Concord Oil Co. v. Pennzoil Exploration and Production Co.

Decision Date05 June 1998
Docket NumberNo. 94-0504,94-0504
Citation966 S.W.2d 451
Parties41 Tex. Sup. Ct. J. 476, 41 Tex. Sup. Ct. J. 933 CONCORD OIL COMPANY and Crenshaw Royalty Corporation, Petitioners, v. PENNZOIL EXPLORATION AND PRODUCTION COMPANY, Pennzoil Producing Company, Sanchez-O'Brien Oil & Gas Corporation, and John M. Robinson, Respondents.
CourtTexas Supreme Court

Page 451

966 S.W.2d 451
41 Tex. Sup. Ct. J. 476, 41 Tex. Sup. Ct. J. 933
CONCORD OIL COMPANY and Crenshaw Royalty Corporation, Petitioners,
v.
PENNZOIL EXPLORATION AND PRODUCTION COMPANY, Pennzoil
Producing Company, Sanchez-O'Brien Oil & Gas
Corporation, and John M. Robinson, Respondents.
No. 94-0504.
Supreme Court of Texas.
Argued Jan. 8, 1998.
Decided Feb. 26, 1998.
Concurring Opinion filed June 5, 1998.
Rehearing Overruled June 5, 1998.

Page 452

Andy Carson, Corpus Christi, Luther H. Soules, III, San Antonio, James P. Wallace, Ernest E. Smith, III, Austin, Laura H. Burney, San Antonio, Bruce M. Kramer, Lubbock, for Petitioners.

John G. Soule, Austin, Jeffrey T. Nobles, Houston, Frank Douglass, Austin, Tevis Herd, Midland, John M. Robinson, Maria Teresa Arguindegui, John Gaston, Houston, for Respondents.

OWEN, Justice, announced the judgment of the Court in an opinion in which PHILLIPS, Chief Justice, HECHT and ABBOTT, Justices, join.

The motions for rehearing were granted, and the opinion of the Court dated October 18, 1996 is withdrawn.

This case presents an issue with which this Court, other courts, and practitioners have struggled for many years: What interest has been conveyed in an oil and gas property when two differing fractions appear within the conveying instrument? The granting clause of the mineral deed in controversy describes the interest conveyed as a 1/96 interest in minerals, but a subsequent clause

Page 453

states that the conveyance covers and includes 1/12 of all rentals and royalty of every kind and character. We hold that the conveyance at issue, when considered in its entirety, constituted a grant of a 1/12 interest in any rights or benefits under the lease in existence at the time of the grant and the possibility of reverter of a 1/12 interest in the mineral estate. Accordingly, we reverse the judgment of the court of appeals and render judgment in favor of Concord and Crenshaw.
I

The mineral deed at issue, which we refer to as the Concord deed, was executed in 1937 by A.B. Crosby as the grantor. It covers Survey Sixty-four in Zapata County. The grantee was Southland Lease and Royalty Corporation, through whom petitioners Concord Oil Company and Crenshaw Royalty Corporation claim. Crenshaw acquired Southland's interest and subsequently executed two oil and gas leases under which Concord is the lessee. (We use "Concord" to refer to both of the petitioners in the balance of this opinion.) The Concord deed provides in relevant part:

That I, A.B. Crosby ... Grant, Sell and Convey unto Southland ... an undivided one-ninety sixth (1/96) interest in and to all of the oil, gas and other minerals in and under, and that may be produced from Survey Sixty-four ... together with the right ... of ingress and egress at all times for the purpose of prospecting, drilling, mining and exploring said lands for oil, gas and other minerals ... together with all rights of every kind and character necessary and convenient to the full use and enjoyment of such estate herein conveyed....

While the estate hereby conveyed does not depend upon the validity thereof, neither shall it be affected by the termination thereof, this conveyance is made subject to the terms of any valid subsisting oil, gas and/or mineral lease or mineral lease or leases on above described land or any part thereof, but covers and includes one-twelfth (1/12) of all rentals and royalty of every kind and character that may be payable by the terms of such lease or leases insofar as the same pertain to the above described land, or any part thereof.

This deed was executed on August 5. The day before, the grantor Crosby had acquired an undivided 1/12 interest in the minerals under a deed identical to the Concord deed in all respects but one: the fraction in the granting clause. The granting clause in the deed to Crosby contained the fraction "one-twelfth (1/12)" rather than 1/96.

The parties have stipulated that at the time each of these deeds was executed, an oil and gas lease that provided for a 1/8 royalty was outstanding. That lease expired before any of the parties to this case entered into leases covering Survey Sixty-four.

In 1961, Crosby executed another mineral deed covering Survey Sixty-four in which he purported to convey to John M. Robinson an undivided 7/96 interest in the minerals. Robinson subsequently entered into an oil and gas lease with Pennzoil Producing Company. Through various transactions, Pennzoil Exploration and Production Company succeeded to interests under that lease, and Sanchez O'Brien Oil & Gas Corporation acquired a 25% interest in the lease. (Robinson and the other respondents are referred to in this opinion collectively as Pennzoil unless the context indicates otherwise.)

Pennzoil completed producing wells on the property, and this dispute ensued. Concord sought a determination of its interest and sued for damages equal to the value of past production by Pennzoil. Pennzoil counterclaimed seeking a determination of its rights. The case was tried to the court on stipulated facts. Concord's primary contention was that the deed at issue unambiguously conveyed a 1/12 interest in the minerals. Concord asserted three other theories of recovery in the alternative. Concord's first alternative claim was that the deed was ambiguous and that it conveyed 1/12 of all rentals and 1/12 of all royalty attributable to all production under any lease that included Survey Sixty-four, not just the proportionate amount of royalty that would be attributable to production from Survey Sixty-four. (Apparently, Concord contended that this deed should be construed in the same manner as that in Hoffman v. Magnolia Petroleum Co.,

Page 454

273 S.W. 828 (Tex. Comm'n App.1925, holding approved).) The second alternative contention was that the deed conveyed 1/12 of rentals and royalty on production attributable to Survey Sixty-four. Concord's final alternative claim was that it was entitled to a 1/96 royalty.

Pennzoil contended that the Concord deed conveyed only a 1/96 interest in the minerals. Pennzoil acknowledged that the deed had also conveyed 1/12 of rentals and royalty, but took the position that the 1/12 interest was limited to the lease that existed at the time the deed was executed. Under Pennzoil's view of the case, the 1/12 interest terminated upon the expiration of that lease, which occurred well before the Crosby conveyance to Robinson, Pennzoil's lessor.

The trial court found in favor of Pennzoil and entered a take-nothing judgment against Concord. The court of appeals affirmed. 878 S.W.2d 191. The basis of the court of appeals' holding was that the Concord deed did not convey any interest in future leases. The court concluded that the grant of 1/12 of rentals and royalty was limited to the lease in existence at the time of the conveyance, and that upon expiration of that lease, Concord was left with only a 1/96 interest in the minerals. The court relied on what has been termed the "two-grant" or "multiple-grant" theory in concluding that the deed did not convey a single estate, but instead conveyed a 1/96 interest in the minerals in addition to a 1/12 interest in the lease existing at the time of the grant. Id. at 196. For the reasons discussed below, we disagree with this construction of the deed.

II

This case is not the first one in which we have considered deeds or other conveyances of mineral interests that contain two or more differing fractions. The proper construction of such instruments has been a recurring issue. See, e.g., Garrett v. Dils Co., 157 Tex. 92, 299 S.W.2d 904 (1957); Tipps v. Bodine, 101 S.W.2d 1076 (Tex.Civ.App.--Texarkana 1937, writ ref'd). Most recently, we considered oil and gas conveyances with differing fractions in Luckel v. White, 819 S.W.2d 459 (Tex.1991), and Jupiter Oil Co. v. Snow, 819 S.W.2d 466 (Tex.1991).

In Luckel, we held that the primary objective in construing mineral and other grants is to determine the intent of the parties from all the language in the instrument. Luckel, 819 S.W.2d at 461. We recognized that the intent of the parties must be determined from what they expressed in the instrument, read as a whole, and that the actual, subjective intent of the parties will not always be given effect even if we were able to discern that subjective intent. Id. at 462. We declined to rely on labels given to clauses, such as "granting," "warranty," "habendum," and "future lease." Id. at 463. We expressly overruled our decision in Alford v. Krum, 671 S.W.2d 870 (Tex.1984), which had elevated the granting clause over another provision in the conveying instrument and had given it controlling weight. Luckel, 819 S.W.2d at 464.

Commentators have written fairly extensively about our decisions in this area of oil and gas law, often debating what theories were or were not applied. 1 However, with the exception of Alford, our decisions contain a unifying principle: the entire document must be examined to glean the parties' intent. See Luckel, 819 S.W.2d at 462. Apparent inconsistencies in the conveying instrument must be harmonized, if possible, by

Page 455

looking at the document as a whole. Id. In the cases that we have considered in the past, when conveyances contained apparent inconsistencies between the fraction in the granting clause and fractions in other provisions, it was evident from the instrument as a whole that the grantor had conveyed a larger interest than the granting clause otherwise indicated. In those cases, provisions other than the granting clause gave rights to the grantee that, when considered in the aggregate, amounted to a larger fraction of the mineral or royalty interest than specified in the granting clause.
A

One of the first decisions that confronted a conveyance with more than one fraction was Tipps v. Bodine, 101 S.W.2d 1076 (Tex.Civ.App.--Texarkana 1937, writ ref'd). The granting clause was couched in terms that typically would...

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