Face Challenges Confidently

072 French v. Chevron U.S.A., Inc.

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

French v. Chevron U.S.A., Inc., 896 S.W.2d 795 (Tex. 1995) considers whether an instrument conveys a 1/656 mineral interest or a 1/656 royalty. If a mineral interest, the owner would share in 1/656 of the royalty (e.g. 1/656 of 1/8), but if a royalty, the owner would share in 1/656 of production. Paragraph one on the deed in question clearly conveyed a mineral interest (1/656 in and to all of the oil, gas and other minerals, in, under that may be produced from the following described lands…”). Paragraph two of the deed recited that the “conveyance is a royalty interest only” and reserved to the grantor delay rentals, bonus and the executive (leasing) right. The issue was to resolve the apparent conflict of a conveyance of a mineral interest in paragraph one with a statement in paragraph two that states only a royalty interest is being conveyed.

Held: the interest conveyed was a 1/656 mineral interest entitled to 1/656 of royalty. A mineral estate consists of five interests: 1) the right to develop, 2) the right to lease, 3) the right to receive bonus payments, 4) the right to receive delay rentals, and 5) the right to receive royalty payments. A conveyance of mineral estate need not dispose of all interest; individual interests can be held back, or reserved in the grantor. However, under a simple assignment of the minerals it is presumed that all attributes remain with the mineral interest unless a contrary intent is expressed. The Court noted that the right to develop is a correlative right that passes with the executive right and that this deed reserved not only these rights, but also the right to bonus and delay rentals. Thus, it appears to be a “bare” royalty. An assignment of a royalty, without any further grant, does not convey the executive right, delay rentals or bonus. In this instance, the Court held that a mineral interest striped of all rights except the right to share in royalty was still a mineral interest.

The significance of this case is that there are thousands of deeds which have carved up the attributes of the mineral estate in difference ways as between grantor and grantee. There can be an enormous economic difference between 1/656 of royalty and a 1/656 royalty. This case, and the relatively recent case of Day & Co. v. Texland Petroleum, 786 S.W. 2d 667 (Tex. 1990), are the Supreme Court’s effort to give the industry some guidelines on how those thousands of deeds should be read and how new ones should be drafted.