Piranha Partners v. Neuhoff, 596 S.W.3d 740 (Tex. 2020) held that an assignment of an overriding royalty interest conveyed the entire override and was not limited to the well that was described. Neuhoff owned a 3.75% overriding royalty interest that burdened the Puryear Lease which covered all of Section 28, and executed an “Assignment of Overriding Royalty Interests and Oil and Gas Leases” in favor of Piranha. In the Assignment’s granting clause “[Neuhoff] does hereby assign, sell and convey unto [Piranha] . . . subject to the limitations, conditions, reservations and exceptions hereinafter set forth . . . all of [Neuhoff’s] right, title and interest in and to the properties described in Exhibit ‘A’ (the ‘Properties’).” Exhibit “A” describes the “Puryear #1-28” well and the northwest quarter of Section 28, under the heading “Lands and associated Well(s),” and describes the Puryear Lease by Lessor, Lessee, and recording information under the heading “Oil and Gas Lease(s)/Farmout Agreement(s).”
The operator under the Puryear Lease paid a 3.75% overriding royalty on production from the #1-28 well to Piranha. However, the operator subsequently drilled additional wells in Section 28 and paid the 3.75% override to Neuhoff, believing that the Assignment was limited to the Puryear #1 28 well. After obtaining title opinions, which concluded that Neuhoff conveyed its entire interest under the Puryear Lease, the operator retroactively paid Piranha proceeds attributable to the 3.75% override from all of the wells in Section 28 and demanded a refund from Neuhoff. Neuhoff filed suit claiming that Neuhoff only sold Piranha an overriding royalty interest in production from the Puryear #1-28 well. The trial court held that Neuhoff assigned all of its interest in the Puryear Lease. Neuhoff appealed, with the court of appeals reversing the trial court’s holding and ruling that Neuhoff assigned all of its interest in the northwest quarter of Section 28. Piranha appealed, and the Texas Supreme Court granted its petition for review.
Piranha argued that the Court should rely on three rules of construction which courts apply when construing deeds. Specifically, Piranha asserts the Assignment should be construed (1) to confer the greatest possible estate that the instrument will permit, (2) to reject any alleged exception, reservation, or limitation that is not expressly and clearly stated in the Assignment, and (3) to resolve any doubts against the party that drafted the Assignment.
The Court rejected the application of the second rule because the dispute involves language in a conveyance and not language in a reservation. The Court also rejected the application of the third rule because the rule is only applicable when the instrument is ambiguous, and the Court held that the Assignment was not ambiguous. Accordingly, the Court focused on the only applicable rule of construction, the greatest possible estate rule, and found that the intent of the parties was apparent by examining the entirety of the Assignment.
Examining the language in the Assignment, the Court held that Neuhoff assigned all of its right, title and interest in the Lease. Using a “holistic and harmonizing approach,” the Court focused on four provisions to determine the parties’ intent. First, Paragraph 1, following the granting clause, describes the interests being assigned as “All oil and gas leases, mineral fee properties or other interests, INSOFAR AND ONLY INSOFAR as set out in Exhibit A . . . which [interest] shall include any working interest, leasehold rights, overriding royalty interests and reversionary rights held by [Neuhoff], as of the Effective Date.” The Court held that this paragraph did not just incorporate Exhibit A, it explains that Exhibit A includes any overriding royalty interests that Neuhoff owned, to the extent identified in the Exhibit. Next, the Court cited Paragraph 2, wherein Neuhoff included in the Assignment “[a]ll presently existing contracts to the extent they are assignable and to the extent they affect the Leases. . . .” The Court cited this provision as evidence that the parties intended the Assignment to include all rights in “the Leases” as opposed to a well or the land. Finally, Paragraph 1 of Section II provides that “overriding royalty interest(s) herein assigned, if any, are payable . . . pursuant to the terms and provisions of the oil and gas leases described in Exhibit A,” and paragraph 3 of the same section includes a proportionate reduction paragraph that also references oil and gas leases. The four provisions all directly point to the oil and gas leases described in Exhibit A, not a wellbore interest in Exhibit A, and confirm that the Assignment conveyed to Piranha all of Neuhoff’s overriding royalty interest in the Puryear Lease.
Two Supreme Court judges dissented. They would have held that the Assignment was ambiguous and remanded the case to the trial court to submit the interpretation of the Assignment to a jury.
The significance of the case is that it provides an example of how the Court approaches construing deeds and similar documents in connection with interests identified on an attached exhibit. The case highlights the importance of identifying interests unambiguously and in detail on an attached exhibit and also throughout the entirety of the document.
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