Editor
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
CANDIDATES FOR CERTIFICATION Publication of the following “Certified Division Order Analyst” applicant(s) fulfills the requirement as stated in the Voluntary Certification Policy, III C.2 which states: “…applicant’s name will be published in the NADOA Newsletter or other official publication of NADOA.” This allows the NADOA membership an opportunity to present objections to the certification of the applicant. Any objection to the certification of the applicant must be in writing and signed by a NADOA member or non-member who qualifies his knowledge and objection of the applicant. All such letters will be considered confidential and must be received by the NADOA Certification Committee at the following address within thirty (30) days following the last day of the month in which the Newsletter or other official publication of NADOA was published: NADOA Certification Committee P O Box 1656 Palm Harbor, FL 34682 If the objection warrants denial of the certification or temporary withholding of certification, the applicant will be notified by Certified Mail.
CANDIDATES FOR RECERTIFICATION
Jeff Kliewer – Midland, TX Nora Marquez – Houston, TX Courtney J Mayes – Houston, TX
Shelley Nguyen – Houston, TX Trudy Pingree – Bayfield, CO Hannah E Thompson – Houston, TX
2022 CERTIFICATION COMMITTEE
Chairman
Lewis Box, CDOA
Riverbend Energy Group
Recertification Credits Sherry Werth, CDOA
Independent
Recertification Applications
Darryn McGee, CDOA
Cimarex Energy
Applications & Candidate Publications Stephanie Moore, CDOA
Callon Petroleum Company
Review Manual/Forms
Lewis Box, CDOA
Riverbend Energy Group
Testing
Bonnie Didrickson, CDOA
Independent
Policies
Megan McKee, CDOA
Range Resources
CDOAs with January renewal dates be sure to submit your 2021 employment credits using the Certification Self- Service portal on the NADOA website. This is a pre-approved drop down item. TIME TO RECERTIFY? If you are a CDOA whose certification expired January 1, 2022, you should have received your Re-Certification Application electronically by the end of January. If you did not receive your application, please contact Darryn McGee, CDOA at [email protected].
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G r o w t h T h r o u g h E d u c a t i o n - J a n u a r y / F e b r u a r y / M a r c h 2 0 2 2
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NADOA – Webinar information and registration links will be posted on the website ( www.nadoa.org ). Links to recorded webinars are available to NADOA members by using the Webinar link in the Members Only section on the homepage. Please send suggestions for NADOA webinar topics/speakers to Webinar Chair, Yoli Bazan, CDOA, [email protected] Steptoe & Johnson PLLC – Visit: https://www.steptoe-johnson.com and click on News for details. The Steptoe webcasts are recorded. To access previously recorded webcasts, go to www.Steptoe-Johnson.com and enter Webcasts in the search feature. Kiefaber & Oliva LLP – Visit www.kolawllp.com/events for information. If you are aware of other educational webinars, please advise NADOA News Magazine editor, Rona Erickson, CDOA ( [email protected] ), Associate editor, Susan Bradley, CDOA ( [email protected] ) or 2022 NADOA Education Chairs, Norma Dooley, [email protected] or Kimberly Bowman, [email protected] .
Cob Webs
Educational webinars can be approved for 1 (one) CDOA certification point.
NADOA webinars, Steptoe & Johnson PLLC webcasts and Kiefaber & Oliva LLP webinars are pre-approved. Please check the certification page to determine if other webinars are pre- approved or need to be submitted for approval to the NADOA Certification Committee. Contact Sherry Werth for approvals ( srw6886@ gmail.com ). Certification points should only be applied for after completing the event. If you are unable to attend an event due to unforeseen circumstances, it is an ethics violation to apply for the credit.
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
Where would you like to go for a future NADOA conference?
I s your company’s server blocking NADOA emails? Do you have issues logging into the NADOA website?
15 small, simple ways to improve your life 1. Feeling sluggish at work? Employ the Pomodoro technique: Twenty-five minutes on task, take a five minute break, repeat. 2. Undecided about a purchase? Wait 72 hours before buying. 3. Start Saturday morning with classical music to set the tone for a calm weekend. 4. Set time limits for your apps. Go to settings on your smartphone and add a limit (e.g. if you have an iPhone, turn on Screen Time) 5. Be polite to rude strangers – it’s oddly thrilling. 6. Join your local library and use it. 7. Stretch in the morning. Maybe in the evening, too. 8. Call an old friend out of the blue. 9. Think about your posture – drop your shoulders, don’t slouch, and don’t cross your legs. 10. Volunteer. Check local opportunities or go to https:// www.usa.gov and enter volunteer in the search field for national listings. 11. Cook something you’ve never attempted before. 12. Politely decline invitations if you don’t want to go to the event. 13. Give compliments generously and freely. 14. Ask questions and really listen to the answers. 15. Set aside 10 minutes a day to do something you really enjoy. WILD APRICOT Download the Wild Apricot for Members App to see your NADOA membership details, get quick access to the NADOA Membership Directory or register for NADOA events.
Please email [email protected] with your suggestions
G r o w t h T h r o u g h E d u c a t i o n - O c t o b e r / N o v e m b e r / D e c e m b e r 2 0 2 1 5
2022 Nominations for NADOA Membership Recognition
I would like to nominate ___________________________________________________ for the Ellis Rudy Memorial Lifetime Achievement Award. This award is presented to the NADOA member who has exemplified the Division Order profession through demonstrated leadership contributions to the industry and the profession during his/her career. Do you have a great mentor that you’d like to thank? Do you know an organization that is promoting the advancement of the Division Order profession? Consider nominating someone or an organization for an NADOA Membership Recognition Award. A nomination form is included in this issue of the NADOA News Magazine or is available on the NADOA website: http://www.nadoa.wildapricot.org/page-1709232
I would like to nominate ___________________________________________________ for the NADOA Membership Recognition Corporate Award. Presented to the group or company that has contributed to NADOA’s growth and development, the Division Order profession, and/or the industry during the past year.
I would like to nominate ___________________________________________________ for the NADOA Membership Recognition Award for Education. This award is presented to the NADOA member who has dedicated their time and service to the betterment of Division Order Professionals through influence and mentorship.
I would like to nominate ___________________________________________________ for the NADOA Membership Recognition Award for Interaction. This award is presented to the NADOA member or affiliated organization who has had a positive community impact and extraordinary service and dedication in leading and promoting the Division Order profession.
I would like to nominate ___________________________________________________ for the Russell Schetroma Memorial Speaker’s Award. This award is presented to the individual who has made a difference in the lives of our members by contributing to the growth, development and education of our association or industry during the past year.
Send nominations to: Member Recognition Awards Committee, c/o Sonya Turner ([email protected]) Nominations will be accepted through July 1, 2022
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
2022 Nomination Form for NADOA Membership Recognition
2021 Nomination Form for NADOA Membership Recognition
I would like to nominate ___________________________________________ for the NADOA Membership Recognition Award for Interaction . This award is presented to the NADOA member or affiliated organization who has had a positive community impact and extraordinary service and dedication in leading and promoting the Division Order profession. Please detail the nominee’s involvement in NADOA, the services they have performed and/or contributions they have made (You may attach a separate sheet if necessary). Please detail the nominee’s involvement in NADOA, the services they have performed and/or contributions they have made (You may attach a separate sheet if necessary).
___________________________________________________ Signature ____________________________________________________ Please Print Name ____________________________________________________ Email Address
Send nominations to: Member Recognition Awards Committee, c/o Sonya Turner ([email protected]) Nominations will be accepted through July 1, 2022
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G r o w t h T h r o u g h E d u c a t i o n - J a n u a r y / F e b r u a r y / M a r c h 2 0 2 2
Legislative
Watch
2022 Legislation that will affect the oil and gas industry is being considered in the following states: Disclaimer: The information shared below is provided as a courtesy on behalf of COPAS and represents the views and interpretations of its author. It is not intended as legal, tax or accounting advice nor does it represent the views and opinions of ConocoPhillips Company. Alaska SB62 HB82 Relating to surface use restrictions for oil and gas leases SB61 HB81 Commissioner of Natural Resources to Modify Net Profit Share Leases Indiana New York A225 To require enumeration & five-year expiration of fossil fuel tax expenditures A313 S2834 Establishes a 100% clean renewable energy system for electricity by 2030 S2835 Declaring climate emergency, placing ban on new fossil fuel infrastructure
A4304 Repeals provisions related to compulsory integration and utilization in oil and natural gas pools and fields A5303 To promulgate rules related to gas measurement and use of EFM meters A5294 Allows counties to lease lands for oil and gas exploration S3336 Provides for a Carbon Tax not to be less than $35 per ton of CO2 equivalent escalating at $15 annually up to $185 Ohio HB348 Revise the Unclaimed Fund Laws This bill revises various provisions in the unclaimed property laws in the State of Ohio. It updates the definition of “Unclaimed funds” to be a value of $25 or more in total for a particular owner (previously $50), adds a definition for “Virtual currency”, and increases the record retention requirement from 5 to 10 years beyond the filing of the report. Passed the house 12/09/2021.
HB1103 Establishes the authority for the commission to establish a fee to fund the regulation of underground petroleum storage Mississippi HB501 Mineral Estate Reversion to Surface Estate after 20 years HB721 HB973 Mineral Estate Reversion to Surface Estate after 10 years HB1386 Grants the authority to the Governor to terminate the State Oil and Gas Supervisor appointed by the board New Mexico HB4 Hydrogen Hub Development Act provides a framework for Hydrogen Hubs to be developed in the State of New Mexico. The bill includes income tax credits for certain types of development and opportunities for public- private partnership on the research of hydrogen hub projects. It also creates a board to oversee the how the public funds are allocated and used.
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
Oklahoma SB1003 Royalty Proceeds to be paid within 9 months of first sales (was 6 months) SB1524 Requires submission of a properly executed division order for payment of funds; sets the interest rate at 12% This bill updates statutory language related to royalty payments in the State of Oklahoma. This bill revises the language of the Production Revenue Standards Act 52 O.S. 2021, Sections 570.10 and 570.11. It requires a properly executed division order for payment to be remitted to persons legally entitled thereto. It removes the interest rate of 6% for unmarketable title and leaves the 12% annually compounded rate in place. Interest will not accrue if the proceeds are subject to any of the following conditions: a. the owner legally entitled to the proceeds has not requested in writing to the person holding revenue or proceeds from the sale of production that interest be paid, b. the proceeds have been paid to any state, county, or municipal government or agency thereof under any act governing unclaimed or abandoned property including but not limited to Section 552 et seq. of this title and Section 651 et seq. of Title 60 of the Oklahoma Statutes, c. the proceeds are held in suspense by the producing owner, operator, or first purchaser due to the filing of an oil and gas lien pursuant to Section 144 et seq. of Title 42 of the Oklahoma Statutes, d. the person legally entitled to the proceeds has not submitted a properly executed division order in accordance with Section 570.11 of this title, or e. the title is not free from apparent defects, grave doubts and litigious uncertainty, and does not consist of both legal and equitable title fairly deducible of record. If any of the above are cured, then payment of proceeds are due by the last day of the succeeding month. The bill further outlines what will be contained in a division order. If successful, this will become effective November 1, 2022.
Pennsylvania HB1144 SB534 Conventional Oil and Gas Wells Act HB1763 Amending the Oil and Gas Lease Act to add a definition for “Royalty” SB806 Natural Gas Royalty Interest Transparency (Provides new Check Stub Requirements) South Carolina H4804 Creates the State Energy Office Washington SB5531 Revises the Uniform Unclaimed Property Act West Virginia HB2132 Related to horizontal well control standards. The bill prohibits the disturbance of a well site be no closer than 1,500 feet of an occupied dwelling. SB56 Outlines requirements for Orphan Well Prevention HB2081 Creates a withholding tax for nonresident mineral owners HB2725 Funding of the Office of Oil and Gas of the Department of Environmental Protection and adding a $100/year fee for wells SB480 Establishes a fee of $100 for each well producing more than 10 MCF/d HB3051 Directs the Secretary of the Department of Environmental Protection to adopt rules with respect to the standardization of leases, deeds or contracts relating to oil and gas HB2853 Establishes standards for shallow horizontal drilling units
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G r o w t h T h r o u g h E d u c a t i o n - J u l y / A u g u s t / S e p t e m b e r 2 0 2 1
Legal
Updates Articles are not intended to be and should not be relied upon as legal advice or to establish any kind of an attorney-client relationship with the author.
Under the Ellison Decision, Are Letters of Intent NOW Enforceable Contracts? OR A SECOND LOOK AT Concho Resources, Inc. et al v. Ellison, 627 S.W.3d 226 (Tex. 2021) (“Ellison”)
Texas
CAVEAT: This article examines only one part of the above identified Texas Supreme Court case. The following analysis is not to be construed as a review of all of the issues raised in the case and addressed by the Court. This article was written to alert oil and gas attorneys, landmen, division order analysts and lease/title analysts – parties who regularly prepare and/or review/execute letters of intent to third parties that, despite any language to the contrary found in any such letter of intent, one or both parties to an otherwise unenforceable letter of intent may find, based on the Texas Supreme Court’s opinion in this case, that the letter of intent is legally enforceable as a contract. There were two significant instruments involved in the Ellison case: The October 16, 2008 Letter (of Intent) and a Boundary Stipulation of Ownership of Mineral Interest. The article in NADOA’s 4 th Quarter 2021 news magazine focused on the Boundary Stipulation of Ownership of Mineral Interest and whether it was a valid legal conveyance (the court held it was not; the author believes it was). This article will analyze the October 16, 2008 Letter (of Intent) sent to Ellison Operating by Samson. The letter stated that the mineral owners under separate tracts of land (part of which was covered by Ellison Operating’s oil and gas lease) had agreed to a boundary line that was different from that which the parties (mineral owners and their lessees) had recognized since 1927. This letter (of intent) asked Ellison to accept the description of its leasehold estate premised on the agreed to boundary line found in the Boundary Stipulation . Significantly, (i) Ellison was not a party to the Boundary Stipulation and (ii) the letter requested Ellison to give up approximately one-half of his lease acreage and in return he obtained … nothing. No mutuality of consideration, no agreements to be kept and performed by the parties, no consideration whatsoever. Notably, in the Concho counterclaim trial three (3)
years after the summary judgment rulings in the case, the jury/trial court found that the October 16, 2008 Letter (of Intent) was an enforceable contract between Ellison and Samson and that Ellison failed to comply with it. Damages were awarded for the supposed breach of the “contract”. No showing in the record was made by Samson that this “contract” was supported by consideration. This document cannot be a valid contract unless there is some evidence in the record which clearly indicates that the contract is supported by adequate consideration. Gaynier v. Ginsberg, 715 S.W.2d 749 (Tex. App.—Dallas 1986, writ ref’d n.r.e.) There apparently is no such evidence available, thus rendering, as a matter of law, the October 16, 2008 Letter (of Intent) NOT a contract by and between Samson and Mr. Ellison. If the October 16, 2008 Letter (of Intent) is NOT a contract between the parties, and lacks any words of grant within its four corners, and as a matter of law it cannot be a deed, then what is it? Before answering the question, it is necessary to review another provision from the October 16, 2008 Letter (of Intent). The October 16, 2008 Letter (of Intent) further contains the following significant language quoted in pertinent part: “ Upon your acceptance, a more formal and recordable document will be provided .” [emphasis added] The October 16, 2008 Letter (of Intent) was apparently signed by Mr. Ellison but the second, recordable document was never furnished by Samson . The Supreme Court’s opinion addressed this significant language and held:
“…However, we agree with Concho that this reading is inconsistent with the letter’s text, which requests that Ellison ‘signify your acceptance of the description of the Richey
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N a t i o n a l A s s o c i a t i o n o f D i v i s i o n O r d e r A n a l y s t s
147 acre tract as set out in the Stipulation (your leasehold’)’ by countersigning the letter . It does not ask Ellison to accept the stipulation by signing a future document nor does it purport to condition his acceptance on the execution of such a document…We do not view the absence of the contemplated ‘more formal and recordable document’ as fatal to Concho’s ratification defense.” [emphasis added] The foregoing finding by this Court, whether one of fact or law, does not accurately reflect the true meaning of the above quoted language nor the status of Texas law on its interpretation. As members of the oil and gas industry, Mr. Ellison and Samson had both been parties to numerous instruments such as this and were aware that the parties to: (i) complete or partial sales/ assignments of oil and gas leases; (ii) farm-ins and (iii) farmouts usually, but not always, initially signified their intent to further negotiate via a written letter of intent. This letter of intent contained a commitment to furnish a more complete (and fully negotiated) legally enforceable document. The letter of intent, within the context of the oil and gas industry, is typically NOT viewed as a legally enforceable agreement as to the terms contained within that document. Rather, it is merely a limited (and legally unenforceable) commitment to further negotiate the sale, assignment, farm-in or farmout of oil and gas leases. If no further negotiations take place or if negotiations for the final, complete legally enforceable document stall and go no further, the oil and gas industry, and specifically the landman profession, treats a letter of intent as an unenforceable ‘agreement to agree’ and the proposed sale/assignment etc. is no longer pursued with no further legal repercussions to either party. Surely Mr. Ellison contemplated further negotiations for at least how much money he would be paid for giving up approximately one-half of his leasehold working interest since no consideration was mentioned in the letter of intent !
provided by Samson and executed by Ellison to have an enforceable agreement. 4. Equally as significant, there was a fact issue raised on the intent of the parties to the October 16, 2008 Letter (of Intent) concerning whether the furnishing of the called for “second document” was a condition precedent to the formation of an enforceable contract. Whether the furnishing of a second, more complete document was a condition precedent is usually a factual matter of intent to be decided by a jury. See Chalker Energy Partners III, LLC v. Le Norman Operating LLC, 595 S.W.3d 668 (Tex. 2020); Copano Energy, LLC v. Bujnoch, 593 S.W.3d 721 (Tex. 2020); Foreca, S.A. v. GRD Development Co., Inc. , 758 S.W.2d 744 (Tex. 1988) and Railroad Commission of Texas v. Gulf Energy Exploration Corp., 482 S.W.3d 559 (Tex. 2016) Obviously, no such fact issue was ever submitted or ruled on since no trial was had on this specific matter in the original action. The issue of intent is not a factual matter to be decided by the Texas Supreme Court. 5. Therefore, the October 16, 2008 Letter (of Intent) was no more than an unenforceable letter of intent. This case changes all of the oil and gas industry’s understanding of letters of intent , including the 2008 Samson Letter specifically, and their legal effect. Due to the Court’s ruling, attorneys and landmen will no longer know if their specific words in what is and has been heretofore denominated a letter of intent is now, by itself, an enforceable agreement or an equitable ratification. How do we educate our profession on the potential legal effect of any letter of intent in light of decades of industry practice to the contrary? More significantly, how does the oil and gas industry know if this ruling is absolute and all letters of intent will be similarly interpreted? Constant and protracted litigation on this issue is not the path forward; legal certainty in the treatment of letters of intent must be clear and uniform. It is not clear and uniform based on the ruling of this case.
The following cases all agree that:
1. An agreement to agree (letter of intent) is an unenforceable agreement. 2. Writings couched in futuristic language in a preliminary agreement where a second, complete document is to be negotiated by and between the parties fails as an enforceable agreement standing by itself. 3. The first document (here the October 16, 2008 Letter (of Intent)) contains a condition precedent – a second “more formal and recordable document” had to be
© Terry E. Hogwood 2021 Website – terryehogwoodattorney.com E-Mail – [email protected]
This article was prepared by Terry E. Hogwood for use by his clients and prospective clients as a reference tool only. Any comments and/or legal conclusions contained in this article are solely those of the author and reliance thereon by any reader of this newsletter is at the reader’s sole risk.
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Til Death Do Us Part: Joint Tenancy by Quasi-Estoppel and Revisiting the Wagenschein Decision
Texas
In Wagenschein v. Ehlinger , 581 S.W.3d 851 (Tex. App.—Corpus Christi 2019, pet. denied) the Corpus Christi Court of Appeals interpreted a royalty reservation in a warranty deed. The disagreement turned on whether the reservation created a joint tenancy or a tenancy in common. The Court held that all but one of the plaintiffs were quasi-estopped from arguing that the deed created a tenancy in common. This was because those plaintiffs had previously “accepted the benefits” of a joint tenancy. Further, the Court determined that the deed’s language was unambiguous and that the parties had intended to create a joint tenancy. Importantly, the Court held that various “words of survival” used in the deed reservation were determinative when concluding that the parties intended to create a joint tenancy rather than a tenancy in common. Texas recognizes two types of co-tenancies: a joint tenancy and a tenancy in common. A joint tenancy is distinguished by the “right of survivorship.” Thus, upon the death of one joint tenant, his interest will automatically vest in the remaining joint tenants (as opposed to passing through inheritance). Under a tenancy in common, a decedent’s interest will instead pass to the heirs and beneficiaries of the decedent (as opposed to passing to the remaining co-tenants). In Wagenschein , the defendants were the surviving members of a group of seven siblings (the “Heirs”) who inherited a 241.69-acre tract of land from their parents. In 1989, the Heirs executed a warranty deed (the “Deed”) conveying the surface and mineral estates to Harvey and Jane Mueller (the “Muellers”). The Deed included the following reservation (emphasis added):
of any oil, gas and mineral lease covering the property, but will be entitled to one-half (1/2) of any bonus paid for any such lease and one- half (1/2) of any royalty, rental or shut-in gas well royalty paid under any such lease. The reservation contained in this paragraph will continue until the death of the last survivor of the seven (7) individuals referred to as Grantors in this deed.
In 2006, the Muellers executed an oil, gas and mineral leasewithTrinityEnergy Services, who subsequently assigned the lease to Pioneer Natural Resources (“Pioneer”). Clara, one of the original seven Heirs, died in 2009, leaving Carol Edwards (one of the plaintiffs) as one of her heirs. In 2010, Pioneer obtained production from its first well on the property and each of the surviving Heirs signed a division order “accepting and receiving their respective shares of what would have been Clara’s interest.” Id. at *853. Essentially, by executing the division order the Heirs implicitly “accepted” a benefit of the right of survivorship inherent in a joint tenancy. Over the next five years, several more of the original seven Heirs died. “After each death, Pioneer [similarly] distributed the decedent’s interest by signed division orders to the then-surviving Wagenschein Heirs.” Id . at *853. Thus, in each instance the surviving heirs executed a division order in which their interest was increased consistent with joint ownership. In 2015, the children of some of the original seven Heirs petitioned the Court to declare that the 1989 Deed created a tenancy in common. These plaintiffs argued that the interests in question should have passed to them through inheritance instead of being divided among the surviving Heirs. The plaintiffs relied on the Deed’s use of the word “successor” in claiming that the Deed created a tenancy in common and that they were the intended recipients of their deceased parents’ interests. The defendants argued that the 1989 Deed unambiguously created a joint tenancy, and alternatively that the plaintiffs were estopped from bringing their claims because the plaintiffs’ parents received the benefits of the deed reservation as joint tenants. Id . at *854.
THERE IS HEREBY RESERVED AND EXCEPTED from this conveyance for Grantors and the survivor of Grantors, a reservation until the survivor’s death , of an undivided one-half (1/2) of the royalty interest in all the oil, gas and other minerals that are in and under the property and that may be produced from it. Grantors and Grantors’ successors will not participate in the making
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Under the theory of quasi-estoppel, a party is precluded “from asserting, to another’s disadvantage, a right inconsistent with a position previously taken.” Id . at *856. In order to prevail on a defense of quasi-estoppel, the party must prove that (1) the opposing party acquiesced to or benefited from a position inconsistent with the opposing party’s present position; (2) it would be unconscionable to allow the opposing party to assert their present position; and (3) the opposing party had knowledge of all material facts at the time of the conduct on which the estoppel is based. Here, the Court found that all three factors of quasi- estoppel were satisfied. Upon the death of each presumed joint tenant the surviving Heirs received an increase in their respective interest and executed a corresponding division order. To allow the plaintiffs to argue now that the 1989 Deed created a tenancy in common would be to allow plaintiffs to assert a right that was inconsistent with the position taken by their parents. Further, a finding that the Deed created a tenancy in common would certainly be to the detriment of defendants, who would lose a significant portion of their interest if plaintiffs were allowed to assert the rights of a tenancy in common. Such a finding would thus be unconscionable. Finally, because the survivingHeirs signed a division order each time, there is no evidence that plaintiff ’s parents lacked knowledge of the material facts. Because the Court determined that defendants were successful in claiming the defense of quasi-estoppel, the Court held that all of the plaintiffs except for Carol, the daughter of Clara, were barred from making their claims. Because Clara was the first of the original Heirs to die, Clara (and Clara’s daughter Carol as her heir) did not receive the benefits of a joint tenancy. As such, the Court held that Carol was not barred from claiming that the Deed created a tenancy in common and thus considered her claim. In interpreting a deed, a court will ascertain the intent of the parties from all of the language within the four corners of the instrument, examining and harmonizing the entire instrument to give effect to all provisions so that none will be rendered meaningless. Though plaintiff Carol argued that the Deed’s use of the word “successor” indicated the original Heirs’ intent to make the interests inheritable, the Court found that such an interpretation would render meaningless the reservation provision of the Deed. The opening and closing statements indicated that the interest was reserved “for Grantors and the survivor of Grantors” and that the reservation would continue “until the death of the last survivor of the seven (7) [original
Heirs].” Id . at *858. The Court found that the reservation’s language implied that the survivors of the original seven Heirs were the intended beneficiaries of the reservation – not the heirs of the original seven Heirs. Because the Court determined that “successor” and “survivor” could be read as synonymous, a finding that the 1989 Deed created a joint tenancy would allow all of the provisions of the Deed to be harmonized. Wagenschein was ultimately another study in deed interpretation. It underscored the notion that although there are no magic words that will create a joint tenancy with rights of survivorship, once such joint ownership is established it can have a profound impact on the later disposition of interests. Of greater import was the Court’s finding of a joint tenancy by quasi-estoppel. In so finding, the Court necessarily took certain surrounding circumstances under consideration such as the execution of division orders consistent with a joint tenancy. A petition for review of the Appellate Court’s decision was denied by the Texas Supreme Court. _____________________________________________________ www.kolawllp.com © 2021 Kiefaber & Oliva LLP. All rights reserved. This publication may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Houston (principal office): 815 Walker St., Suite 1140, Houston, Texas 77002, 713-229-0360 | Columbus: One East Livingston Avenue, Suite B, Columbus, Ohio 43215, 614-349-4525. CONTACT If you have any questions regarding this case law update or suggestions for topics to be covered in future issues, please call our office at 713-229-0360 or contact:
Eli Kiefaber Partner [email protected]
Emily Sheffield Attorney, Houston [email protected]
Zachary Oliva Partner [email protected]
Brad Gibbs Partner [email protected]
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t
Loose Canons (of Construction) – Barrow Shaver Res. Co. LLC v. NETX Acquisitions, LLC
Barrow Shaver Res. Co. LLC v. NETX Acquisitions, LLC is a trespass-to-try-title action brought by competing lessees based on the interpretation of a 1963 warranty deed recorded in Cass County, Texas (the “1963 Deed”). 1 Prior to the execution of the 1963 Deed, the surface and mineral estate were owned in fee by the Dawson Parties. In conveying an interest to the Stone Family (“Grantees”) in the 1963 Deed, the Dawson Parties (“Grantors”) conveyed “all that certain [tract of land in Cass County described by metes and bounds and] . . . [t]here is likewise conveyed to Grantees by this conveyance one-eighth (1/8) of all Oil, Gas and Other Minerals . . .” (emphasis added). 2 At issue was whether the 1963 Deed conveyed to the Stone Family all of the oil, gas and other minerals under the entire tract of land, or only 1/8th of the oil, gas and other minerals (reserving 7/8ths to the Dawson Parties). 3 The dispute arose when the successors to the original Grantors and Grantees executed oil and gas leases, with the Stone Family successors claiming 100% of the minerals and the Dawson Parties’ successors claiming 7/8ths of the minerals. 4 The trial court held that the 1963 Deed had conveyed 100% of the minerals, however, the Texarkana Court of Appeals reversed and entered judgment in favor of the Dawson Parties. 5 In reaching its decision, the Texarkana Court of Appeals turned to several decisions of the Supreme Court of Texas, including the oft-cited Luckel v. White , 819 S.W.2d 459 (Tex. 1991) and the more recent Wenske v. Ealy , 521 S.W.3d 791 (Tex. 2017). 6 These cases stand for the proposition
that when construing unambiguous deeds, Texas courts should strive to ascertain the intent of the parties from all of the language within the four corners of the instrument. This divining of intent should prevail over the “arbitrary” traditional rules of deed interpretation. Thus, the courts will reject mechanical rules of construction, such as giving priority to certain clauses over others, or requiring the use of “magic words.” Courts will instead attempt to harmonize all the parts of a deed and give effect to each of its provisions, therefore resolving any conflicting terms and considering each part of the document. Despite this recent trend in deed interpretation, NETX Acquisitions (the Stone Family Lessee) attempted to argue four traditional principles of real property law to interpret the 1963 Deed, as follows: A warranty deed will pass all of the estate owned by the grantor at the time of the conveyance un- less there are reservations or exceptions which reduce the estate conveyed, Cockrell v. Texas Gulf Sulphur Co. , 157 Tex. 10, 299 S.W.2d 672, 675 (Tex. 1956) (citing Harris v. Currie , 142 Tex. 93, 176 S.W.2d 302, 304 (Tex. 1943)); 7 Reservations must be made by ‘clear language,’ and courts do not favor reservations by impli- cation, Combest v. Mustang Minerals, LLC , 502 S.W.3d 173, 179-80 (Tex. App.—San Antonio 2016, pet. denied) (quoting Graham v. Prochas- ka , 429 S.W.3d 650, 655 (Tex. App.—San Antonio 2013, pet. denied) (citations omitted)); 8
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No. 06-20-00081-CV, 2021 WL 3571394, at 1 (Tex.
Words in a deed that are of a doubtful mean- ing are construed against the grantor, Reeves v. Towery , 621 S.W.2d 209, 212 (Tex. App.—Corpus
App. Aug. 13, 2021) 2 Id. 3 Id. at 2. 4 Id. 5 Id. 6 Id. at 3.
7 8
Id. Id.
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This case underscores Texas courts’ commitment to applying a four corners approach to deed interpretation as opposed to applying canonical rules of construction. However, it is important to observe that these traditional interpretation tools are not entirely abandoned, but merely relegated to “persuasive” authority. A thorough analysis of each provision of a deed and how it comports with other provisions remains a crucial exercise in Texas mineral titles. A petition for review of the Texarkana Court of Appeals’ decision was filed on October 27, 2021 and is currently pending before the Supreme Court of Texas. C ontact If you have any questions regarding this case law update or suggestions for topics to be covered in future issues, please call our office at 713-229-0360 or contact:
Christi 1981, writ ref’d n.r.e.) (citing Jones v. Sun Oil Co. , 110 S.W.2d 80 (Tex. App.—Texarkana 1937, writ ref’d)); 9 and
A deed is construed “to confer upon a grantee the greatest estate that the terms of the instru- ment will permit,” Johnson v. Conner , 260 S.W.3d 575, 579 (Tex. App.—Tyler 2008, no pet.) (citing Lott v. Lott , 370 S.W.2d 463, 465 (Tex. 1963)). 10
Interestingly, the Court noted that although these customary “canons of construction” may remain persuasive in certain instances, they will not trump a modern holistic “four corners” analysis. In this case, however, the Court found that these canons of construction do not apply at all. This is because there was not an actual reservation in the 1967, but merely an interest that was held back and not purported to be conveyed. 11 The Court went on to note that T ex . P rop . C ode A nn . § 5.001(a) states that “[a]n estate in land that is conveyed or devised is a fee simple unless the estate is limited by express words or unless a lesser estate is conveyed or devised by construction or operation of law.” 12 Here, the Texarkana Court of Appeals focused on the fact that the 1967 Deed contained a metes and bounds description and “likewise” conveyed one-eighth of the oil, gas and minerals. 13 Per the Court, the Grantors’ clearly and unambiguously intended to convey something less than the fee simple estate. 14 Thus, under the “four corners” approach to deed interpretation and Section 5.001 of the Texas Property Code, only 1/8th of the minerals passed to the Dawson Parties under the 1967 Deed. 15
Brad Gibbs Partner, Houston [email protected] Eli Kiefaber Partner, Houston [email protected]
Zachary Oliva Partner, Houston [email protected] _________________________________________________ www.kolawllp.com The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice or to create a lawyer-client relationship. © 2022 Kiefaber & Oliva LLP. All rights reserved. This publication may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Houston (principal office): 815 Walker St., Suite 1140, Houston, Texas 77002, 713-229-0360 | Columbus: One East Livingston Avenue, Suite B, Columbus, Ohio 43215, 614- 349-4525.
9
Id. Id.
10 11 12 13 14 15
Id. at 4. Id. at 5. Id. at 1. Id. at 5. Id. at 6.
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Fixed vs. Floating Royalties at the Texas Supreme Court:
Van Dyke v. Navigator and Thomson v. Hoffman Texas
other considerations cause double-fractions to create floating interests. In their view, while the first fraction remains constant over time, the second fraction “floats” with chang- ing lease royalty rates. Under this argument, if the current lease was at a one-fifth royalty rate, the arithmetic for the floating interest would be: 1 4 𝑥𝑥 1 5 = 2 1 0 In this scenario, the royalty owner would be entitled to a much higher 0.05000000 and, whenever the lease royalty rate changes, so will the second fraction and the resulting floating royalty interest. As royalty rates have trended higher over time, so has the appetite for royalty owners to bring floating royalty litigation.
The Texas Supreme Court is poised to decide two major fixed vs. float- ing royalty cases in 2022: Van Dyke v. Navi- gator , a Permian Basin case from Martin County, and Thomson v. Hoffman , from Mc- Mullen County in the Eagle Ford. Along with production in paying quan- tities, the interpretation of fixed and floating royalty interests is one of the hottest areas of upstream oil and gas litigation. Van Dyke and Thomson will not only be battles between interest owners and lawyers, but also among industry and landowner groups, law profes- sors, and other amici curiae (“friends of the court” who provide briefing in support of their preferred positions). The dispute over fixed and floating royalty interests is rooted in the antiquated use of double-fractions in drafting, i.e. , “one- fourth of one-eighth.” These double-fractions are typically found in older conveyances. Since fractions are multiplied straight across, the arithmetic for a fixed royalty in- terest would be: 1 4 𝑥𝑥 1 8 = 3 1 2 A fixed interest never changes. The “one-fourth” is always one-fourth; the “one- eighth” is always one-eighth; and the arith- metic always renders a 1/32nd. In decimal terms, 0.03125000.
Van Dyke v. Navigator No. 21-0146
Van Dyke is a mineral interest double- fraction case. That said, courts employ the same principles of interpretation to grants and reservations of mineral and royalty inter- ests, so Van Dyke will be instructive for fixed vs. floating royalty cases. The parties were competing over the in- terpretation of a mineral reservation of “one- half of one-eighth.” One side claimed that “one-half of one- eighth” actually meant “one-half of the min- erals,” since the prevailing lease royalty at
Attorneys representing mineral and royalty owners disagree, however. They say
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